As a Customs broker I am frequently told by new or prospective clients that they prefer to buy DDP (Delivered Duty Paid – why are you reading this definition?). It’s a long standing thing and continues to amaze me, especially for major projects. Aside from what appears to be the obvious:
1. The importer cares / should care more about controlling ancillary costs such as ocean freight, insurance and port charges than the supplier; and
2. There is double imposition of GST as its both a taxable supply and a taxable importation; and
3. There is also the increasing concentration of ABF on the big stick (read that as penalties) approach to errors, and the recipient is not in control of the data input. My opinion as an aside is that compliance is compliance no matter how it’s achieved. The Department is however both short staffed and lacking in ongoing skills development and technical training. It’s therefore easier to chase errors after the event rather than try to counsel the importing community into correct practices.
Section 68 of the Customs Act 1901 (CA) requires that the owner of goods enter them for home consumption or warehousing or transhipment. We will concentrate in this article on entries for home consumption. The GST Act imposes the liability on the importer (note difference in terminology) to pay tax on a taxable importation. Subsequent input tax credits are only available to that importer. Refer sections 13-5 and 33-15 of that Act.
In their past incarnations Australian Border Force (ABF) practice and procedure was to treat the supplier of dutiable goods in a DDP transaction as both the owner in terms of s.4 CA and importer for GST purposes in the import declaration. This is in accordance with the parties responsibilities under Incoterms. This also had benefits to the Australian recipient of the goods in terms of the imposition of penalties if errors were made and/or duty shortpaid. The benefits sometimes flowed across to s.165 demands for duty shortpaid or incorrectly refunded.
Changing goalposts
As we have seen with decisions such as Studio Fashion (Australia) Pty Ltd and Chief Executive Officer of Customs [2015] AATA 366 (28 May 2015) Customs current viewpoint is that given the broad definition of owner in s.4 CA, ABF is not limited to issuing a demand for payment on the owner shown on the import declaration. They now claim a discretion to demand shortpaid duty from any of the persons encompassed by the s.4 definition of that term. This is not in accordance with earlier statements ABF has made and appears to be based purely on penalising the easiest party to get at. It being easier to penalise a company in Australia, be it importer or broker, than chase the overseas company that caused the error to be made.
Brokers and their clients should therefore ensure that they are fully cognisant of the risks that they take by entering into DDP /FIS contracts. In my experience the major concerns may be turnkey contracts of any size. In those circumstances Company X contracts Supplier Y to build them a facility at one total agreed cost. The goods arrive over several consignments. At the end the complete operating facility is handed over to Company X. Payments for the facility are often made in instalments, with instalment amounts not necessarily linked to the value of the current consignment.
The valuation provisions in Part VIII of the Customs Act 1901 require that each consignment be correctly entered for Customs, including the valuation of the goods in each consignment. Stop and consider this for a moment. Your client is building a huge manufacturing facility for which some boffin somewhere overseas has calculated a single price. Bits and pieces are being imported from numerous countries all over the construction period. The agreed total costs at DDP/FIS will include, inter alia, the cost of the equipment, construction materials, tools, construction labour, site preparation, earthmoving, staff training, commissioning spares, and provision of services, overseas transport and local cartage as well as projected customs duty and GST.
How many split consignments for major projects do not have the value of each consignment correctly calculated in terms of Division 2 of Part VIII (sections 154 to 161L) of the Customs Act 1901? And how many project proponents, past present and future, are therefore at risk?