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New Customs law to be implemented next year – how prepared is your business

Tax Alert - October 2017

By Jeanne du Buisson and Divya Pahwa

New Zealand Customs is in the process of refreshing the current Customs and Excise Act 1996 (CEA). The refresh of the CEA has been with a view to modernise many provisions to keep pace with technology and the digital era and shift the procedural provisions from the CEA to the delegated regulations. The new draft customs and excise bill is expected to be enacted in 2018. The draft customs and excise bill is available to be viewed here. New Zealand Customs are currently working through the detailed regulations that will contain the procedural provisions to be read with the new customs and excise bill.

Now is the right time for businesses to consider the impact of the proposed changes on their customs activities. Some of the more significant changes are discussed briefly below.

Valuation methods

The transaction value valuation methodology (being the price paid or payable for the imported goods) is the default method for valuing the goods imported for Customs purposes. This method can be used if there is a ‘sale for export’, amongst other conditions, that results in the export of goods into New Zealand.

Currently it is possible to have more than one sale for export based on case law.

New Zealand Customs is proposing to define the term ‘sold for export to New Zealand’ in the draft legislation as the “last sale of the goods occurring prior to the importation of the goods into New Zealand”.  This amendment  is intended to take away the choice that is currently available to  importers.  There are however still complexities around what constitutes ‘the last sale of goods’.

Provisional assessment

Currently, any change to the customs value of the goods declared at the time of import needs to be notified to New Zealand Customs through the voluntary disclosure process.   The new draft rules now allow the importer to use a provisional assessment in certain situations if the importer contemplates that the price paid or payable at the time of import may change.  This includes situations such as when royalty payments are made, when transfer pricing influences / changes the price, or when proceeds of the sale of goods after import accrue to the original exporter. The provisional assessment will be available only if certain conditions are met. 

If the importer chooses not to use the provisional assessment scheme and later lodges a voluntary disclosure to disclose the adjustment to the customs value (even if only GST applies), then compensatory interest on any underpayments and penalties could potentially apply.

Replacing additional duty with a compensatory interest and late payment penalty system

Currently additional duty is a penalty imposed when a person does not pay enough duty or does not pay the duty on time. Additional duty is made up of an initial charge of 5 percent of the unpaid duty, followed by a monthly incremental charge of 2 percent. New Zealand Customs are aware that the incremental and compounding nature of additional duty can result in debts that are disproportionate to the offending, particularly when the debts are incurred over a long period of time.

It is intended that a compensatory interest and late payment penalty system would replace the existing additional duty provisions.  Under the new draft legislation, compensatory interest (and potentially late payment penalties) will apply.

The new system in our view would be fairer and more proportionate for non-compliers. It has been designed to be broadly consistent with Inland Revenue’s use-of-money interest scheme and its late payment penalty scheme.

Binding valuation ruling

Currently, only valuation advice can be obtained from New Zealand Customs in respect of any customs valuation issues which is not binding on New Zealand Customs or the applicant. The new draft customs rules will allow importers to obtain a binding ruling that will provide a higher level of comfort.

Excise related changes

  • The new off-site storage rules,which are currently available only to the wine industry, will cover other alcohol manufacturers.
  • New Zealand Customs have confirmed under the new draft legislation that the excise collection point for fuel will remain at the existing points, however a new excise collection point will be created at the gantry to capture increased volume from blending at tank farms.

Conclusion

New Zealand Customs are doing commendable work and have involved the stakeholders in the process, asking stakeholders for suggestions and feedback.

Various technical changes, including the provisional assessment scheme, will have a significant impact on businesses.  There is a draft provision in the new legislation that requires the Chief Executive of New Zealand Customs to consult the Commissioner of Inland Revenue when considering an application to include provisional customs values that relate to a transfer pricing arrangement. There is an increased focus on the alignment of the customs value and transfer pricing value of goods that also need to be supported by up to date transfer pricing documentation.

Now is a good opportunity for businesses to consider the impact of the customs, changes especially on account of the new compensatory and late payment penalty regime that can be levied under the new legislation for non-compliance.

October 2017 Tax Alert
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