Customs best practice: a timely reminder
Tax Alert - July 2018
By Jeanne du Buisson and Rebecca Yeoh
Following an extensive review and consultation process that started in 2015, the new Customs and Excise Act (CEA) introduces a number of changes. Many of these changes will be welcomed by businesses. These changes include a new process for obtaining binding valuation rulings, the ability to declare provisional values at the time of import, changes to administrative penalties and administrative review process, and the ability for businesses to store their electronic records out of New Zealand, including in the cloud.
As with all changes, it is important for businesses to be aware of the detail to ensure they are complying with the new CEA as soon as it takes force on 1 October 2018. This means, now more than ever, that New Zealand Customs (Customs) will be looking closely at businesses that import goods into New Zealand to ensure compliance with the current Act, the transition arrangements and the new CEA.
What is Customs best practice?
In the context of tax governance, best practice is to have in place tax policies and procedures that mitigate the risk of an incorrect tax position being taken. Implementing some basic best practices could minimise the risk of penalties, interest and spending time dealing with comprehensive customs audits.
At a minimum, Customs best practice would include the following:
Performing a general customs review or health check of your business
There are a number of areas that are often overlooked in ensuring your business compliance with customs rules. A customs review should be performed to ensure you are comfortable that:
- You are declaring the correct value of the goods that you import to Customs. This value does not only take into account the price you paid (or will pay for the item). It will also generally include other costs, such as the payment of royalty or license fees, commissions and brokerage fees and/or packing and container costs and charges. The value of the goods may also need to be adjusted to take into account any transfer pricing adjustments;
- You are calculating the transaction value of your imported goods based on the correct sale for export. Customs has chosen to define the term ‘sold for export to New Zealand’ in the new legislation as the “last sale of the goods occurring prior to the importation of the goods into New Zealand”. Historically, New Zealand case law allowed for there to be more than one sale for export into New Zealand (subject to some conditions) and the importer could choose the sale that they preferred to calculate the transaction value of goods from; and
- You are declaring the correct origin of the imported goods and are taking advantage of any relevant free trade agreements.
Performing wash-up calculations before 1 October 2018
If there are any subsequent changes to the customs value of goods declared at the time of import, Customs needs to be notified and the importer needs to return the correct amount of GST and/or duty – generally through a wash-up calculation.
The current legislation does not have any formal mechanisms for this process, instead businesses are required to perform wash-up calculations to determine the true customs value of the imported goods and submit this as a voluntary disclosure to Customs.
We have seen a substantial push from Customs to ensure that importers are compliant under the current system before the new legislation comes into force on 1 October 2018.
Considering whether your business needs to register for the new provisional tax system
The new CEA will require an importer to use a provisional assessment if:
- The importer has a binding ruling with Inland Revenue for transfer pricing adjustments and due to this it is not possible for them to finalise the value of their goods on importation; and/or
- The importer has an obligation to pay royalties or license fees and therefore this should be added to the transaction value of the imported goods.
If an importer does not fall under these two categories - such as clients that perform transfer pricing adjustments but do not have a binding ruling for this with Inland Revenue – they can choose to apply to use provisional values or continue to lodge voluntary disclosure to disclose the adjustment to the customs value. However, if an importer does not use the new provisional value rules to do this, compensatory interest on any underpayments and penalties will likely apply.
Please contact your usual Deloitte advisor should you wish to discuss the above in further detail.
July 2018 Tax Alert contents
- New Zealand companies may be Australian resident under ATO ruling
- Stop press – June Tax Bill introduced