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For most businesses, 2009 will be synonymous with one thing alone- "uncertainty"
In order to survive the turmoil of "Recession 2009", businesses were forced to batten down the hatches in a manner that would have impressed Nelson himself. Spending was slashed, expenses minimised, procedures and staff "streamlined", all in a bid to stay afloat.
Economic forecasts for 2010 range from Victor Meldrew style pessimism to Del Boy style optimism: "Double-dip recessions", "W-shaped recessions", "uncertain financial markets", "a difficult decade of adjustments" competes against "the green shoots of recovery" and "increasing market stability" in the media. Bearing in mind that all this is taking place amongst the backdrop of the politicians ‘Baldrick-esque' "cunning-plans" to rescue and reinvigorate the British economy, it looks as though predicting 2010 will be like predicting the British Summer- everyone knows what they want but...
CFO Priorities for 2010
According to a recent Deloitte's survey of CFO's, the main focus for CFO's in 2010 will be on:
- Controlling costs,
- Increasing cash-flow and;
- Maintaining and improving investor confidence.
Where does Customs Planning come into this?
In our experience, many businesses delegate (or in some cases abdicate) their customs responsibilities to customs agents and freight forwarders. Furthermore, employing external consultants is often regarded as a discretionary spend, which during a time of "fiscal prudence" is seen as an unnecessary expense. How can a company justify engaging external consultants when staff have been made redundant or working hours have been reduced?
However, a direct result of this is that a number of our clients have had unnecessary run-ins with HMRC concerning issues that could have easily been avoided as well as missing opportunities that were available to them. These run-ins have however cost businesses far more in the long-term in terms of reduced cash-flow, penalties and missed opportunities to reduce costs.
So what are the major changes ahead?
The list of changes in 2010 is quite considerable but we will focus on four specific areas:
• The role of HMRC.
• Senior Accounting Officer provisions (SAO) and Authorised Economic Operator (AEO) status;
• The raising of the bar to gain customs reliefs and;
• Valuation and transfer-pricing issues.
There is a growing emphasis on a systems-based and procedural approach to customs functions. Up until now, if you weren't using a duty-relief procedure, as long as you got to the correct conclusion (i.e. your customs declarations were correct) then it didn't matter too much how you got there- this has now changed!! The path has become almost as important as the outcome.
The role of HMRC
HMRC is caught in between a rock and a hard place. It is under extreme pressure from Brussels to collect all customs-duties owed to the EU but is being forced to work within an environment of constant change and cutbacks. HMRC took an absolute mauling in 2009 with two extremely critical reports one by the National Audit Office and one by The House of Commons Public Accounts Committee. From a customs perspective, it seems as though the reports have had the desired effect as HMRC appear to have tightened their procedures and are now examining claims and applications a lot more thoroughly than they were before as well as auditing businesses more closely. Businesses are now finding that they must jump through more hoops before their claims and applications are processed and that HMRC are picking up on more "irregularities" at audit.
Senior Accounting Officers and Authorised Economic Operators
Senior Accounting Officers
On a domestic level, the introduction of the Senior Accounting Officer provisions under the Finance Act 2009 made financial directors and senior accountants personally liable for establishing and maintaining adequate systems used to produce their companies' tax returns. The "bedding-in" period that comes with any new legislation is should last to the end of the year and companies may then find that HMRC become more focussed and acute in this area. In our experience, FD's are in the position of not only having to document customs procedures and responsibilities but actually establish those procedures and responsibilities in the first place within the overall context of squeezed resources.
Authorised Economic Operators
International Terrorism has necessitated a sharp focus on security and the international trading system is irreversibly moving toward a system of "trusted" and "not-trusted" trade partners. Traders will soon need to be Authorised Economic Operators in order to compete effectively and efficiently or they may find that trade partners may be reluctant to trade with non-authorised entities and their goods taking longer to be cleared at the borders. Many businesses whose parent companies are based abroad are now receiving instructions to apply for AEO but few businesses are aware that achieving AEO is one thing but keeping it will be a whole new ball-game. Businesses should also be aware that a number of requirements for AEO authorisation are arguably being brought in through the back-door. So for example, (re) applying for CFSP authorisation will involve satisfying a number of requirements that are identical for AEO authorisation (see below).
More stringent requirements for duty relief applications and authorisations
In line with the greater responsibilities under the SAO and AEO provisions, requirements for other duty-relief procedures (such as (re)authorisation for Processing under Customs Control (PCC) or Inward Processing Relief (IPR) etc) are increasing. Many businesses are finding that HMRC are becoming more pedantic when processing their (re)applications with inevitable short-term impacts on cash-flow and additional costs to remedy issues and make reapplications. However, the recent ECJ ruling in the Terex case is favourable to importers who have made any errors on their declarations. Customs authorities have been instructed to "correct" mistakes where possible. This allows importers more opportunities to correct incorrect misdeclarations and to soften the blow that they may have.
Customs Valuation and transfer-pricing Issues
Customs are increasingly focussing on related-party transactions. Many businesses are using their transfer-price as the basis for customs valuation without appreciating the differences in legal foundations (OECD model for direct taxation and Article VII GATT for customs valuation). Businesses therefore face the choice of running separate valuation systems for direct tax and indirect tax purposes. This makes understanding the adjustments you need to make to meet your obligations under both systems critical otherwise you may be exposed to compliance errors.
Customs valuation and transfer-pricing are being discussed in detail in various international inter-governmental forums and receiving a lot of attention and focus. Businesses should be aware that both matters are dealt with by HMRC and should expect the direct and indirect teams to work in a more co-ordinated manner.
The Domino Effect
The present system where different rules exist for different sections of customs law is unsustainable in twenty-first century international trade and thankfully this is changing. However, the knock-on effect of this is that because the standards will be similar to a large degree for different procedures. If for whatever reason your compliance fails in one area, it will more than likely fail in others. If you take the examples of SAO and AEO above, if for whatever reason HMRC audit you and you are found to not be complying with your SAO obligations then the chances are that you are not complying with your AEO obligations and as such may face a "double-whammy". The importance of customs planning then becomes paramount as do periodic reviews of your customs functions. The simplest thing, like over-reliance on one person within a company who subsequently leaves may undermine your authorisations unless adequate procedures and systems are put in place.
Conclusions: 2010- What to expect?
2010 will arguably see the "tightening up" of customs regardless of the general economic situation. The standardisation of rules, the "kicking in" of new regulations as well as the "re-focussing" of HMRC means that businesses more than ever should start to serious consider reviewing and planning their customs functions. Prevention rather than cure will ensure that businesses will be better prepared and enabled to negotiate the trials and tribulations that may be ahead than those that are at-risk of being "side-swiped" at a time when they can least afford to be.
If you would like to discuss any of the issues raised in this paper then give us a call on (01905) 619229 or alternatively send us an email at:
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. For more information about customs matters or latest trade developments that may affect you visit our website at www.internationaltradesolutions.co.uk and browse through our Knowledge Space and News Sections.
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