To have and to hold: Customs import documents

Many struggle to remember certain details, such as the phone numbers even of those close to them. This is due to the intrinsic limitation of human memory, or perhaps some see the brain simply as an organ to process information but not to store data. In any case, we acknowledge the importance of keeping records appropriately — not just mentally — but in some retrievable form. With the current strides in digital disruption and innovation, we now have more tools and devices to assist in storing and accessing whatever information we need.
Record-keeping is particularly crucial for importers. They are obliged to do so not just to remember details of their import transactions, but because the law expressly requires them to keep and maintain comprehensive records about their importations. The proper retention of complete import documents is often overlooked by importers, but it has proven to be essential during a Post Clearance Audit (PCA).
CUSTOMS RECORD-KEEPING REQUIREMENTS
The Customs Modernization and Tariff Act (CMTA) requires all importers to keep all records of their importations, books of accounts, business and computer systems and all customs commercial data including payment records. These are to be kept at their principal place of business for a period of three years from the date of final payment of duties and taxes or customs clearance. In relation to the Bureau of Internal Revenue’s (BIR) requirement to keep books of accounts and accounting records for 10 years, the Customs Administrative Order (CAO) No. 01-2019 only provided for general periods (in the absence of fraud, 3 years to audit and 3 years to keep records.) No period was prescribed for fraud, unlike the BIR regulations which expressly provides for 10 years. Therefore, it appears that in the case of fraud, importers may have to keep documents longer.
Customs brokers and parties involved in the process of clearing imported goods are covered by this requirement with respect to the transactions that they handle. Locators, or those authorized to bring imported goods to special economic zones and free ports according to the CAO, are also required to keep records of importation even if they are enjoying tax and duty-free incentives on qualified importations.
DOCUMENTS THAT SHOULD BE KEPT
CAO No. 01-2019 provides for the specific documents that all importers must keep for PCA purposes. The list is quite exhaustive, effectively covering all records related to the imported goods and the entity’s import activities.
Apart from the typical import documents, such as product descriptions or specifications and shipping documents (goods declarations, commercial invoices, import licenses or permits, bills of lading, shipping instructions, certificates of origin, etc.), the CAO also requires importers to keep documents on the entity organization and structure, orders and purchases, manufacturing, stock and resale records, financial documents, charts and codes of accounts, and any information or records that have been electronically stored.
In addition, locators are required to maintain documents proving their entitlement to tax incentives on importation, as well as records of all transactions and activities relating to the admission and withdrawal of goods from free zones into the customs territory.
The rationale for keeping records of importation is primarily to ascertain that the goods declaration filed by the importer is correct, and that the taxes and duties paid on said importation are accurate.
STEEP PENALTIES
The CAO emphasizes the importance of keeping records of importations, and prescribes the penalties for non-compliance. At the outset, importers who fail to keep the prescribed records will be subject to a 20% surcharge on the dutiable value of the goods for which no records were kept and maintained. Thus, even if there are no findings for deficiency duties and taxes, importers may still be required to pay this 20% surcharge if record-keeping violations are discovered during a PCA.
This is quite relevant for some locators, particularly those enjoying tax incentives on importations, since they are similarly required to keep complete records of importations and may be subjected to a PCA. That said, compliance with the customs record-keeping requirements is the most common issue encountered by PEZA-registered entities during a PCA. Despite being exempted from duties and taxes, the Bureau of Customs (BOC) may still generate significant revenue from such entities simply by imposing the 20% surcharge for violating the record-keeping rules.
Moreover, the BOC may suspend or cancel the accreditation of an importer for failure to keep the prescribed documents and hold the delivery and release of subsequent imported goods. Under both instances, the importer may suffer massive operational disruption which can adversely impact business relationships and lead to significant losses.
To further stress the importance of record-keeping, the CMTA introduced a new penalty for importers who fail to comply with this requirement. Section 1003 provides that the failure to keep documents constitutes a waiver of the right to contest the results of the audit based on records kept by the BOC. Accordingly, even though the assessed duties and taxes on a particular importation is patently erroneous, the importer loses the right to dispute the same if it cannot produce complete records pertaining to the importation being assessed. Consequently, the importer may be required to pay the basic duties and taxes as assessed plus the administrative penalties which range from 125% to 600% of the revenue loss and 20% legal interest per annum — all this on top of the 20% surcharge for failure to keep records.
Finally, importers should be aware that they can be subject to criminal prosecution for violating the customs record-keeping requirements. The punishment is imprisonment of not less than 3 years and 1 day but not more than 6 years, and/or a fine of Php One Million.
The importance of keeping and maintaining complete records of importations cannot be overstated because non-compliance can have a serious impact on the business. Importers are encouraged to constantly check and ensure that their records of importation are complete and compliant with the prescribed rules for them to avoid exorbitant fines and penalties.
In view of the recent issuance of CAO No. 1-2019 on the conduct of the PCA (discussed in a previous column last 20 January 2019), the BOC is expected to intensify the audit of all importers, including locators. Ensuring compliance with the record-keeping requirements can result in a significant and positive difference to the eventual outcome of a PCA.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
 
Stephanie G. Vicente-Nava is a Tax Principal for Indirect Tax Services — Global Trade & Customs at SGV & Co.