Customs Clearance - a point of view from legal risk management


Goods importing-exporting is one of the most important activities happening with high frequency in transaction of current enterprises. The trend of global economic integration in part years made international goods transaction becoming a more and more frequent activity of enterprises. The rule of carrying out custom procedure to import goods into Vietnam is executed publicly, quickly, conveniently to ensure timely the demand of importing. Under item 3, article 77 of Law on Custom, checking time after customs clearing is 5 days after the date of registering customs declaration.

Custom Clearance - an aspect of legal risk management, risks on custom clearance, administrative penalty in custom clearance

If the partner has a bit of lacking careful in collecting, preparing the importing dossier, the Vietnamese enterprises may be effective in declaring and making responsible themselves with their goods. The trust of this procedure does not only depend totally on Vietnamese enterprises as an importing party, but also depend on foreign partner as an exporting party. These productions are been customs clearance, received for store, and even consumed in market, but within 05 years, they will be considered to check again according to the procedure of after customs clearance. As newspapers, some enterprises are collected arrears of tax with an amount of 10 billion dong by this procedure. In 2011, Hanoi Department of Customs checked customs clearance 235 enterprises, collected arrears of tax with a total amount of nearly 42 billion dong; in first 6 months of 2012, this Department check 90 enterprises, collected arrears of tax with a total amount of over 10 billion dong. Up to November 15th, 2016, General Department of Vietnam Customs checked customs clearance 8.311 cases of 2016, in there, 1.157 checked cases in headquarter of customs declarant and made decision to collect arrears with an amount of 3.090 billion dong (increasing 94% in comparison with the same period of 2015). Procedure of checking customs clearance may reject limitations in declaring customs valuation, applying tax-free preferential policy and suggest the way to treat, thence avoiding loss of tax. However, if some misfortune are arisen because of carelessness or having every confidence in foreign partner in period of preparing the importing dossiers, enterprises that are subject of this checking procedure shall be borne corollaries  

Enterprises run the risk of being lost profits

When an enterprise itself enumerates their goods for tax exemption, tax reduction basing on the dossiers which are considered sufficiently under regulations of laws, then the custom authorities accept and permit above-mentioned goods as tax free merchandises at the time of customs clearance, certainly the enterprise will take advantage of this offer to reduce the price of the product to compete with the same product on the market. However, one or two or even five years later, these merchandises are not eligible for tax exemption by the procedure of checking goods post customs clearance via the decision of Customs. In this case, the enterprise may be collected tax arrears. Of course, at that time, the amount of tax could not be booked into costs and it general intangible will be became to a loss of business. That is not to mention that the post-clearance inspection may also raise the issue of other liability that the enterprise must face if through inspection, the competent authorities detect signs of crime forging papers or forging a seal, although that is not quite the act executed by the enterprise itself or its foreigner partner.

In order to solve such predictable risks, some necessary measures should be taken, as follow:

Firstly, the partner's capacity needs to be evaluated

Partner’s capacity assessment does not only simply update the partner's financial information, but also comprehensively checks the legal status, origin status, quality and documentation of such factors as: Certificate of Origin (CO), Certificate of Quality (CQ), Certificate of Conformity (CE) ... with partner's products, including:
- Intellectual Property Rights: Documents proving the ownership of trademarks, industrial designs, copyrights of software and other industrial property objects.
- Legal status of the partner: The conclusion of whether a partner is a legal entity or not must be based on the laws of Vietnam and the laws of country where the partner company has nationality first. If necessary, stamped documents issued by the national authorities should be legalized to ensure their safety and legitimacy in Viet Nam, although this is not mandatory in most cases of executing procedures for importing goods.

Secondly, there is a need to add a further five years Penalty Clause

According to international trade practice, the parties may agree on a maximum penalty in goods purchasing contracts, not be contrary to the legal system governing the content of the contract. In case the seller/exporter provides CO or other unlawful documents leading to liability for the buyer/importer, the penalty clause will be useful to surmount damage for the buyer or the importer. On the other hand, this penalty clause can also be a good tool of binding the seller/exporter honest when delivering paperwork and creating a mechanism to help the buyer/ importer get compensation for the risks arising after goods to be cleared in a certain period of time. When the time for checking imported goods has expired, the seller/exporter will automatically be freed from the contract penalty clause. On the contrary, if the penalty clause is applied in cases of breach of contractual obligations and terminated when the delivery of goods has been completed, the risks of port customs clearance will not be guaranteed to surmount by the seller/exporter

Third, compensating obligations should be added in the period of more than 05 years 

We assume that imported goods are subject to inspection and handling of violations after customs clearance, the buyer/importer will incur considerable costs such as: goods assessment to collect documents, evidences; be collected arrears of tax, be fined for late payment of taxes ... Sometimes even penalties applied to the maximum level is not enough to surmount damage to the buyer/importer. Therefore, in order to ensure the maximum interests for Vietnamese enterprises, there should be more provisions on compensation for actual damages incurring. This compensation is calculated on the basis of the actual amounts payable by the buyer due to a breach or dishonesty in relation to the goods and legal documents enclosed the goods. Similarly, the time of prescription for applying this compensation sanction must be extended by the time equal to the duration which the competent authorities of the country where the importer has nationality, has right to check post-customs clearance in accordance with the laws.

Fourth, supplement the terms of Performance Bond

Performance Bond - a performance guarantee to execute the contract will be a guarantee solution for the performance of the seller's obligations after the import process is completed, corresponding to the buyer's deposit. The seller's/exporter's indemnity and paying fine obligations will be guaranteed by a reputable commercial bank who undertakes to pay on behalf of the seller / exporter all obligations incurring in the event of a breach even the import process has been completed. Thence, all penalties and compensations become enforceable. This is a good choice for Vietnamese enterprises because it not only guarantees the performance of the obligation of compensation but also other responsibilities of the seller/exporter with the buyer/importer, such as observing quality standards, refunding the deposit, delivering goods on time ...

The advantage of performance bond is transparency, objectivity and safety because of the involvement of a third party - a reputable and having financial capacity bank. However, to reach an agreement on this guarantee is not easy. Because the seller will have to weigh costs and interest from the bank that they are incurred on the amount the guarantee. Therefore, the best solution for Vietnamese enterprises is they have to assess legal capacity, legal documents of partner and imported goods in order to reduce the possibility of being detected by the post customs clearance checking procedure of competent authorities.

Specially thanks to Doctor, Lawyer Do Minh Anh for her valued sharing and Lawyer Le Minh Tuan's contribution!