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TRANSCRIPT
“Owner” Issues for Customs Brokers
May 2016
Topics
1. Definition of “owner”
2. Studio Fashion
3. ACNs
4. Concerns with Draft ACNs
5. Other areas:
1. GST
2. Drawback
6. Issues for brokers
Definition of “owner”
1
Key sections of the Customs Act
• Underpaid duty – s165 – “ is payable by the “owner” of the goods”
• s4 – owner:
“In this Act except where otherwise clearly intended…
Owner in respect of goods includes any person (other than an
officer of Customs) being or holding himself or herself out to be the
owner, importer, exporter, consignee, agent, or person possessed
of, or beneficially interested in, or having any control of, or power of
disposition over the goods.”
Who is an “owner” under section 4
owner
importer
Exporter Consignee
agent Possession Beneficial
interest
Control
of goods Power to
dispose
Any person holding themselves out to be the above
Any person who is an agent of any of the above
Brokers are special
Even if somehow you are not caught under section 4 - you will be caught
under section 183(1)
s183(1) – where a person holds themselves out to be the agent of the
owner for the purposes of the Customs Act, that person shall be deemed to
be the owner of those goods.
When is “owner” used in the Customs Act
• 68 – entry of goods
• 165 – obligation to pay duty
• 240 – retaining commercial documents
• 167 – payments under protest
• 181 – appointment of an agent
• 71B – Import processing charge
• 133 – entry of goods for export
• 71E – application for movement permission
• 71C – authority to deal
• Not penalty provisions
Background to ACNs
Incoterms and Studio Fashion
2
Incoterms
• An Incoterm is merely a shorthand way for parties to
allocate responsibilities
• They only affect obligations between the parties
• They do not impact the operation of the Customs Act
• DDP – Delivered duty paid
• seller delivers the goods cleared for import
• seller bears the costs risks involved in bringing the goods to the
destination
• seller must clear the goods for export and import and pay any duty
• seller must carry out all customs formalities
• It is the highest obligation placed on a seller under an
Incoterm
Facts - entries
• SF entered into a supply contract with Sheng Fa Knitting Garment Co
Ltd (Sheng Fa) on DDP terms
• Sheng Fa arranged for the delivery and clearance of goods. It used a
variety of brokers to do this.
• SF had no involvement in the shipping or clearance of the goods (either
directly or via a broker)
• When orders arrived, SF would pay for the goods
• 47 import declarations (4 brokers)
• 95 SACs (12 different supplier names, multiple freight companies)
• two sets of invoices
• All entries undervalued
Responsibility for duty - Arguments
SF:
• It is unfair and unreasonable to pursue SF on the basis that it is easier
than pursuing the importer
• SF had acted in good faith
Customs: • SF is an “owner” within the definition of the Act
• Nothing in s165 suggests the meaning of “owner” should be narrow
• Contractual arrangements between the parties do not alter liability under
the Act
• SF is liable regardless of its involvement in the underpayment
Responsibility for duty - Findings
• Duties are charges on the goods
• Owner is not limited to persons having custody and control of the goods
at importation
• SF as consignee comes within the definition of owner
• SF is owner even if it did not acquire title until after delivery as it became
their owner before the demand was made
• It remained an owner even if it had disposed of the goods before a
demand had been made
Why it was appropriate to pursue SF
Customs
• It was appropriate to pursue SF as:
– there was poor prospects of recovery against Sheng Fa
– the number of brokers and freight companies involved
– SF was the only person in Australia whom a demand could be made
in respect of all entries
– SF would presumably have contractual rights against Sheng Fa
– SF, rather than brokers or freight companies, agreed to DDP terms
Was it appropriate to pursue SF (Cont)
AAT:
• Customs is not required to make a demand on every owner
• Customs can take into account practical matters such as whether the
amount will be recoverable
• Customs must have regard to the circumstances of each owner but also
the revenue raising nature of the Act
• SF voluntarily choose to enter into a DDP transaction
• The ACN played no part in SF’s decision making
• SF may have a right against Sheng Fa
• The circumstances of SF do not outweigh the interest in protecting the
revenue
3
ACNs
ACN 2000/30
• In DDP transactions the overseas supplier is liable for the payment of
customs duty and will be regarded as the owner for Customs
purposes
• Supplier’s agent in Australia will be required to retain all commercial
documents under s240
• liability of underpaid duty:
• owner on the entry
• if liability and ownership is denied, the owner’s agent is
considered to be the person on whom a demand will be made
• Under this ACN only the owner on the entry or their broker would be
liable for duty
• Largely matched the Incoterm
ACN 2014/50
• In DDP transactions both the seller/supplier and the
purchaser/consignee are owners
• the overseas supplier makes the taxable importation and
can claim the input tax credit
• requirements to retain documents fall on the supplier,
purchaser, agent and carrier
• demands for underpaid duty fall may fall on the supplier or
purchaser
• due to economic reasons demands will usually be made on
the Australian purchaser
• Penalties not limited to commercial parties
Draft ACN – 2016/12
• Is basically a summary of 2016/12
• Only new information is to say DIBP’s position was affirmed in Studio
Fashion
• Summary:
– DIPB must pursue underpayment of duty
– Difficult to recovery from overseas supplier
– DIBP will seek duty from Australian buyer
– Importers enter into DDP transactions at their own risk
• Pointless ACN – provides no new guidance to industry
Draft ACN – 2016/13
• Not limited to DDP transactions
• Focuses on the compliance approach
• Liability of owner is joint and several
• Liability of owner not impacted by Incoterms
• Relevant factors – party overseas or insolvent
• Suggests consignees take out insurance in relation to damages
• Compliance
– will take into account cause and seriousness of the matter
– Circumstances of the parties involved
– Will consider the role played by a broker
4
Concerns with draft ACNs
Concerns with the Draft ACNs
• Studio Fashion is an AAT case where Studio Fashion did
not have legal representation – it should be viewed in this
context
• ACN 2016/12
• Decision to demand duty must be reasonable
• Will they first try to pursue the supplier
• Where is the evidence that overseas suppliers will not pay
• Is it only with DDP transactions that recovery decisions will be made
on economic efficiency
• If broker makes the same mistake with 5 clients – is it not more
efficient to just pursue the one broker rather than 5 importers?
• One exporter suppliers to hundreds of consignees – more efficient to
pursue the one supplier
Concerns with the Draft ACNs
• Biggest concern is ACN 2016/13:
• Duty recover should not be a compliance measure
• There are penalties that can be applied where someone has acted
inappropriately
• With penalties proceedings they can be defended
• Penalty provision changed to remove liability of “owner”
• Trade Facilitation Agreement
• Insurance against breach:
• Uneconomical
• Claim against supplier may be time barred
• Have to prove breach – may be hard where duty liability is
disputed
• Wouldn’t help service providers who do not contract with the
supplier
What would have been good
• In the first instance, the DIBP will look to the importer of
record for payment
• Clear statement that if the broker has behaved appropriately
other “owners” will be pursued
• Guidance as the approach in non-DDP transactions
• Guidance as to how foreign companies will be pursued
• Guidance as to other parties in the supply chaint that are
“owners”
• Compare ACNs with Studio Fashion – wasn’t a risk based
approach in that case
• Restrospective
What is better – penalties or debt recovery
Should debt collection be used as a compliance measure?
• Benefit - No recorded penalty
• Negative
• No ability to defend liability
• It exposes compliant and non-compliant brokers equally
• Disconnect between fault and liability
• Doesn’t have to be a choice – duty plus penalties
Other areas
5
GST
• “Owner” has no connection to GST liability
• GST based on the “importer”
• This is the entity that enters the goods for home
consumption
• Customs should not pursue GST from the “owner” unless
they are also the importer
• GST debt collection options more limited
• GST is double – 10%
• Applicable to almost all transactions
Drawback
• Drawback application must be lodged by “the person who is
the legal owner of the goods at the time the goods are
exported”
• DFS Australia Pty Ltd and CEO of Customs
• “the person” – rather than “any person” – only one owner
• Drawback application can only be made by the entity that retains
property in the goods
• Who is the legal owner is determined by the contract between the
parties
• A duty free store is not the legal owner at the time of export
Issues for brokers
6
Implications - Owner
• Advise clients of the potential risk – any client under any INCOTERN is
potentially liable
• DDP – consignee may request proof as to compliance by the supplier
• New stance is lighter on brokers than 2000 ACN
• Brokers not pursued in Studio Fashion – even though due diligence may
have avoided the non-compliance
• Contract with client – who is liable for underpaid duty where your client
is not the importer – need a wide indemnity
• Insurance
Broader implications
• DDP gives little comfort to the Australian consignee
• Who can lodge an import declaration
• Sign that the Department is passing more responsibility onto
Brokers
• Where overseas suppliers are the importer should the DIBP
review docs/goods before releasing the goods
• Impact on AU reputation
• Lack of certainty
• Legislative change?
