Cards on the Table: Laying Down the Findings Before the Bureau of Customs (BOC) Calls the Hand

Audit Notification Letter (ANL) initiates the audit.

In BIR audits, the process is usually triggered by a Letter of Authority (LOA). In BOC audits, the equivalent trigger is an Audit Notification Letter (ANL). The ANL is issued by the Commissioner of Customs to the company identified for audit and contains the names of the authorized customs personnel from the Post Clearance Audit Group – Compliance Assessment Office (PCAG-CAO) who will conduct the post-clearance audit.

If you receive an ANL, should you simply submit the documents listed in the checklist and wait for the BOC’s findings, as is often done in BIR audits? An option worth considering is availing of the BOC’s Prior Disclosure Program (PDP).

As the term “prior disclosure” suggests, this should be undertaken before the BOC “calls the hand,” that is, before it issues its audit findings. If you manifest your intention to avail of the PDP, the conduct of the audit proper shall be deferred.

Under Customs Administrative Order (CAO) 01-2019, the PDP is a “program based on international best customs practice, authorizing the Commissioner of Customs to accept, as a potential mitigating factor, prior disclosure by Importers of errors and omissions in goods declaration resulting in deficiency in duties and taxes on past importations.”

Without PDP, findings arising from inadvertent errors or negligence may result in penalties of 25% and 125% respectively, of the revenue deficiency, plus 20% interest. If you avail of the PDP, the penalty may be reduced to 10% of the revenue deficiency, plus 20% interest.

If you decide to proceed with the PDP, the following key points should be considered.

Justify the application.

As with any application, you must be prepared to justify your request. This means ensuring that the PDP application is properly supported. The documentary requirements include the PDP Application Letter, Prior Disclosure Form B, a notarized Company Secretary’s Certificate, a notarized Affidavit of Voluntary Undertaking indicating the intent to file the PDP application, a Customs Compliance Improvement Plan, and a Comparative Computation on Values or Classification and Tender of Payment indicating the amount to be paid based on the issues identified by the consignee.

While these requirements may appear extensive, the BOC provides templates that you may follow. Among these documents, Prior Disclosure Form B and the Comparative Computation on Values may be challenging and time-consuming to prepare, as it requires the disclosure of the affected importation entries, together with the corresponding computation of duties, taxes, penalties, and interest. This is where the next step comes in.

Quantify the penalties.

In determining the amount to be paid under the PDP application, there are two basic components to consider: the deficiency duties and the deficiency value-added tax (VAT).

For the deficiency duties, you must identify the costs, expenses, or adjustments that should form part of the dutiable value. Dutiable value generally refers to the cost of transporting the imported goods to the port of entry in the Philippines, including loading, unloading, and handling charges associated with transporting the goods from the country of exportation to the Philippine port of entry.

For the deficiency VAT, you must include the additional duties due to the adjustment in dutiable value and other adjustments that should form part of the landed cost. Landed cost generally includes all expenses incurred by the importer up to the time the imported goods are released from customs.

In total, the amount payable under the PDP would generally consist of deficiency duties, deficiency VAT, a 10% penalty, and 20% interest.

In addition, fines and surcharges may also apply for clerical errors, misdeclaration, misclassification, and undervaluation.

Once you have prepared the required documents and completed the necessary computations, the next question is when the PDP application should be filed.

Know the dates.

The audit team shall commence the audit proper not later than sixty (60) calendar days from service of the ANL. You may file a PDP within ninety (90) days from receipt of the ANL. A duly filed PDP may also be amended once within thirty (30) days from the date of filing.

After filing the PDP Application, the PCAG shall verify the completeness of the PDP application form including payment made and other supporting documents which shall be completed within the period of ninety (90) calendar days from the submission of the complete PDP documents.

If the PDP is rejected, the audit proper shall continue and should be completed within one hundred twenty (120) calendar days per audit year, or within three hundred sixty (360) calendar days from receipt of the ANL.

When we say “lay your cards on the table,” we mean that you should disclose all relevant issues to the BOC, and the appropriate mechanism for doing so is the PDP.

Remember: upon receipt of an ANL, you may consider filing a PDP. In doing so, keep JQK in mind: Justify the application, Quantify the penalties, and Know the dates.