DIBP NOTICE 2016/24: PROCESSING REFUND APPLICATIONS

This is an article I had published in Lloyds List in August 2016.

This matter has been in discussion since at least February 2015 but is still unresolved. The submission I wrote for CBFCA at that time was acknowledged by the regulator as correct. We keep, however, reading Notices which both fail to properly identify what can be the scope of any refund query and, importantly, to clearly separate a refund query from powers available only to authorised officers under a monitoring audit.

Let’s just review this Notice.

 “The Department must satisfy itself that a refund application meets all of the relevant requirements before a refund is approved. This may include requesting additional information from the owner as part of an assessment of the refund application.”

Good practice would indicate that this paragraph should be phased in accordance with the legislation. I believe the requirement under the Finance Regulations is that the officer is satisfied that the refund is properly payable, not that the “relevant requirements” are met. What are “the relevant requirements” other than those specified by the legislation? This phrase is too general and too open to interpretation.

Importantly, and the core issue, is that the Notice continues: “At the same time, the Department may also request information about lines on an import declaration that are not part of that refund application.”

It is not in question that claims for refund must be justified. If lines have been adjusted as part of the refund then questions can be asked about the goods for which a refund claim has been made but not, it is suggested, about the original classification of the goods on those lines or the original classification of goods for which the original classification was not amended. Questions cannot be asked about goods not subject to refund if they are not impacted by that refund without the exercise of monitoring powers.

“In circumstances where the person who lodges the refund application does not possess documents relating to the original import declaration, the person lodging the refund application should facilitate communication with the owner regarding any request for this information”

Brokers work to strict time constraints and our time is precious, as is that of our clients. Certainly time is too precious to chase information from clients that is not required to process the refund.

 If DIBP wish to obtain information unrelated to the goods for which the refund is sought then the proper process is the exercise of monitoring powers and contact with the lodging customs broker or the importer in accordance with the legislation.

In a refund application that goes redline the documents and IDM are emailed to Refunds section by the broker and are effectively a desk audit. A monitoring audit takes place in the importers premise and only after the written consent of the occupier is received. This is a much more formal and controlled process than is currently available to a refund officer. It is also a process that takes place after the ATD is issued, or, in the case of a Refund, after that refund is approved.   Each of the officers must show their identity cards as authorised monitoring officers and be trained as such. Rumour has it that only about 42 ABF officers are so trained.

Before undertaking any monitoring audit DIBP must make written contact with the company to be audited and an entrance interview between the DIBP audit team and key management personnel must be held to discuss the purpose, scope and timing of the audit. In essence they must:

• Must identify themselves as authorised monitoring officers (S214AC/ S214AE (6))

• May provide a notice under S214AD.                                                                    

• Must obtain consent in writing (S214AE (2))                                                         

• And advise it can be refused. (S214AE (3))                                                                        

• Must produce a statement of Rights and Obligations (section 214ACA)       

  This process is far removed from a refund query.

The Notice then says that “If information or documents unrelated to the refund application are requested, and not provided, consideration may be given to:

• issuing a notice to produce commercial documents under section 240AA of the Customs Act 1901 (the Act); and/or

• issuing a notice to verify records under section 240AC of the Ad; and/or

• exercising monitoring powers under sections 214AA-214B of the Act.”

The problem is not in providing the documents for the import declaration and illustrative descriptive material (IDM) for the refund, indeed they should have been provided to the DIBP at the time the refund went redline. This has never been in dispute. The problem is in seeking and providing IDM and evidence of money price paid for lines not subject to adjustment, which are not required under either s.240AA or s.240AC. Those materials are not defined in s.4 as “commercial documents”. That obligation to provide is not therefore imposed on a licensed customs broker doing amendments on a FID created by another party by s.240AA, it is the responsibility of the service provider of the original FID.

The legislation exists for a reason. I maintain that DIBP should comply with the legislation and its requirements just as industry must. I query the reason this matter has dragged on so long, when we have industry bodies meant to represent us. There are already delays in obtaining access to entries to process refunds and then in having queries resolved. Perhaps if refund officers concentrated on refunds and allowed audit teams to do more indepth reviews we would see better processing times.

New Processes for Voluntary Disclosure

The website of the Dept Immigration & Border Protection (DIBP) released guidelines last week as to DIBP’s requirements for the voluntary disclosure of errors in import declarations. This is provided for under s.243T & s.243U of the Customs Act. (I’m surprised anyone found it given the lack of notice of its release.) No indication was provided as to any industry consultation prior to the release and, given no commentaries have been published other than by members of industry, it appears that none occurred. 

Hint: it’s never too late for DIBP to genuinely consult industry and those bodies that represent it NOR is it too late for the industry body to seek discussion and a review of this unrealistic new process.  

Let’s first review what these sections of the Act – rather than this new process – require. These sections both contain qualifiers in respect of what is “voluntary” and they should be carefully read. Just as importantly it should be noted that once a notice that monitoring powers are to be exercised is given under s. 214AD, a voluntary notification of an error/false and misleading statement after the notice is given is not a defence to a prosecution for an offence against section 243T or 243U.

In simple terms the Act requires that a written notice (called an “error notice”) be provided to an officer that an identified error has occurred and then, that any shortpaid duty is paid in full before proceedings such as an infringement notice are initiated.  That’s it.

In operational terms, the process has been that the “error notice” is provided to DIBP once the parties / their consultants become aware that an error has occurred. It would be expected that along with the notification of the error, the notice would also advise that documents and further information was being obtained and posts would subsequently be lodged. If a ruling as to tariff classification or valuation or origin was required that ruling request would be lodged at or about the same time. The principle in this process is to advise the regulator as soon as possible and as required by the Act and thereby protect the client from penalty while the matter is properly reviewed and adjustments prepared. In general part of this process is at least one conversation with an officer to discuss matters such as timing, requirements, etc.

This new process requires that ALL of the work required in completing the adjustments, including documentation, adjustment calculations in spreadsheet format, copies of TA / VA (and how long are THOSE decisions taking?) be lodged with the error notice. It is quite conceivable that this process could delay written notification of the error by weeks or even months, given the time required to put these matters together plus the taken to obtain any ruling. Why is this new process necessary? In this interim period prior to lodgement of the error notice the client and perhaps broker too remain exposed to penalty action. What is the reason behind this delay in acceptance of a right that a party at error has at law , given the legislation allows protection from penalty once the written error notice is submitted to the Department.

On a practical basis too if the error requires post action and that post is lodged and paid, that is also deemed to be written notification to the DIBP. Why then would you bother going through this process if you’ve already done all the work? But aside from that, why initiate this process? If it’s not broken why fix it with something that is both not practical and a significant extension on the interpretation of the meaning of an error notice.

And why require details of any previous voluntary disclosures within the last 5 years? Surely such disclosures are evidence of an intent to comply? What do they have to do with this matter? Given that in the past DIBP have initiated action against brokers relying in part on past paid infringement notices [BR WilliamsCustoms and Freight Forwarding Pty Ltd and Chief Executive Officer of Customs [2013] AATA 100 (27 February 2013)] how can we be sure that a similar view would not be held in these matters and somehow influence outcomes?

Related Parties and Transfer Pricing

An article for Lloyds List in July 2016

Probably one of the most common reasons that Transaction Value is rejected in an import transaction is where the importer and exporter are related to each other and this relationship has an impact on the price. This is because Customs Valuation is based upon the premise of a price in an unrelated or “arms length” transaction.

Commonly this occurs in situations such as when an overseas manufacturer has a wholly-owned subsidiary in Australia (or vice versa). As the seller controls the buyer the price may be affected by the relationship, because the owner of the parent company is indirectly also the owner of the Australian subsidiary company.

The problem becomes how to establish if this transfer price is acceptable for the determination of the Customs Value (CVAL) and requires reference to two matters:

1. A review to examine all of the circumstances surrounding the sale; and

2. A review to determine whether the Adjusted Price required to be determined by CA S161 (2) and any price related costs not already taken into account will closely approximate to the CVAL in other sales of identical or similar goods.

CA s.154 (3) provides that persons/businesses are deemed to be related for the purposes of the determination of the valuation provisions of the Customs Act if in summary:

1. they are members of the same family or partnership; or

2. one of them is an officer or director of a business controlled, directly or indirectly, by the other; or

3. both of them control or are controlled, directly or indirectly, by a third person/business; or

4. that person/business controls 5% or more of the voting shares of each of them.

Having first determined whether the parties are related in terms of the Act one must then determine if that relationship impacts the price so that use the Transaction Value must be rejected. It’s important to note that having made this assessment and determined that the relationship does not influence the price, then the price payable can be accepted for the purposes of determining the TV despite the relationship between the parties.

If DIBP claim they are unable to accept the TV in an import transaction, the importer is generally then given 28 days to provide detailed information about the circumstances of the sale sufficient to demonstrate that the relationship did not influence the price. The information provided should include:

1. Details as to the way in which the buyer and seller organise their commercial relationship and the way in which the price in question was arrived at so as to provide sufficient information to determine if the price was influenced by the relationship.

2. This could include information on prices and as to how the parties conduct business in unrelated party transactions as well as the business practices prevalent in their industry.

3. How the price is determined. It should reflect a recovery of all costs plus a profit, perhaps commensurate with that profit percentage normal in that industry.

 Remember though that if the importer does not pay for the goods then clearly there is no sale and TV cannot be used.

If DIBP still do not accept that the relationship did not influence the price then you must have recourse to assessing the “Test Values” under CA s.161H (3).  Adjustments might however be required for commercial matters such as level of sale, quantity ordered, costs, etc.    Expert advice may be required as may reference to any ATO rulings on this issue held by the parties.  

The TV will be accepted by DIBP if it “closely approximates” any one of the values nominated, which represents a value already accepted by DIBP for identical or similar goods occurring at or about the same time and after due allowance for matters such as the nature of the goods and the industry and even seasonal differences.

Transfer pricing may have a significant impact on CVAL and can be expected to be further investigated. Any transfer pricing has a direct impact on the determination of CVAL as the lower the transfer price, the lower the CVAL and the duty and GST payable. Therefore, if your client has Transfer Pricing arrangements in place, ensure their transactions with related parties are conducted at an arm’s length basis taking into account the relevant business strategies and practices of that industry and the parties involved. Importantly, seek a Valuation Ruling to confirm.

Penalties issued under the INS

Following is an article I wrote that appeared in Lloyds List in July 2016

DIBP relies on self-assessment. In order to encourage compliance the Infringement Notice Scheme (INS) was introduced, which imposed financial penalties for errors, whether or not duty was shortpaid.

A penalty issued under the INS is a strict liability offence, which means that fault does not have to be proven. This means that, regardless of whether the person making the error acted intentionally or negligently or otherwise, the fact that it occurred is sufficient to establish the offence and incur the penalty. DIBP also retained the right to prosecute in a Court rather than issue an administrative penalty.

The Customs Act specifies that the maximum penalty under the scheme must not exceed either:

• 25% of the maximum penalty a court could impose on a person for that offence, or

• either 15 penalty units for an individual or 75 penalty units for a body corporate.

Each penalty unit is currently worth $180. The number of units for the particular offence is multiplied by that dollar amount. For example, if an offence is punishable on conviction in a court by a fine of 60 penalty units, this would equate to $10,800. An infringement notice issued to an individual for this offence would therefore be 15 penalty units or $2,700.

Schedule 8 of the Customs Regulations 2015 prescribes all the offences to which the INS applies. The number of penalty units for an offence under that section is shown in that section.

The Corporate Multiplier

The Crimes Act 1914 at s.4B(3) allows a court to impose a fine on a company that is up to five times the maximum that could be imposed on an individual convicted of the same offence. This is called the “corporate multiplier” and carries across to infringement notice penalties vide Customs Act s.243X (2) (a).

DIBP can however impose a lesser penalty provided it does not exceed this maximum penalty and generally the amount payable by a company would be three times the amount payable by an individual. If there is further noncompliance, then DIBP may increase later penalties to four or five times the amount payable by an individual.

Subsection 243X (3) provides an exception to maximum penalties in paragraph 243X (2) (b). In some cases under the Customs Act, the maximum penalty a court can impose for a strict liability offence is determined by reference to the amount of duty or value of the goods. Section 243T of the Customs Act is an example. The amount payable under an infringement notice is limited to 25% of the maximum penalty a court could impose.

Infringement Notices

The decision to serve an infringement notice is made by the CEO or his delegate after having regard to CR 136 and the Guidelines, which unfortunately are quite vague in comparison to earlier versions of this document. Unfortunately too the current Guidelines are not specific as to the training and level of officer who may decide to issue an infringement notice.

Timing

Note that the time for serving an infringement notice is within one year of the offence being detected OR four years of the offence being committed, whichever ends first. CR 136(2) refers. Therefore always check that a penalty is valid. Customs Regulation 137 lists the matters that MUST be included in an infringement notice, other than those issued under s.243T, to which CR139 refers. There is no specified format so care should be taken to properly review correspondence received to ensure it is not an IN.

These conditions do not in any way limit the application of section 15B of the Crimes Act 1914. This means for example that where section 15B imposes a 12-month limitation on commencing prosecution for an offence, then an IN should not be issued for that offence more than 12 months after it occurred

Applications for Remission

While the Guidelines specify that “Payment of an infringement notice is not an admission of guilt or does not count in any way as a criminal record” and does not allow prosecution, DIBP will maintain the file on record (indefinitely) and may use the imposition of an IN, whether or not it was contested, in later deliberations about that party. DIBP can (and has in the past) used paid infringement notices against brokers for other purposes. For example, DIBP used paid infringement notices issued under s.33 in an attempt to revoke a broker’s licence.

For this reason it is suggested that all infringement notices should be contested and applications for remission lodged.

Customs brokers are not criminals

Following is an article I had published in Lloyds List in July 2016 to much interest and industry support:

I take pride in being a licensed customs broker. I was dismayed first at the unsubstantiated comments by the then Minister Justin Claire and later Scott Morrison as to the alleged criminality of those in my chosen profession. Note that I am the only one to add “alleged” and that both men were probably reciting information provided by their Department (which viewpoint probably needs another article).

I am increasingly outraged too by the repetition of such comments and articles in newspapers and on television that fail to substantiate these claims or provide either examples or justification for these allegations. Certainly, there have been a number of customs officers arrested or who are under investigation for misconduct, as well as a few people in the freight forwarding field, but licensed brokers are a relative rarity given the percentage charged as against the number licensed. There is either confusion in police, government and journalistic circles as to the roles and parties involved in international trade or it just makes a good story.

An article on Leigh Sales 7.30 Report on Channel 2 on 29 June made similar allegations.

“NICK MCKENZIE: The movement of huge amounts of freight through the nation's ports is facilitated by licensed customs brokers, who smooth the way for importers to meet Customs requirements.

Several years ago, an alleged member of the Jomaa syndicate was given a Federal Government Customs broking licence and access to sensitive and secure areas of the waterfront. This was despite the fact that this man, who we'll call 'The Insider', was suspected by police to be a smuggling syndicate member."

An ACN showing “The Insider’s” name then appeared on screen. That person was indeed licensed by Customs in 2011 despite, according to this article, having outlaw motorcycle gang connections. In 2012 an incident occurred and ultimately he lost his license in 2015.Can I suggest that this person should probably never have got a licence? What happened to the “fit and proper “person test, or the “person of integrity “test as it would have been at the time? Why did it then take 3 years to revoke his license? Is this a reflection on the other 1800 odd licensed brokers in Australia or really just a lack of due process by the regulator and NCBLAC?

In an article on what appears to be the same matter in The Age of 28 June 2016 there was (again) unsubstantiated reference to “Commonwealth-licensed customs brokers are suspected to have joined international crime syndicates involved in smuggling illicit goods into the country”.  Roman Quaedvlieg, Commissioner of the ABF, promptly responded on behalf of his officers.

As most of you would be aware, the DIBP has been conducting a review of licensing provisions for some time. A report was due out for comment Monday 11 July 2016.  It did not appear and later in the day a notice appeared on the DIBP website that “We are considering the scope of the current customs licensing review given recent media coverage of associated issues. This means the draft recommendations will not be released as scheduled.”

Of concern to individual licensed brokers, as against corporate brokerages, is the rumoured consideration by DIBP to licensing only brokerages as against the current requirements that both individual and corporates be licensed. Maintaining the licensing of individual brokers is in accordance with a September 2015 paper by WTO.

http://www.wcoomd.org/~/media/WCO/Public/Global/PDF/Topics/Facilitation/Ressources/Permanent%20Technical%20Committee/209-210/Items/PC0429_AnnexI_E.ashx?db=web

 AS a Director of CBFCA until May 2016 my opinion is that there has been little real consultative or constructive discussion by DIBP with the industry association, which understands the operation and requirements of imports and exports and represents both individual and corporate customs brokers.

Licensing brings particular issues not only for those licensed but also for those undertaking the licensing process. This should have been a key discussion between CBFCA and DIBP to leverage new opportunities and to meet emerging challenges. Brokers are the first line of interface between DIBP and importers. Beyond the preparation declarations and the payment of duties and taxes, they can play an active role in facilitating communication between Customs/government authorities and importers/exporters. Importantly they can assist in identifying suspect shipments given an individual broker must see documents for each declaration, as against the possibly 4% reviewed by the regulator.

Don Chipp, a former Minister of Customs, and the founder of the Democrat Party, said he’d done so “to keep the bastards honest”. An individual licensed broker can be regarded in the same light. They should be considered as vital to the integrity of the supply chain. They have no shareholders and/or overseas owners to which they are directly accountable. They have world class training and a pride in their profession. It may be easier for the regulator to oversight the activities of only a relative few licensed brokerages, but it takes away from the oversight provided by the responsible individual and may reduce compliance.

Why do importers still buy DDP?

Following is an article I wrote for Lloyds List in July 2016

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 DIBP (Customs) 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 DIBP 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 recent 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, DIBP 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 DIBP 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 should therefore ensure that their clients 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.

Customs Act valuation provisions 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?

Export controls for dual dual goods and by sanctions

Australia’s export controls are contained in legislation that includes the Customs Act 1901, the Defence Trade Controls Act 2012 (DTCA), Weapons of Mass Destruction (Prevention of Proliferation) Act 1995 and Military End-Use provisions (section 112BA) and by sanctions. The Department of Foreign Affairs and Trade (DFAT) administers the implementation of sanctions, which restrict or prohibit the export of specified goods to particular countries or individuals or entities.

This article was written in June 2016 and includes a brief update on the 2016 changes to DTCA and an outline of the sanctions regime.

Controls on the supply of Defence and Dual Use Goods

The purpose of the Defence Trade Controls Act 2012 is to control the transfer of defence and strategic goods, software and technology in accordance with Australia’s international obligations. The Act includes provisions regulating:

• brokering the supply of goods on the Defence and Strategic Goods (DSGL) List and related technology; and now

• the intangible supply of technology relating to DSGL goods, such as supply by electronic means

Controls on the latter have been in place since 2 April 2016 following a twelve month implementation period. Goods that are in intangible form which would require a permit to export if they were in tangible form (i.e. if they were actual goods) now also require an export permit.

 Some examples of intangible means are email, fax, telephone and providing access to training or electronic presentations that contain DSGL technology. The provisions apply across all sectors of industry, including training and research.

It’s important to remember too that the inclusion of controlled information in the repair and return of goods, or provision of a technical paper, specification, blueprint or even an email containing such information, sent overseas even if to a fellow employee or a client, is prohibited unless an export permit is first obtained. Importantly, it does not matter to what country the information is exported, including our allies.

The outcome is that a permit is also required to take controlled technology stored on a physical medium, such as on your laptop or a USB drive, outside of Australia. This includes scenarios where the information is sent by post or is carried by hand or in checked baggage.

A copy of the DSGL is available at https://www.legislation.gov.au/Details/F2015C00310.

The list is divided into two parts:

• Part 1 is the Munitions (military goods) List.

• Part 2 lists goods that are “dual use”, that is, the goods that may have been developed for commercial purposes but could also be used for military or WMD applications.

To establish whether a particular item is controlled, you need to first check the DGSL to determine if the goods themselves are listed, and then whether related materials, equipment, software or technology are also listed. There are some other exceptions, for example DSGL technology already in the public domain or what would be considered as basic research.

If the goods are listed on the DSGL, you must then check the technical specifications of your goods against the control thresholds in the DSGL. Commonly, this associated technology may also be controlled if it is 'required' for the 'development', 'production' or 'use' of the controlled good. For example, the DSGL lists computers that are designed to operate below ‐45 °C or above 85 °C. The DTCA only applies to the technology necessary for the computer to operate at these temperatures. Technology that does not influence this ability is not controlled.

US Export Goods

It must also be noted that if the export contains any tangible (e.g. parts) or intangible goods (e.g. software) that are of USA origin and required an export permit from USA, then an export from Australia may require export permits from both Australia and USA, Export permits for Australian goods are obtained through the Defence Export Control Office (DECO), but they cannot provide export permits for controlled US origin components or software.

If you get it wrong? Significant penalties (10 years prison and/or $450,000) can apply, and if the goods include components etc of US origin then significant penalties may also be incurred from US.

Sanctions

The Department of Foreign Affairs and Trade (DFAT) administers the implementation of sanctions which restrict or prohibit the export of specified goods and/or services to particular countries AND/OR designated individuals and entities. Sanctions are distinct from DSGL. Permits must be obtained from DFAT prior to export.

The DFAT Sanction’s webpage is at https://sanctions.dfat.gov.au/

It should be noted that these controls apply to export by both individuals and corporations and whether or not the goods or services are supplied from outside Australia.

If goods to be exported to a country subject to sanctions appear also in the DSGL, a separate permission is also required from Defence.

DIBP Position on Refunds

Following is an article I had published in Lloyds List in June 2016

The CBFCA on 1 June 2016 issued a commentary as to DIBP position on refunds. As many would be aware, I had significant input to the submission to DIBP. I am concerned however as to the following comments made in today’s NNF to the effect that:

• The DIBP can request information from licensed customs brokers on any aspect of an import declaration when a refund application is lodged however,  in relation to the seeking of this information, payment of the refund should not be withheld if information is outstanding that does not relate to the actual refund application. Other information which may be required from the importer of record or service provider from lodgement of the initial import declaration is a separate matter to the refund
• Licensed customs brokers who lodge a refund application should not be required to provide additional information as to the original import declaration (if they were not the entity which lodged the original import declaration), but would be expected to communicate with the owner of the goods to try and obtain that information to assist the DIBP

As we know DIBP have numerous legislated powers. In processing a refund, however, they have attempted to mix various powers so as to extend a review where no authority exists, and in the dot points above, rather than continuing to expound that this is incorrect at law, CBFCA appear to support a requirement to provide additional information not required to support the refund application. Customs brokers are busy. We work to strict time constraints and our time is precious, as is that of our clients. Certainly time is too precious to chase information from clients that is not required to process the refund.

I am not contending that DIBP do not have the authority to request additional information where it is required to satisfy a refund claim. I am contending and DIBP have agreed, that they do not have the authority to request brokers obtain information relating to additional lines based upon lodgement of a claim for refund. If they wish to audit lines not impacted by that refund then they must exercise monitoring powers. The correct process by the regulator should now be an ACN (if existing information isn’t enough) as to how they propose to exercise those monitoring powers if required.

In a refund application that goes redline the documents and IDM should be emailed to Refunds section by the broker. The claim by DIBP that this doesn’t happen is not a good reflection on industry, but I doubt the problem is wide spread given they have never been able to advise what percentage of red line refund lodgements are not accompanied by the documents and IDM. These red lines are treated as a desk audit and processed in Adelaide. There is no doubt that they are able to ask questions specific to the refund and adjustments made (but NOT other lines) to ensure that the refund is properly payable.

A monitoring audit however takes place in the importers premise and only after the written consent of the occupier is received. This is a much more formal and controlled process than is currently available to a refund officer. It is also a process that takes place after the ATD is issued, or, in the case of a Refund, after that refund is approved.   Each of the officers must show their identity cards as monitoring officers and please remember that a monitoring officer must also be trained as such. Rumour has it that only about 42 are so trained.

Before undertaking any monitoring audit DIBP must make written contact with the company to be audited and an entrance interview between the DIBP audit team and key management personnel must be held to discuss the purpose, scope and timing of the audit. In essence they must:

1.      Must identify themselves as authorised monitoring officers (S214AC/ S214AE(6))

2.      May provide a notice under S214AD.                                                                    

3.      Must obtain consent in writing (S214AE(2))                                                         

4.      and advise can refuse. (S214AE(3))                                                                        

5.      Must produce a statement of Rights and Obligations (section 214ACA)       

The legislation exists for a reason. I’m only suggested that DIBP should comply with the legislation and its requirements just as we must. There are already too many officers in the Department with little or no understanding of the legislation under which they operate and their rights and responsibilities. There are also far too many delays in obtaining access to entries to process refunds and then in having queries resolved. Perhaps if refund officers concentrated on refunds we would see better processing times.

Amber Line

Following is an article I had published in Lloyds List in June 2016

The old administrative penalty scheme allowed people to avoid an administrative penalty for a false or misleading statement resulting in an underpayment of duty by stating their uncertainty as to the correctness of certain information, and their reasons for that uncertainty, at the time of lodgement of the import entry. Industry referred to this as ‘amber line’.

Under the current legislation, ‘amber line’ has been retained and appears in Customs Act subsections 243T (5) and (6) as exceptions to the strict liability offence for false statements resulting in a loss of duty. The rationale for keeping the provision is because the penalty is directly related to the amount shortpaid and has no maximum limit.

It should be noted however that amber line is only available in respect of false or misleading statements that may result in a loss of duty. It cannot be used for exports or for imports where the statement does not result in loss of duty or in cargo reports or outturn reports.

The most important matter of which to be aware when considering sending a FID ‘amber line’ is that amber line no longer provides protection from penalties being imposed after goods have been cleared.

Inputting “amber line” statements on FIDs.

Section 243U provides that a person lodging an ‘amber line’ FID must make a statement that is similar to the following:

“In accordance with subsection 243T (5) of the Customs Act 1901, I am uncertain as to information pertaining to [describe information, e.g., classification] in lines [ ] and consider that as a result of including that information, this statement might be false or misleading in a material particular. I am uncertain as to the information for the following reasons [ ].”

The import declaration provides a field for amber line statements to be made. If you are lodging electronically direct into the ICS, you can access an amber continuation screen by pressing <enter> with a blank control field and an amber statement continuation screen will be displayed. If there is insufficient space on the statement for all the grounds for the uncertainty to be detailed, an attachment should be attached to the entry, which will probably be redline. This attachment should:

• be on company or agency letterhead
• specify the number of the and line numbers covered
• identify the uncertainty or omission
• give reasons or grounds for that uncertainty and
• be signed by the owner of the goods or their agent.

Authority to deal and an exception to 243T

Please carefully note that DIBP advice, after lodging amber line, that the goods are available for payment, or may be delivered, does not mean that the criteria in subsection 243T (5) or (6) have been accepted as met because DIBP may continue to investigate the matter. FIDs with amber statements are generally automatically set to a HOLD status and DIBP can request further documentation or arrange for the goods to be examined before providing an authority to deal. The provision of an authority to deal after verifying the particulars of an amber line entry also does not guarantee the criteria in the legislation have been met in order to avoid a penalty.

If after review and whether or not an authority to deal has been issued, DIBP consider that a false statement is serious enough to warrant consideration for an infringement notice, a delegate of the CEO will then examine the matter to ascertain, among other considerations, if the criteria in subsection (5) or (6) have been satisfied.

It is therefore important that brokers are aware that the amber line does not provide protection from penalty. If a FID is to be lodged amber line they should ensure they have met the criteria contained in subsection 243T (5) or (6), and that any necessary post warrant amendments are entered and paid in a timely and accurate manner.

Importantly, DIBP require that if uncertainty exists, reasonable inquiry has been undertaken to clarify the matter before lodging ‘amber line’ , which effectively means that if, for example, you are uncertain of tariff classification or the application of a particular TCO , lodge an application for tariff ruling before lodging the FID in preference to lodging it amber. A TA should provide protection against penalty, provided any posts required after the decision are lodged in a timely manner. Amber line does not provide a similar protection. 

The Tariff Classification of Functional Units

Following is an article I had published in Lloyds List in May 2016.

The purpose of s.XVI N4 is to differentiate between machines which are fitted together (composite machines of s.XVI N3) and production / manufacturing lines in which machines work together to fulfil a common function or purpose (s.XVI N4). This latter Note allows lines and turnkey operations that are imported in the one consignment the benefit of a single classification to the function of that line whether or not they are connected.  In the words of a member of the Customs Co-operation Council that drafted Note 4: “if you have a plant producing milk then the only thing you would exclude from a unit classification is the cow”.

S.XVI N4 requires that “Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.”

The Classification Guide on Functional Units issued by Department of Immigration and Border Protection (“DIBP”) in August 2015 requires that, “goods that do not directly contribute to the function are not covered by the Note” Where does this Note contain this limitation? Why is an artificial narrowing of a legal provision of the Tariff Act supported?

In plain speak, Note 4 provides for a single classification in Chapter 84 or 85 (or Ch 90 by virtue of Ch 90 Note 3) even if, while all the machines must contribute together to the function of the line, some of them do not directly contribute to it or, if imported separately, fall to a different tariff classification, for example, a pump in a bottle filling line. This interpretation of Note 4 has been supported by the Courts for many years and is evidenced in many older TCOs.

What then has happened that has led to this changed interpretation by DIBP and why then is industry experiencing ongoing difficulty in the ability of NTAC to identify and classify functional units? And why then, having identified a Functional Unit, is it becoming so very difficult to obtain a TCO for same because of this inability? Why is the acceptance of what is a Functional Unit so very different now to what it was in the past? DIBP claims that nothing has changed in their current interpretation of Note 4 is not supported by their past practices, documents or decisions. Commentary has been issued that claims current decision making is not a change of practice, whereas brokers, many of whom have been in the game far longer than most customs officers, hold the evidence to know that this is patently untrue. Industry has not failed to note that many of these decisions appear to have a strong consideration of revenue forgone rather than the legislation as it is written.

The Customs Act 1901 provides that a TCO will be approved where Customs is satisfied that no “substitutable goods” are produced in Australia in the ordinary course of business, with substitutability defined as capable of being put to a use (including a design use) to which the locally manufactured goods can be put. As part of the TCO application, the applicant must provide sufficient research to demonstrate how this core criteria has been established.  Provided the core criteria is met the legislation then provides at s.269P that the TCO must be made.  The way to avoid making a TCO is for the Regulator to claim that goods are not a Functional Unit classified under the one heading that describes that function. The Department should be required to explain its ongoing difficulty in understanding S.XVI N4 and the current restricted interpretation it is attempting to place upon it by this Tariff Classification Guide.

While recognising the time limits to which we all must pay heed and the current delays in obtaining a Tariff Advice (TA), industry is therefore encouraged to obtain a TA before relying on ANY past practices, guidance or interpretation in this area. There would appear not to have been a change in the Legal Notes or any case law to support changing interpretations by DIBP but members’ current experience in the application of s.XVI N4 by NTAC has been otherwise.

The Classification Guide is available at this link: http://www.border.gov.au/Tariffclassificationofgoods/Documents/classifying-functional-units.pdf#search=functional%20units

This article does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.