In an effort to ensure compliance with Customs laws, particularly with regard to making correct import declarations and paying the correct taxes and duties, Japan Customs under the Ministry of Finance (“MOF”) conducts post-entry audit every year. The post-entry audit is conducted to review the import declarations of importing companies and determine if correct duties and taxes have been paid. On October 09, 2009, the Customs Authority published on their website the results of the post-entry audit conducted between the period from July 2009 to June 2009. During this period, the Customs team conducted post-audits on a total of 6,080 companies. The post-entry audit team’s findings are summarized as below:
Amount of penalty collected on incorrect import declarations is the highest based on historical records
The total non-declared and short-declared value of all investigated companies was approximately JPY198 billion (approximately US$2.2 billion). The amount of penalty collected for such customs violations was approximately JPY12.9 billion (US$144 million), an increase of 15.4% compared with previous year’s post audit results. This amount is the highest and worst in the history of customs valuation relating to import declarations.
Increased Number of Non-Compliance Companies
The post-entry audit team investigated a total of 6,080 companies. Of these, 4,188 or 68.9% of companies investigated were found to have failed to make correct import declarations, the numbers of non-compliant companies increased 2.2% compared with last year. The average penalty amount per company was JPY3.1 millions (US$34,400).
The top 5 product categories and its short duty/tax declarations amount are as follows. These top 5 categories show 50.6% of short duty/tax amount.
- Electrical Machinery (Chapter 85) JPY2,264,900,000
- Machine and Mechanical appliances (Chapter 84) JPY1,327,590,000
- Ore (Chapter 26) JPY945,340,000
- Mineral fuels (Chapter 27) JPY894,500,000
- Organic chemicals (Chapter 29) JPY708,070,000
Sample cases of Short-Declaration Subject to Penalties
Case 1 – Short declaration of expense of R&D cost
A company in Japan imported engine of vehicle from Italy. The importer did not include the expense of R&D cost in import declaration, but the cost was relating to the imported engines and paid separately to manufacturer. The expense of R&D cost must have been included in the amount of import declaration. The non-declared duty/tax amount was JPY1.29 billions and the penalty amount was JPY69 millions.
Case 2 – Short declaration of cost for product development
A company in Japan imported packaging cases for imaging equipment from China. The importer did not include the cost of metal mold which was given free of charge by the importer to the manufacture in China. The cost of such metal mold must have been included in the amount of import declaration. The non-declared duty/tax amount was JPY702 millions and the penalty amount was JPY38 millions.
Case 3 – False application of GSP preferential tariff
A company in Japan imported copper cables from China, and applied GSP preferential tariff in customs declaration. The manufacturer in China imported raw material of the copper cables from Indonesia, and the product was actually not qualified the country of origin in China, according to GSP preferential tariff rule. The penalty amount was JPY14 millions.
Japan Customs strongly encourages importers to learn and understand the customs valuation system. The lack of knowledge about customs valuation and interpretation of customs law may result in additional costs to companies. Non-compliance with customs laws may result in imposition of huge penalties and may damage a company’s brand image and credibility.
