>-- c-o-m-p-l-e-x-i-t-yTariff and Customs Code Reviewer

A. Tariff and duties, defined

Tariff means a lit or schedule of articles on which a duty is imposed upon the importation into the country with the rates at which they are severally taxed. Derivatively, it refers to the system of imposing duties or taxes on importation of foreign merchandise.

Custom duties are taxes on the importation or exportation of commodities. These are duties charged upon commodities on them being imported or exported out of the country.

Based on these definitions what is the difference? Tariff is the table or catalogue of merchandise subject to duties. Custom duties are tax on importation itself. However the two may generally refer to taxes imposed on imported and exported articles.

B. General rule: all imported articles are subject to duty.

All articles, when imported from any foreign country into the Philippines, shall be subject to duty upon each importation, even though previously exported from the Philippines, except as otherwise specifically provided for in this Code or in other laws

Articles are anything which may be made subject to importation or exportation. Hence US dollars does not fall under merchandise but includes checks and money orders.

Importation by the government taxable

Except as otherwise specifically provided, all importations by the government for its own use or that of its subordinate branches on instrumentalities, or corporations, agencies or instrumentalities owned or controlled by the government, shall be subject to the duties, taxes, fees and other charges provided for in this Code: Provided, however, That upon certification of the head of the department or political subdivision concerned, with the approval of the Auditor General, that the imported article is actually being used by the government or any of its political subdivision concerned, the amount of duty, tax, fee or charge shall be refunded to the government or the political subdivision which paid it.

C. Purpose for imposition

Why impose tariff and customs? It serves as a protective barrier which would prevent entry of merchandise that would compete with locally manufactured items. This is called a tariff barrier. D. Flexible tariff clause

The President may increase, reduce or remove existing protective rates of import duties and change the classification upon investigation of the Tariff Commission and the NEDA that such duty is needed to protect national economy, welfare and security.

The increase cannot exceed 100% ad valorem.

The president may likewise impose an across the board additional 10% ad valorem on imports when necessary. NEDA recommendation not needed anymore if not exceeding 10%.

E. Requirements of importation

1. Beginning and ending of importation

Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with the intention to unload therein. Importation is deemed terminated upon payment of duties, taxes or other charges due upon the articles or secured to be paid at the port of entry AND the legal permit for withdrawal shall have been granted or if the articles are free from duties then until they have legally left customs jurisdiction.

Note that payment must be in full.

So when does the Bureau of Customs have jurisdiction to apply Customs laws? After importation but before termination. The individuals who will be considered the owners of the articles are (1) Consignee (2) Holder of the Bill of Lading (3) Underwriters of abandoned articles and (4) Salvors.

2. Obligations of importer

a) Cargo manifest

This is the document used in shipping containing a list of the contents, value, origin, carrier and destination of the goods to be shipped. It refers to a written document required to be carried by merchant vessels containing an account of the cargo, with other particulars for the facility of customs officers.

b) Import entry

According to the Code, all articles imported into the Philippines, whether subject to tax or not shall be entered into a custom house at a port of entry. Entered means submission of documents and passing the articles through the custom house.

What if you enter goods through other means other than ports of entries? That is smuggling.Import Entry is a declaration t the Bureau of Customs showing particulars of the imported articles that will enable the customs authorities to determine the correct duties and internal revenue taxes due on importation. It must be accomplished from disembarking of last cargo from vessel.

Authorized people who may make an import entry are the importer, the customs broker or an agent.

The only people exempted from an import entry are imports by foreign embassies and governments.

c) Declaration of correct weight or value

This section is covered by the discussion on transactional value.

d) Liability for payment of duties

Duties have two characteristics. It is both a personal debt of the importer and a lien on the items while they are still in the custody of the government.

It usually happens that the importer misdeclares the statement. When deficiencies are found in the payment of duties and taxes, your penalty will depend on your degree of culpability:1. Negligence Failure to exercise reasonable care will result in to 2x the revenue loss.2. Gross Negligence Actual knowledge or wanton disregard or indifference will result in a penalty of 2 to 4x the revenue loss.3. Fraud Knowingly, voluntarly and intentionally will result in 5 to 8x the revenue loss and imprisonment.

The general rule is everyone is liable for custom duties except:1. Conditionall free importations2. Exemptions granted to government agencies with contracts with foreign governments.3. International organizations exempt pursuant to special law.4. Granted by the President with recommendation from the NEDA.

e) Liquidation of duties

Liquidation shall be made on the face of the entry showing the particulars thereof if the collector shall approve the returns of the appraiser and report the weights, gauge or quantity. There can be a tentative liquidation when the amount of goods are subject to future determination within 6 months.

Final liquidations are final and conclusive upon al parties after 3 years from payment of duties except:1. Fraud2. There is protest3. Compliance audit

f) Keeping of records

All importers are required to keep all the records of their importation, book of accounts, business and computer systems and all customs commercial data at their principal place of business for a period of 3 years from dat of importation. Brokers must have the copies for 3 years as well.

A customs officer authorized by the BOC has the authority to inspect these records during office hours. This is called the Compliance or Post Entry Audit.

What happens when you refuse access? Well you can be cited for contempt, be criminally sanctioned, administratively sanctioned and it will give rise to a presumption that the transactional value declared is inaccurate. Hence the BOC will reassess the goods.

F. Importation in violation of tax credit certificate 1. Smuggling

It is the act of fraudulently importing into the Philippines or assisting in doing so or receipt, concealment, purchase or sale of any article knowing the same to be imported contrary to law. Take note of this very broad definition.

From the above definition it can be said that the items must be fraudulently or knowingly imported contrary to law. There must be malice. This is the general rule. However if the defendant has possession of illegally imported merchandise without a satisfactory explanation, then such possession is sufficient to authorize conviction.

You cannot get away from prosecution even if you pay the taxes due after apprehension. Contraband and other articles of smuggling is subject to confiscation. Even the vessel or plane used for smuggling may be confiscated if the owner had knowledge or participation in the act. This is the general rule. However take note that as an exception common carriers that are not privately chartered cannot be confiscated.

This was asked in the Bar Exam before so when asked again just cite the general rule then the exception.

Let us say Naomi Yacht was used in smuggling. The owner claims that he has no knowledge of smuggling hence Customs cannot seize the yacht. This argument fails because there is a prima facie presumption of participation of the owner cannot produce a certificate of public convenience to prove he is in the common carrier business!

2. Other fraudulent practices

Unlawful importation

Entry of imported or exported article by means of any false or fraudulent practice or document.

Entry of goods at less than their true measures or upon a classification as to quality or value.

Payment of less than the amount due.

Filing any false or fraudulent claim for drawback or refund.

Undervaluation when the amount declared for duties is 10% to 30% the correct amount to be collected. This results in a mandatory surcharge. When it exceeds 30% then there is prima facie evidence of fraud. Seizure and forfeiture will follow. Good faith is not a valid defense. Any intentional undervaluation will result in penal liabilities.

However when the dutiable value was based on a vale approved by the Commissioner or Collector or there is manifest clerical error, there wont be a surcharge.

Overvaluation

False invoice description

False country of origin

It pays to being a snitch under the Code. Informers are given a 20% reward on the Fair Market Value of the smuggled goods. The tip must be instrumental in the discovery and seizure.

G. Classification of goods 1. Taxable importation

All articles when imported from a foreign country including those previously exported from the Philippines are subject to duty unless otherwise specifically provided.

Articles, although previously exported from the Philippines, become dutiable from the entry of the vessel or aircraft into the Philippine jurisdiction.

This is the reason why you have to pay custom duties even when you import a Polo Ralph Lauren shirt from the United States yet it was Made in the Philippines.

2. Prohibited importation

There are absolutely prohibited and qualifiedly prohibited merchandise. Qualifiedly prohibited means those which may be imported but certain conditions must be complied with.

Dynamite, gunpowder, ammunitions and other explosives, firearm and weapons of war, and detached parts thereof, except when authorized by law.Qualified subject to conditions of lawful importation.

Written or printed article in any form containing any matter advocating or inciting treason, rebellion, insurrection or sedition against the Government of the Philippines, of forcible resistance to any law of the Philippines, or containing any threat to take the life of or inflict bodily harm upon any person in the Philippines.Absolute

Written or printed articles, photographs, engravings, lithographs, objects, paintings, drawings or other representation of an obscene or immoral characterAbsolute

Articles, instruments, drugs and substances designed, intended or adapted for preventing human conception or producing unlawful abortion, or any printed matter which advertises or describes or gives directly or indirectly information where, how or by whom human conception is prevented or unlawful abortion produced.

Absolute

Roulette wheels, gambling outfits, loaded dice, marked cards, machines, apparatus or mechanical devices used in gambling, or in the distribution of money, cigars, cigarettes or other articles when such distribution is dependent upon chance, including jackpot and pinball machines or similar contrivances.

Absolute

Lottery and sweepstakes tickets except those authorized by the Philippine Government, advertisements thereof and lists of drawings therein.Qualified subject to authorization from Government.

Any article manufactured in whole or in part of gold silver or other precious metal, or alloys thereof, the stamps brands or marks of which do not indicate the actual fineness or quality of said metals or alloys. Absolute

Any adulterated or misbranded article of food or any adulterated or misbranded drug in violation of the provisions of the "Food and Drugs Act."

Absolute

Marihuana, opium poppies, coca leaves, or any other narcotics or synthetic drugs which are or may hereafter be declared habit forming by the President of the Philippines, any compound, manufactured salt, derivative, or preparation thereof, except when imported by the Government of the Philippines or any person duly authorized by the Collector of Internal Revenue, for medicinal purposes only.Qualified if imported by the government, or authorized by the Dangerous Drugs Board for medicinal purposes.

Opium pipes and parts thereof, of whatever material.Absolute

All other articles the importation of which is prohibited by law. Absolute

3. Conditionally-free importation

The following articles shall be exempt from the payment of import duties upon compliance with the formalities prescribed in, or with the regulations which shall be promulgated by the Commissioner of Customs with the approval of the department head.

Note that the President may upon recommendation of the Secretary of Finance, suspend, disallow or completely withdraw in whole or in part any of the conditionally free importations.

Aquatic Products

Equipments for salvage of vessels and aircrafts

Cost of repairs made in foreign countries on Philippine registered vessels and aircrafts.

Articles brought for repairs, processing or reconditioning

Medals, cups, badges and other small articles.

Personal and household effects of residents of the Philippines returning from abroad including jewelry and luxurious articles.

Personal and household effects purchased in foreign countries by residents of the Philippines.

Used home appliances of returning OCW

Apparel

Personal and household effects AND VEHICLES of foreign consultants, experts, their staff and families

Articles for public entertainment or display by technical, cultural and scientific institutions

Articles by foreign film producers

Photographs and films by resident Philippine citizen outside the Philippines

Importations of foreign embassies, legations and agencies.

Articles for use of members and attaches of foreign embassies, consular officers etc.

Imported articles donated to a registered relief non profit organization

Containers and holders

Necessary suuplies for the reasonable requirements of the vessel or aircraft in voyage.

Articles and salvage from vessels recovered

Coffins or urns containing human remains or used personal and household effects of the deceased.

Animal and plants for scientific, experimental, propagation, botanical, breeding, zoological and national defense purposes.

Economic, technical, vocational, scientific, philosophical or historical and cultural and religious books and publications.

Philippines articles previously exported from the Philippines and returned without advancement in value by manufacture.

Aircraft equipment and supplies for use of airlines with Congressional franchise.

Machineries, chemicals and tools for production plants for mines and mineral conversion.

Spare parts of vessels and aircrafts of foreign registry engaged in foreign trade

Articles of easy identification exported from the Philippines for repair

Trailer chassis imported by shipping companies for exclusive use in cargo.

Let us look at the more practical application of the rules.

Let us say you went abroad bringing with you an alligator skin Balenciaga and you came home with the laptop, a new Tiffany and Co. Diamond Ring and a pair of Chuck Taylors.

The Balenciaga is not dutiable because personal and household effects, including luxury items brought out of the Philippines and returned by returning residents are not dutiable.

The Tiffany ring is taxable while the Chuck Taylors are not because personal and household effects EXCEPT luxury items purchased abroad and imported to the Philippines are not dutiable.

Purchase of consumables, livelihood tools and personal effects by OFWs at Duty Free Shops are not taxable.

H. Classification of duties 1. Ordinary/regular dutiesRegular duties are taxes that are imposed or assessed upon merchandise from, or exported to a foreign country for the purpose of raising revenue. It is basically the basic customs duty.

a) Ad valorem; methods of valuation

Ad Valorem means that the dutiable base is computed based on the value of the article. You can disregard the TCC provisions on these because it has been updated by RA 9185 on Transaction Value.

(i) Transaction value

By default, the dutiable value of an imported article shall be the transactional value which is the price actually paid or payable for the goods at arms length. This would even include commissions and brokerage fees, containers, packaging, royalties, transport costs, handing charges and insurance.

(ii) Transaction value of identical goods

This is the transaction value of identical goods sold for export to the Philippines and exported at or about the same time as the goods being valued. These are goods the same in all respects including physical characteristics, quality and reputation. They must be produced in the same country.

(iii) Transaction value of similar goods

The same as above but the basis is similar goods which are, although not alike in all aspects, have like characteristics and like components with the same functions and are commercially interchangeable.

(iv) Deductive value

This is based on the unit price of the same goods, identical or similar, sold in the Philippines in the same condition as when imported, deducted by commissions paid, general expenses, profit, cost of transportation and customs duties and taxes.

Unit price means the greatest number if units is sold in sales to persons who are not related to the sellers at first commercial level after importation.

Basically this is reverse engineering the transactional value.

(v) Computed value

Here you build the transactional value from scratch by adding the cost of materials, amount of profit and general expenses, freight and packaging.

All of these are to be followed in order except that Deductive and Computed value may be interchanged by request of the importer.

(vi) Fallback value

This is the catch all provision where the Commissioner may use reasonable means to determine the transactional value consistent with GATT and based on data available in country of importation.

Warning: You are not allowd to compute customs value based on:

1. Selling price in the country of importation of goods produced in such country2. A system where the higher among two values are picked3. Price of goods in the domestic market of country of exportation4. Cost of production other than Computed Value5. Price of goods exported to another country6. Minimum custom values7. Arbitrary and fictitious values

b) Specific

This means that the articles are computed based on dutiable weight of goods.

2. Special duties

Special duties are additional import duties imposed on specific kinds of imported articles under certain conditions. In general these duties are imposed because the articles are detrimental to public interst. a) Dumping duties

This is imposed when the article is imported at an export price less than the normal value in the ordinary course of trade for the like product destined for consumption in the exporting country or materially retarding the establishment of a domestic industry for a like product. The duty is equal to the margin of dumping on such product in addition to ordinary duties taxes and charges.

If China decides to send onions here at 5 pesos a piece whereas the local onions are normally at 20 pesos a piece, the duty is 15 pesos.

b) Countervailing duties

This is imposed whenever an article of commerce is granted directly or indirectly by the government in the country of origin any kind of form of specific subsidy upon the production, manufacture or exportation of such article and such product is threatening to cause material injury to a domestic industry.

If Japan subsidizes the manufacture of batteries by giving them cash awards, or any incentive, the countervailing duty will be the amount of such bounty, subsidy or subvention.

c) Marking duties

This is imposed on articles not marked in any official language of the Philippines and in a conspicuous place as to indicate to the ultimate purchaser the name of country or origin of the article. The duty is 5% ad valorem. This is the reason why articles often say Made in the USA or Origin: Vietnam.

However this is not a hard and fast rule. You can be exempted when the product cannot be marked, or the ultimate purchaser will necessarily know the country of origin, or that marking will be too expensive, or the article is simply for processing by the importer.

The rationale behind this is to prevent the importer from concealing the origin of the product.

d) Retaliatory/discriminatory duties

These are duties imposed upon articles which come from a foreign country that imposes directly or indirectly upon any Philippine product unreasonable charges or limitations not imposed on like articles of other foreign countries or the country discriminates against the commerce of the Philippines compared to other countries.

The duty is 100% ad valorem.

Let us say Hong Kong decides to impose an extra 25% customs duty on Philippine fruits whereas other countries are not being charged. Then all fruits coming from Hong Kong will be imposed a 100% ad valorem duty.

e) Safeguard

These are duties imposed upon a positive final determination that a product is being imported in increased quantities whether absolute or relative to domestic production as to substantially cause serious injury or threat to the domestic industry. This is basically the catch-all clause for special duties. I. Remedies 1. Government a) Administrative/extrajudicial

Let us discuss the Bureau of Customs as an institution. Aside from the above functions, it has exclusive jurisdiction over seizure and forfeiture cases under customs law. This is a sweeping power because pursuant to its visitorial powers, the Bureau may demand evidence of payments of custom duties for impored products openly offered for sale or kept in storage. Otherwise there will be seizure and forfeiture.

Nevertheless the Code limits such visitorial power by excluding a dwelling house from its jurisdiction. A search warrant is needed to inspect a dwelling house.

The Customs is quite powerful that its exclusive jurisdiction over seizure and forfeiture cannot be interfered with by regular courts even upon allegation of ownership.

Customs jurisdiction is not limited to ports of entry. They exercise surveillance over the coast beginning when a vessel or aircraft enters Philippine territory and concluding when the article imported is legally passed through the custom house. This jurisdiction reaches through all seas within the jurisdiction of the Philippines even through the Customs Zone and Exclusive Economic Zone.

Note that the Doctrine of Hot Pursuit under International Law applies to the BOC as well.

Firstly, understand that the entire importation process normally follows the following procedure:1. Filing of import entry2. Physical examination of the articles3. Discrepancy report4. Protest on civil matters5. Payment of duties 6. Compliace/Post Audit7. Finality of Liquidation

After physical examination an assessment is made. The appraisal classification and return as approved by the Collector as a general rule cannot be altered except:1. 1 year after payment if there is state of error.2. 15 days after payment upon request of Commissioner.3. Upon request by the imported in the form of a protest.4. Upon demand by Commissioner after compliance audit.

The BOC has a tax lien which attaches on the goods regardless of ownership while still in the custody or control of the Government. This applies when the importation is not prohibited nor improperly made. The tax lien is beyond the jurisdiction of regular courts. What happens is that the goods are sold to cover for the duties imposable. Note that the tax lien is lost when the foods are released. By then only judicial action can be pursued by the BOC.

Administrative fines and forfeitures may also be imposed if importation is unlawful or prohibited including the carrying vessel. See discussion above.

(i) Search, seizure, forfeiture, arrest

The BOC, collectors, assistant and deputy collectors, surveyors, agent and guards are authorized to effect searches, seizures and arrest. They can even enter, pass through or search at any time land or enclosure or any warehouse, store or other building not being a dwelling house.

What if the caretaker or the family lives in the warehouse? It is still a warehouse!

Note seizure and forfeiture proceedings are action in rem.

b) Judicial

The BOC may file either civil or criminal actions. All of these must be approved by the Comissioner.

(i) Rules on appeal including jurisdiction 2. Taxpayer

a) Protest

* See the San Beda Taxation 2012 Flowcharts

RTC is without any authority to pass upon the validity of a seizure or forfeiture proceeding by the BOC given the BOCs exclusive jurisdiction. The proper remedy is an appeal to the CTA.

No protest however is necessary in seizure cases or manifest errors in invoice entry, return of weight, measure or gauge,

If it is a claim of refund due to supervening events and not due to the assessment, no protest in required.

Note that unlike in the NIRC, there has to be payment under protest for protest to be considered.

The importer may also file a wrriten claim for refund in case of abatement and drawbacks. A drawback is an allowance made by the government upon the duties due on the imported merchandise when the imported instead of selling it here re-exports it.

b) Abandonment

Abandonment means the renunciation by an importer of all his interests and property rights in the imported articles. There is express abandonment when it is in writing and under oath. It is implied when the imported fails to file an entry within 30 days or having filed an entry fails to claim it within 15 days. This s non extendible.

All hope is not lost though. The Code allows the importer to redeem the article anytime before it is sold. You can also appeal to the Commissioner within 15 days after notice of decision of the Collector. If the Commissioner denies it you can appeal to the CTA within 30 days.

What happens when you keep your cargo unloaded? It will be deemed as implied abandonment and the customs will unload it and store it at your expense. It will be entered within 30 days and you must claim it within 15 days from notice otherwise it will be disposed. Of course you can be excused from unloading due to reasonable causes like port congestion, strikes, failure of vessel gear or bad weather etc.

c) Abatement and refundThe general rule is abatement is not allowed even if damage occurred during the voyage since duties are assessed based on the actual quantity imported.However abatement is allowed when:1. Package listed in the bill of lading is missing upon proof that it has not been imported contrary to law.2. A deficiency exists inside the package provided that shortage occurred before arrival in the Philippines.3. Injury, destruction, theft, fire or other causes that occur a. Within any port of entry prior to unloading under customs supervisionb. While in customs supervisionc. While in transit under Bond from one port of entry to another in the countryd. While released under irrevocable domestic letter of credit, bank guarantee or bond for export except by theft.e. Animal dies or is injured before arrival or while in customs custody.A claim for refund must be commenced within 6 years from the date of payment since it is a solution indebiti. The claim must be in writing, verified by the Collector and certified to the Commissioner.The collector may remit assessments and collections if the aggregate amount is less than ten pesos except with prohibited importations or habitual or intentional violations.The BOC can also settle cases of payment of fine and redemption is also allowed except when:1. Importation is absolutely prohibited2. Surrender would be contrary to law3. There is fraud.Congratulations for finishing and good luck! If you drive a car, I'll tax the streetIf you try to sit, I'll tax your seatIf you get too cold, I'll tax the heatIf you take a walk, I'll tax your feet Taxman by The Beatles