Trade & Customs Considerations for Internal Audits Trade Customs.pdfTrade Topics in the News. March...
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Trade & Customs Considerations for Internal Audits Atlanta IIA Chapter Meeting May 12, 2017
Transcript of Trade & Customs Considerations for Internal Audits Trade Customs.pdfTrade Topics in the News. March...
Trade & CustomsConsiderations for Internal AuditsAtlanta IIA Chapter Meeting
May 12, 2017
2© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
DisclaimerThe following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of the Treasury Department Circular 230.
You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or structure, or both of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in these materials.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
3© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Presenters:
George ZaharatosPrincipal, Trade and Customs
[email protected]: 404 222 3292Cell: 718-344-7240
Frank KalinerManager, Trade and Customs
[email protected]: 404-221-2378Cell:404-312-9678
4© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Trade Topics in the News
March 1, 2017: The European parliament has approved a free trade agreement between the European Union and Canada. (KPMG Insights)
Positions on trade could impact supply chain and logistics
U.S. Customs and Border Patrol is working on enhanced collection and enforcement of Antidumping and Countervailing Duties
US Trade tensions with China, Canada, Mexico
Trans-Pacific Partnership (TPP) BREXIT
U.S. Cuba SanctionsUkraine / Russia Related Sanctions
Aluminum Imports / Softwood Lumber /
Dairy Dispute
BEPS
Presidential executive orders focus on trade agreement violations
Border Adjustment Tax
5© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Results of Recent SurveyKey Insights:
1. Complexities of trade issues are challenges to global operationsa) Underutilized free trade agreements due to manual processes equates to missed
duty savings opportunitiesb) 91% of respondents have challenges with classification of products
2. Only 34% of respondents use a global trade management (GTM) systema) GTM automation enables more value add activitiesb) Sited barriers to automation from lack of support or budget constraints
3. Manual processes “significant time drain” and increase risks of noncompliance penalties
6© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Evolution of Trade and Customs Services
Our Clients’
Objectives
Target Operating ModelGlobal Governance Design
Automation Needs AssessmentTrade Solution Selection
Phase Zero Deployment ReadinessBusiness Case Development
Trade Roadmap DefinitionBest Practice Analysis
Supply Chain Optimization
Risk AssessmentSite Survey and Process AnalysisAudit Preparation and DefenseRegulatory Advisory SupportProcess DevelopmentPrior Disclosure SupportPenalty and risk mitigationCustoms Transfer Pricing
GTM Deployment SupportSystems ImplementationTrade Analytics DeploymentProcess and Technology HealthcheckCognitive Intelligence Solution Design and DeploymentUpgrades, Helpdesk & Technical Liaison
First Sale for ExportDuty Deferral Programs
Valuation UnbundlingTraining Programs
Classification Re-engineeringFree Trade Agreements
TOM and COE DeploymentProtest and Duty Refund Programs
Stra
tegy
Ris
k
Impr
ovem
ent
Auto
mat
ion
End-to-End Trade Consulting from Strategy through Intelligent Automation
7© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Service Lines – cont’d
C-TPAT / SUPPLY CHAIN SECURITY
CUSTOMS RELATED PARTY PRICING
DISCLOSURE AND DISPUTE RESOLUTION
DUTY DRAWBACK EXPORT CONTROLS FIRST SALE FOR EXPORT
FOREIGN TRADE ZONES
OTHER GOVERNMENT AGENCIES (OGAs)
TRADE DATA AND ANALYTICS AND GLOBAL TRADE VISIBILITY
FREE TRADE AGREEMENT ASSISTANCE
GENERAL TRADE COMPLIANCE
GLOBAL SUPPORTGLOBAL TRADE MANAGEMENT SOLUTIONS
IMPORT AND EXPORT CLASSIFICATION
ISA APPLICATION AND TESTING / MONITORING
MERGERS AND ACQUISITIONS (M&A)
TRADE CONTROL PROCESSES VALUE CHAIN MANAGEMENT
Areas of Trade & Customs Services
Focus on strategy, compliance and duty savings opportunities
8© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8
LegalCFO
Supply Chain Accounting
TaxProcurement
E&C I.T.
SalesMfg.
• Annual unit testing• System interfacing• SAAS vs. behind the firewall
• Risk assessments• COSO
• Risk rating• Compliance action plans
• Attorney client privilege• Penalty mitigation• Strict liability vs. reasonable care• Discoverable
• Period adjustments• Arm’s length • 1059A• VAT: recovery, zero rated, exemptions• inventory tax
• Savings accrual• Annual reconciliation• Debits and credits• Capital amortization• Purchase price variance
• Customer due diligence• Export controls• Revenue sharing
• Bill of materials• Standard labor costs and overhead
• Facility security
• Landed cost• Social responsibility and supplier security
• Product regulatory requirements• Sales agents
• Just in time • Warehouse optimization
• Inventory cycle counts• Container loading efficiency
• Above the line savings • ROI
Trade issues affect many organizational functions
Intersection with Trade is More Common
9© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Three Customs Trends that Could Impact your Business
Informed Compliance
Letters
Anti-Dumping Cases
Penalties
Integrating Trade with Planning
Global Events and Reactions
Trade Agreements
Executive Action
Risk Mitigation
Savings Opportunities
10© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
U.S. Customs uses a Risk Based Approach
Trusted Trader Programs• C-TPAT: Customs- Trade Partnership
Against Terrorism• ISA: Importer Self-Assessment
‒ ISA – Product Safety• Centers of Excellence & Expertise• CBP & CBSA – common self assessment
program
Targeted Audits Using Trade Data• Focused Assessments• Quick Response Audits
Informed Compliance Letters
11© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
How to Mitigate Risk?Exports1. Meaningful Risk Analysis2. Formal Written Compliance
Program3. Oversight by Senior Officials4. Employee Training5. Customer/Transaction
Screening6. Recordkeeping Requirements7. System for Reporting
Violations8. Periodic Reviews and Audits9. Remedial Actions
Imports1. Use Reasonable Care2. Written Compliance Program3. Oversight by Senior Officials4. Periodic Reviews and Audits5. Recordkeeping Requirements6. Remedial Actions
12© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Import Penalty Regime
Even if duty free, penalties may be assessed!
40% of dutiable value of merchandise
Un-liquidated Entry - Zero
Liquidated Entry - Interest on Loss of RevenueLesser of domestic
value or 4 X Loss of Revenue
20% of dutiable value of merchandise
Lesser of domestic value or 2 X Loss of
Revenue
Un-liquidated Entry - Zero
Liquidated Entry - Interest on Loss of Revenue
Lesser of $10,000 or 40% of appraised value
of merchandise, per entry
No Loss Of Revenue
Loss Of Revenue
No Loss Of Revenue
Loss Of Revenue
Negligentfailure to
keep records
GrosslyNegligentViolations
NegligentViolations
Record-keeping
Violations
Maximum Penalty 19 U.S.C. § 1592
Maximum Penalty with Prior Disclosure
19 U.S.C. § 1592 (c)(4)
13© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Export Penalty RegimePenalties for Noncompliance under the Export Administration Regulations• Civil Penalties
• Greater of $250,000 or two times the value of the transaction• Corporation / Individual
• Criminal Penalties • General violations:
• Greater of $50,000 or five times value of the transaction (Corporate)• Greater of $50,000 or five times value of the transactions and/or five years
imprisonment (Individual)• Willful violations:
• Greater of $1 Million or five times value of the transaction (Corporate)• Greater of $250,000 or five times value of the transaction and/or ten years
imprisonment (Individual)
14© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Mitigating Customs and Export RiskInternal Audit functions at companies typically do not review Customs area of review until CBP notifies them of an audit
The compliance transformation framework provides a blueprint on compliance improvement for companies that seek to maintain compliance
KPMG’s Trade & Customs team applies audit principles to help mitigate risk of Customs penalties before an audit occurs‒ The COSO framework to assess
internal controls
15© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Standard Phases Compliance Review
Confirm Scope & Identify Resources• Define Objectives• Select Team• Conduct Kick-off
Meeting• Discuss
objectives• Discuss timeline• Distribute internal
control questionnaires
• Request documents
• Receive Internal Control Questionnaires
• Analyze trade data (import / export)
• Collect and review existing process maps, process narratives, SOP, or manuals
Or• Analyze trade
data• Draft process
maps (import / export process)
• Identify possible weaknesses in procedures or controls based application of quantitative and qualitative factors to the process and ICQ responses.
• Determine if risk level is acceptable
• Document the preliminary assessment of risk
• Prepare a test plan
• Gather documents for each sample
• Test each sample
• Provide status updates throughout project
• Document the testing plan, the elements tested and the results
Project Setup Analyze Process
Conduct Risk Assessment
Gather and Test Information
Evaluate Results and Document Findings
• Summarize the results of the testing
• Identify corrective actions
• Submit project leaders for review
• Draft the report • Present the
findings• Complete “after
action report”• Follow up
Take Corrective Actions
• Document a Corrective Improvement Plan (CIP)
• Improve / Develop Process
• Submit Post Summary Correction
• File a Protest• Prepare and
Perfect a Prior Disclosure
16© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Typical Areas of Review
Customs Areas of Review
Value (including transfer pricing) Always
Classifications Always
Restricted Party Screening (Exports) Always
Special Trade Programs (Free Trade Agreements, FTZ, Duty Drawback, U.S. Goods Returned) When Identified as risk area
Special Duty Provisions (Quota) When Identified as risk area
Anti-Dumping / Countervailing When Identified as risk area
Transshipment When Identified as risk area
Recordkeeping When Identified as risk area
Quantity When Identified as risk area
Harbor Maintenance Fees and User Fees When Identified as risk area
Other Government Agencies (OGA) When Identified as risk area
Export Control Licenses and classification When Identified as risk area
17© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Duty Savings & Mitigating Risks Through ReviewsRepresentative Examples•Assisted an automotive client through a U.S. Customs FA audit to mitigate potential $500 million duty liability and penalties and establish a compliance improvement plan.
•Assisted a major importer to avoid a customs audit by applying for the Importer Self Assessment (ISA) Program
•Assisted an importer save $20 Million per year through the first sale for export program
•Assisted an importer to review U.S., Canadian and Mexican Customs pricing support for several business units
•Assisted a client to establish a FTZ as an export platform to Latin America with approximately $1 million in savings annually
•Assisted to implement a Global Trade Management system for an industrial machinery company to manage classification and FTAs globally
Questions?
George ZaharatosPrincipal, Trade and Customs
[email protected]: 404 222 3292Cell: 718-344-7240
Frank KalinerManager, Trade and Customs
[email protected]: 404-221-2378Cell:404-312-9678
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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