Annex E. A high-level overview of current customs procedures

Under the current customs procedures (the so-called Traditional Collection model), the customs authorities generally assess and collect the duties and taxes payable on each individual consignment of goods based on the information in the import customs declaration.

In principle, the VAT/GST on imports is collected with the customs duties at the same time (i.e. the time of importation) before the goods are released from customs clearance. The import VAT/GST is generally assessed based on the customs value to which certain elements may be added such as costs of transport, other ancillary costs, and duties (although duties will generally not be collected on imports of low-value goods sold on-line as the value of these goods is usually below the relevant customs threshold). The person designated as the declarant (under the Revised Kyoto Convention which entered into force in 2006 the “declarant” is defined as any person who makes a goods declaration or in whose name such as declaration is made)/consignee/importer of record on the import declaration is generally liable to the customs authorities to account for the import VAT/GST. This person can be the purchaser/consignee or the vendor/supplier of the goods depending on the contractual arrangements between parties.

A third party can also be designated as a representative of the importer of record or the declarant for completing the customs procedures and pay the duties and taxes. In this case, the declaration can be done in the name of a person being represented by the third party (direct representation) or in the third party’s own name (indirect representation). In some countries in which a third party acts under direct representation, the person he or she represents assumes liability: in case of indirect representation, the third party himself is responsible. In some instances, the person and the third party will be considered severally and jointly liable for the payment of customs duties and taxes due. In a number of countries, the third party is commonly registered as a customs broker in the country of import (i.e. the country of destination).

When goods are imported through express carriers/couriers, the relevant data and scanned documents are usually transmitted, in electronic format, to the customs authorities in the country of export and in the country of destination for customs clearance. This system allows the customs authorities at destination to obtain information prior to the arrival of a shipment in the country. Thanks to the electronic processing, in particular pre-arrival processing and risk assessment implemented by many administrations, this advance cargo information, complemented with advance payment of duties and taxes allows goods to be cleared immediately upon arrival without being stopped at the border for examination or assessment.

The situation is different in the postal environment. This process is still predominantly paper based and relies primarily on the sender in a third country to provide the correct information. In the absence of electronic data transmission systems, the importation through postal operators typically requires that each individual consignment is stopped at the border so that the necessary information to assess the tax implications can be captured, liabilities can then be established and the appropriate process to ensure the payment of duties and taxes be made. However, electronic systems that are being developed in the international postal environment for safety and security purposes could also be used in the future for tax collection purposes.

Other actors involved in the customs clearance as well as revenue collection procedures may include: the customs brokers i.e. persons engaged by the vendor, the carrier or the importer that are - depending on contractual arrangements- in charge for managing the data required for the clearance and entry of imports and to pay duties and taxes that are due; the freight forwarders who are mainly rendering services of any kind relating to the carriage, consolidation, storage, handling, packing or distribution of the goods as well as ancillary and advisory services in connection therewith. In addition, the freight forwarders can also act as a declarant, taking responsibility for the customs declaration and guaranteeing the payment of taxes and duties.

Overall, this traditional approach with respect to revenue collection targets the first taxing point within the border control, as illustrated in the flow chart of the Figure 2.2 of the report.

Source: Addressing the Tax Challenges of the Digital Economy, Action 1 – 2015 Final Report (OECD, 2015[1]).

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