studio fashion (australia) v ceo of customs · studio fashion (australia) v ceo of customs issues...
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Studio Fashion (Australia) v CEO of
Customs Issues for Customs Brokers
June 2015
Topics
1. Background
– Legislation
– Incoterms
– ACNs
2. Facts of case
3. Findings
4. Implications
5. Protecting yourself
6. Other recent cases
Background
1
Key sections of the Customs Act
• Underpaid duty – s165 – payable by the “owner”
• s4 – owner:
“In this Act except where otherwise clearly intended”
Owner in respect of goods includes any person (other than an
officer of Customs) being or holding himself or herself out to be the
owner, importer, exporter, consignee, agent, or person possessed
of, or beneficially interested in, or having any control of, or power of
disposition over the goods.”
• s183(1) – where a person holds themselves out to be the agent
of the owner for the purposes of the Customs Act, that person
shall be deemed to be the owner of those goods.
Incoterms
DDP – Delivered duty paid
• Seller delivers the goods cleared for import
• Seller bears the costs risks involved in bringing the goods to the
destination
• Seller must clear the goods for export and import and pay any
duty
• Seller must carry out all customs formalities
It is the highest obligation placed on a seller under an Incoterm
ACNs
ACN 2000/30
• In DDP transactions the overseas supplier is liable for the
payment of customs duty and will be regarded as the owner for
Customs purposes
• Supplier’s agent in Australia will be required to retain all
commercial documents under s240
• liability of underpaid duty:
– owner on the entry
– if liability and ownership is denied, the owner’s agent is considered to
be the person on whom a demand will be made
ACNs
ACN 2014/50
• In DDP transactions both the seller/supplier and the
purchaser/consignee are owners
• The overseas supplier makes the taxable importation and can
claim the input tax credit
• Requirements to retain documents fall on the supplier, purchaser
and agent
• Demands for underpaid duty fall may fall on the supplier or
purchaser
• Due to economic reasons demands will usually be made on the
Australian purchaser
Facts of the case
2
Facts - entries
• SF entered into a supply contract with Sheng Fa Knitting
Garment Co Ltd (Sheng Fa) on DDP terms
• Sheng Fa arranged for the delivery and clearance of goods. It
used a variety of brokers to do this.
• SF had no involvement in the shipping or clearance of the goods
(either directly or via a broker)
• When orders arrived, SF would pay for the goods
• 47 import declarations (4 brokers)
• 95 SACs (12 different supplier names, multiple freight
companies)
• Two sets of invoices
Facts - audit
• All entries were undervalued
• Underpaid duty - $75,445
• Underpaid GST - $98,918
• SF paid under protest
• Applied to the AAT for review
3
Arguments and findings
Responsibility for duty - Arguments
SF:
• It is unfair and unreasonable to pursue SF on the basis that it is
easier than pursuing the importer
• SF had acted in good faith
Customs:
• SF is an “owner” within the definition of the Act
• Nothing in s165 suggests the meaning of “owner” should be
narrow
• Contractual arrangements between the parties do not alter
liability under the Act
• SF is liable regardless of its involvement in the underpayment
Responsibility for duty - Findings
• Duties are charges on the goods
• Owner is not limited to persons having custody and control of the
goods at importation
• SF as consignee comes within the definition of owner
• SF is owner even if it did not acquire title until after delivery as it
became their owner before the demand was made
• It remained an owner even if it had disposed of the goods before
a demand had been made
Owner is not limited to persons
having custody and control of
the goods at importation
Why it was appropriate to pursue SF
Customs
• It was appropriate to pursue SF as:
– there was poor prospects of recovery against Sheng Fa
– the number of brokers and freight companies involved
– SF was the only person in Australia whom a demand could be made
in respect of all entries
– SF would presumably have contractual rights against Sheng Fa
– SF, rather than brokers or freight companies, agreed to DDP terms
Was it appropriate to pursue SF (Cont)
AAT:
• Customs is not required to make a demand on every owner
• Customs can take into account practical matters such as whether
the amount will be recoverable
• Customs must have regard to the circumstances of each owner
but also the revenue raising nature of the Act
• SF voluntarily choose to enter into a DDP transaction
• The ACN played no part in SF’s decision making
• SF may have a right against Sheng Fa
• The circumstances of SF do not outweigh the interest in
protecting the revenue
ACN
Customs
• ACN 2000/30 incorrectly stated the law
• An ACN is only a policy document and does not restrict the
powers of Customs
Tribunal:
• While ACN 2000/30 is incorrect it cannot be relied upon to fetter
the application of the Customs Act
• Arguments of estoppel cannot hinder the performance of a
statutory duty or the exercise of a statutory discretion
4
Implications
Implications - ACNs
• Customs will not consider itself bound by ACN
• The AAT will not hold Customs to an ACN
• Would Customs have pursued SF if SF could prove it relied on
the ACN
• Which ACNs do you rely on
• Practice statements
– must be followed internally
– If something is important should it be in a practice statement
Contrast to ATO
• Public rulings bind the ATO if a taxpayer relied on it – an entity
does not need to know of the ruling to rely on it
Implications - Owner
Most entities involved in the supply chain are potentially liable
• There is no need to prove fault
• Brokers are potentially liable
• However, Customs choose not to pursue brokers in this instance
• Beyond DDP – one exporter to many importers (On-line traders)
• Unlimited potential liability
Implications - GST
• Credits are generally available for payments of GST by
businesses
• Where the entity required to pay GST on a taxable importation is
not the importer there will be no GST credit
• With falling duty rates this may be the more significant issue
Penalties
• The case does not disclose whether Sheng Fa will be prosecuted
• Brokers made a false statement, but not mention of infringement
notices
Protecting yourself
5
Protecting yourself
• Know your customer
• Contractual indemnities from
your customer
• Keep evidence of any reliance
on ACNs/practice statements
• Insurance
– it is duty payable
– will insurance cover it
• Question entries that smell
– in this case the tops were
originally valued at less than
$1 an item
• Allow yourself the right to
access information to verify
the correctness of the
declaration (more important for
traders)
• Advise clients of the potential
liability
6
Other cases
Other recent cases
• Vesta
• TCOs and capital order goods
• The ordinary course of business test
• Must prove actual past production
• Becker Vale
• Classification of multifunction goods
• TCOs – Meeting terms of the TCO precisely
Questions
27
CONTACT Russell Wiese
T: 03 8602 9231
Lynne Grant
T: 03 8602 9246
Fran Smyth
T: 03 8602 9213