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Customs Compliance – Now is the Time To Be More Vigilant than Ever

This article was originally published in the Autumn edition of Across Borders, which can be found here
Generally, Australia’s customs duty rates of 0-5% are not sufficient to motivate deliberate evasion of duty. In an environment of low duty rates, most non-compliance tends to be accidental, rather than deliberate. However, the tables are turned when dumping duties are imposed. Dumping duties often exceed 30% and can even be over 100%. Where the rewards for non-compliance are this high, there will undoubtedly be greater motivation to engage in duty avoidance.
Over the past few months we have heard increasing instances of suppliers seeking to work with importers to lower or avoid dumping duties. At the same time, the Australian Border Force is engaging in greater levels of targeted compliance activity. In this environment there is a risk that importers will find themselves on the receiving end of massive fines and the requirement to back pay duty and GST. Purchasers need to be aware of the risks and realise that regardless of the promises made by the exporter, if there is deliberate non-compliance and underpayment of duty, it is the Australian consignee that can be liable, even if the principal architect of the evasion was the foreign exporter.
When is dumping duty payable
Dumping duties are payable where the Anti-Dumping Commission finds that goods are exported from a foreign country at a price that is less than their normal value and that dumping is causing loss to an Australian industry. ‘Normal Value’ is usually a reference to the domestic selling price in the country of export. Countervailing duties are payable where it is found that exporters from a third country are benefiting from specific government subsidies.
It is important to understand that the imposition of dumping duties does not only occur when goods are sold to Australia at a loss. Australia can be a very profitable export market and still dumping duties will be imposed.
What are the problem industries
The Anti-Dumping Commission keeps a record of all goods subject to dumping duties on the importation into Australia. Whether dumping duties are payable depends on the type of goods, the country of export and, to a lesser extent, the identity of the exporter. The most common goods subject to dumping duties are steel and aluminium products out of China. We are seeing a notable amount of compliance activities around aluminium extrusions (solar panel mounting kits, construction material, fencing) and steel hollow structural sections (pipes and construction material).
What are the tactics adopted?
We are receiving reports of some exporters of Chinese steel and aluminium adopting a variety of methods to avoid or lower the dumping duty payable at the Australian border. Here are some tactics for Australian customers to look out for.
The shelf company
Under this tactic, goods subject to dumping duty are deliberately reported as a different kind of good and imported by a $1 shelf company. The tactic isn’t clever, the plan simply being that if the deliberate non-compliance is detected, the liable party will be a shelf company that can be wound up at little cost.
There are some basic problems with this approach. Firstly, the individuals that act to facilitate the non-compliance can be charged with aiding and abetting the shelf-company in its non-compliance. If that person is a director, deliberately engaging in tax avoidance may amount to a breach of his or her directors duties.
If the shelf-company on-sells the goods to a related company, that related company may be deemed to be in possession of the goods and liable to pay the underpaid duty by this reason alone.
Under this approach goods made in China are ordered by an Australian company and rather than being shipped direct from China, the goods are transhipped to a third country and then disguised as the goods of that country. This includes new commercial documents and even Government issued certificates of origin.
The ABF is aware of this tactic and recently notified industry of penalties imposed on an importer who transhipped Chinese goods via Malaysia and made false claims about the origin. Where there are doubts as to the origin of the goods the ABF will investigate whether the supposed third country manufacturer exists. It is not unheard of for investigators to find a vacant block at the location of a supposed factory.
Transhipment does not prevent goods being categorised as having been exported from China to Australia. It just makes the export harder to detect. To facilitate the deception the importer needs to falsely declare the country of origin and the identity of the supplier. In doing so, the importer exposes themselves to strict liability for making a false statement resulting in an underpayment of duty and obtaining a financial advantage by deception.
Again, the underpayment of duty will follow the goods. As the ultimate purchaser of the goods, there is no way to wash your hands of the duty consequences.
Invoice splitting
Often it is only one part of the consignment that attracts dumping duty. For instance, where the goods are used to mount solar panels on roofs, the component that attracts dumping duty may be the rails, but associated clamps may be duty free. A supplier will be tempted to produce invoices for customs purposes that greatly inflate the value of the clamps and has a corresponding reduction in the value of the rails.
The ABF audits many legitimate importers and has a lot of intelligence as to the value of common imports. Income splitting will be easy to detect if the relevant imports are the subject of an audit. Where the invoices have been manipulated, the ABF can disregard the invoice value in determining the customs value of the goods. The ABF can determine the value by reference to the price of similar goods, or by the Australian sale price of the goods (less certain post importation costs).
Test imports
We have heard reports of exporters offering to sell the goods on the basis that liability for dumping duty will not be declared and if the import is detected by the ABF, the import will be abandoned with the exporter paying the costs of export to a third country.
There is nothing illegal in agreeing that a supplier will pay the costs of re-exporting goods if the importer no longer wants to import them. The problem exists from what happens if the goods are not detected at the time of import. In this scenario the goods will be imported with dumping duty being deliberately underpaid. The underpayment will have resulted from falsely describing the goods or incorrectly claiming that they are subject to an exemption.
Unless the importer is upfront about the potential dumping duty (such as via an amber line entry), this approach is no different than simply making false statements. Agreeing to not import the goods if you are caught will not be much of a defence if you appear before a Court.
Supplier as the importer
Under this approach, the supply of the goods occurs as a domestic sale in Australia. The overseas supplier is both the exporter and the importer. It the overseas supplier that makes the relevant declarations to the ABF it will be the entity that would be subject to any fines that are payable.
The overseas supplier will also be first in the ABF’s firing line if there is any underpayment of duty. However, first in line is not the same as being the only one in line. Australian case law shows that if there is an underpayment of duty, the ABF can pursue that duty from the Australian customer, even if that customer had no involvement in the import and was unaware of the duty avoidance.
When the choices are between an Australian resident company and a foreign supplier, it’s easy to guess who the ABF debt collection team would prefer to pursue.
What are the risks?
The risks start at liability for the underpaid duty and GST and go up from there. In respect of underpaid duty, the ABF can base its demand on the past four years of imports. It can go back further if there is evidence of deliberate avoidance of duty. We have seen multi-million dollar demands made by the ABF.
Where the ABF can prove deliberate duty avoidance, the minimum penalty a Court can hand down is two times the underpaid duty, the maximum is five times the underpaid duty.
Even if the offence is merely a non-deliberate false statement, the maximum penalty is an amount equal to the underpaid duty.
However, the ABF does not have to trouble the Director of Public Prosecutions and take the importer to Court. Rather, the ABF can issue infringement notices of an amount equal to 75% of the underpaid duty without needing to prove a single allegation.
Put simply, if caught, you can expect to pay the underpaid duty plus at least 75% extra.
This is just the financial penalties, it does not take into account the impact on your supply chain of increased levels of compliance activity.
While all of the above is scary, if there is deliberate avoidance of a large amount of duty, the Commonwealth may choose a criminal, rather than customs, prosecution. This means that a penalty option is a jail sentence.
What to do
This issue is not going away, if anything, we can expect both ABF compliance activity and dumping duty rates to increase. Where the action is deliberate avoidance of dumping duty, there is no way to pass the risk onto a third party. If nothing else, the duty liability will follow the goods.
There are ways to legitimately manage increasing dumping duties. This can include dealing with suppliers who have secured individual favourable rates or legitimately gaining exemptions from the duty. In some cases, it will also be possible to have the duty rate reassessed.
While these options can involve an investment of resources, these options should all be investigated. What importers shouldn’t do is believe in an offer that is too good to be true. These offers all rely on non-compliance not being detected and leave the importer greatly exposed when the inevitable happens.
If you believe that you may have been involved in past non-compliance, there are significant benefits associated with voluntary disclosure. For a start, the ABF will not be able to issue infringement notices. More importantly, the ABF mindset is very different for importers who are voluntarily seeking to improve compliance. If non-compliance is detected in an audit, it is very hard to have the ABF, or a Court, see you in a positive light.
Please contact Russell Wiese for assistance with managing customs compliance and rising rates of dumping duty.
Customs Compliance – Now is the Time To Be More Vigilant than Ever | Hunt & Hunt

Four Key Areas to Look Out For in Your Customer’s Transport Services Agreement

Increasingly, customers are insisting that transport companies use their Transport Services Agreement, rather than the transport operator’s own terms and conditions. These customers will have undoubtedly allocated significant risks away from them to you, their service provider. Some key areas to check are:

Rates: If your bid for the work assumes a minimum volume, ensure that your customer commits to that, or else give yourself a right to increase rates or to terminate. If you don’t have those rights, you’ll be taking the risk!  It’s important to stipulate that rates are regularly reviewed, including if the transport services change (eg. new routes) and that there is an objective process (preferably, a formula) that covers off on cost increases you are exposed to. If new charges or taxes are introduced, the contract should allow you to pass these through to your customer. Finally, beware of ‘most favoured nation’ clauses – these work in the customer’s favour and can be very difficult to manage with a range of customers once the contract is on foot.
Exclusivity/minimum purchases/early termination: If you are not the exclusive provider (or don’t have a minimum purchase commitment), or your customer can terminate without cause, how will you recoup the capital expenditure (new trucks, trailers and depot works) that you have bought or leased to service the contract? If you are incurring significant capex, aim to secure from the customer a mixture of exclusivity, minimum volumes or a committed contract period. There is a similar issue for employees taken on to service a new contract.
Liability management: We recommend a holistic approach to assessing your overall exposure and liability management. Some ‘tools’ available include:

contractual protections to ensure you have a reasonable opportunity to rectify
appropriate liability limitations and exclusions (e.g. of consequential loss)
insurance – a specialist insurance broker who understands your business and the industry can add value
contribution – ensure the contract only makes you liable for the losses you have caused.

KPIs: These are increasingly common, with greater detail and more serious consequences if not met, including termination. KPIs should be objective and properly measurable. An appropriate cure regime should apply before triggering serious consequences.

Four Key Areas to Look Out For in Your Customer’s Transport Services Agreement | Hunt & Hunt

Why You Need a Lawyer in Your Next Lease Transaction

At first glance, the relevance of an article about property leasing to transport operators may not be obvious. Well, your fleet has to reside somewhere and it’s likely you will need to lease premises for this purpose.
Entering into lease will involves ongoing legal and financial obligations that can last for years.
Our experience suggests the following reasons why it pays to seek legal advice before you commit:

Once you have signed a Heads of Agreement, you will find that the landlord, its lawyer and the agent will resolutely refuse to depart from the commercial terms – you are locked in. Get advice before you sign the Heads of Agreement.
You sign a Heads of Agreement and enter into the lease, only to find you require a planning permit to use the premises as intended. The planning permit is rejected. Council requires you to cease use. You are stuck with a useless lease but compelled to pay the rent for years. So, you also need to get planning advice before you commit.
You fail to cap rent increases, you agree to higher than market rate increases or you fail to negotiate the right to institute market reviews. The devil is in the detail.
You fail to assess the outgoings and find out after you are committed that there are substantial owners’ corporation fees. You’ll be paying these for years.
You agree to an ‘estimated’ per square metre figure for outgoings only to find that the actual figure is significantly increased. The landlord argues it was only ever an ‘estimate’. The estimate should have been capped but the horse has bolted.
You fail to conduct adequate due diligence and don’t notice onerous and unusual owners’ corporation rules or building rules that adversely affect your use of the premises, e.g. hours of operation.
Inadequate attention is given at the negotiation stage to matters such as building services including air-conditioning, heating, access, car parking and essential safety measures.
Your access to the premises is delayed because you have not provided the bank guarantee and insurances, meaning your lead time for fit out works blows out.
You find yourself stuck with unusually onerous and expensive make good obligations in the lease. Not a worry now, but in 5 or 10 years, the costs could be enormous.
You agree in the lease that the landlord can waive the make good requirements and instead require you to make a payment in lieu of make good. The reality is the landlord will require you to make a grossly inflated payment. It will carry out minimal make good works and use your money as an incentive for the next tenant.
You fail to prepare a condition report at the start of the lease resulting (at the end of the lease) in a costly dispute about the condition of the premises.

Some investment in proper advice at the outset is money well spent.
Our experienced staff are a phone call away.
Why You Need a Lawyer in Your Next Lease Transaction | Hunt & Hunt

When Land-Use Planning and Road Management Lumber Logistics

Transport operators’ and transport industry suppliers’ core need for the public road network goes without saying. What is just as vital, but sometimes overlooked, is ensuring continued access to that network, and the best access points to the best parts of that network.
The Victorian State Government has both well-known and lesser-known powers to take any transport industry facility (whether a logistics operation, transport depot, or service station) and isolate it from the access and connectivity that it needs to survive, let alone grow and thrive.
Road network planning by the State Government, to prepare for projects that build the capacity of the road network across Victoria, is almost always a plus for the transport industry as a whole – shorter travel times, less congestion, less wear-and-tear on drivers and vehicles, less fuel use.
But for some individual transport operators, there can be very adverse consequences!
Road authorities (VicRoads, the Major Road Projects Authority, and larger local councils) frequently seek to restrict direct access to upgraded roads, at each upgrade stage. If you are a business operation with valuable and effective exposure and access to an under-strain and under-capacity arterial, major or collector road, you are at the greatest risk of:

sterilisation of parts of your operation land by a public acquisition overlay (PAO) in preparation for compulsory acquisition for a widened road alignment;
being prevented from expanding (or even reconfiguring or upgrading) your current operation land while the government decides if and when a widening project will go ahead;
having to seek compensation for land taken and for disruption to your business (or having to relocate it) once the government gives the project go-ahead;
having direct main-road access to the widened, upgraded road either restricted or (in the worst case) prohibited once the project is completed.

If your business operations could be exposed to these risks, planning for your business’ future includes exploring your options to oppose, or at least influence, how the relevant road authority will design and manage the finished road project, and how the project will be implemented, including:

the amount of land that needs to be taken (and on which side of the existing road)
the staging of the project (with the aim of minimising business interruptions)
the benefits of maintaining direct access between your business operation and the upgraded arterial road (by signalised intersection, left-in-left-out, or other facilities) compared with restricting direct access to the local street network only.

Influencing a road project’s design can occur by negotiating with the road authority, and by participating in the planning scheme amendment process related to the PAO, including with the benefit of expert traffic engineering advice.
The Hunt & Hunt Victoria property, planning and compulsory acquisition teams are ready to assist businesses confronting these threats to their viability.
When Land-Use Planning and Road Management Lumber Logistics | Hunt & Hunt

Exporters from China, Vietnam and Other Non-Market Economies to the US May Now be Entitled to Refunds of Countervailing Duties

As many readers would be aware, WTO Agreements (adopted by member countries) allow for the imposition of anti-dumping duties (to remedy a situation where sales in export markets are at prices below values in country…

Exporters from China, Vietnam and Other Non-Market Economies to the US May Now be Entitled to Refunds of Countervailing Duties | Hunt & Hunt