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Customs’ Advance Ruling System: Regulatory Overview and the Clarifications Needed

By EUSME Centre | Press Article      30.01.2018     Tags:

Written by Helen Ju, EU SME Centre, Legal Advisor

In 2017 China initiated a customs integration reform with the aim of speeding up customs clearance efficiency while imposing more responsibility on importers and exporters who have to do customs classification by themselves and based on the classification, calculate and pay taxes. Thus, generating risks and liabilities. Although the reform simplifies the on-site customs clearance procedure, the afterwards supervision and administration has been strictly strengthened.  The change exposes Chinese trading enterprises to more uncertainty and concerns.

At the end of 2017, the General Administration of Customs issued an Interim Administrative Measures on the Advance Ruling by Customs of the People’s Republic of China (the “Interim Measures”) which received great applause from trading companies in China who unanimously expected the advance ruling to help lower the uncertainty and risks mentioned above.  Below a brief introduction of the Interim Measures is given for better understanding.

I. Introduction of the Interim Measures

The Interim Measures is a response of the Chinese government to the Agreement on Trade Facilitation that came into effect on 22 February 2017 as an appendix to the WTO Agreement.  According to Article 3 of the Agreement on Trade Facilitation, all members are required to provide advance rulings on the goods’ tariff classification and the origin of the goods upon application, and are encouraged to provide advance rulings on the appropriate method or criteria to be used to determine the customs value, relief or exemption from customs duties, tariff quotas etc. In details the Interims Measures provide below:

1.  Items Subjected to Advance Rulings

(1) Classification of imported or exported goods;
(2) Places of origin or qualifications as original products for imported or exported goods;
(3) Relevant factors of dutiable value and valuation methods for imported goods; and
(4) Other customs affairs prescribed by the General Administration of Customs.

"Relevant factors of dutiable value" shall include royalties, commissions, insurance premiums and freight fees, special relation and other factors related to the determination of dutiable value.

2. Who Are the Qualified Applicants

Applicants shall be the foreign trade operators that are relevant to the actual import and export activities and registered at the customs. Therefore, customs brokerage enterprise and logistics forwarding enterprises cannot act as the applicants.

3. Advance Rulings Application Timeline

Application for advance rulings shall be made three months before the scheduled time for import or export of goods.  Under exceptional circumstances and with justified reasons it can be made within 3 months before the scheduled time for import or export of goods

4. Time Limit for Acceptance and Advance Rulings Making

Customs shall decide whether or not to accept the application for advance ruling within 10 days, and grant applicants advance ruling decision within 60 days after the acceptance.

5. Terms of Validity of the Advance Ruling

An advance ruling becomes effective upon its arrival at the applicant and shall remain valid for 3 years.

6. Effectiveness & Scope of Advance Rulings

A decision of advance rulings has no retroactive effect and are adopted by all customs nationwide.  People other than the applicant cannot use the ruling as a basis to ask customs to apply the ruling to the goods they import or export and the ruling can only be used as a reference for people other than the applicant.

7. Remedy channels

Administrative reconsideration and administrative litigation are available as remedies if an applicant does not agree with the ruling.  Administrative reconsideration shall be prepositioned.

II. Clarifications in the Future Implementation of the Interim Measures

Some provisions in the Interim Measures are not clear enough and require further clarification. We list the major ones as below.

1.       Applicants’ qualification:

It is not clear if the party who employ importers or exporters for the import or export of goods can be qualified as an applicant. If not, then a final Chinese buyer which is not qualified as foreign trade operator, has to ask the qualified foreign trade agent to apply for the advance ruling.  Since the ruling is only granted to foreign trade agents, if the final Chinese buyer would like to import goods through another foreign trade agent, the advance ruling won’t apply to such goods imports automatically.

2.       Time for application of advance rulings

Generally, the application for advance rulings shall be made three months before the scheduled time for import or export of goods. It is not clear what documents a foreign trade operator shall provide to customs to prove it will import the goods three months later. In addition, it is not clear what is considered as exceptional circumstance and justified reasons to proceed with the application within 3 months before the scheduled time for import or export of goods.

3.       Time limit for advance rulings and time for additional materials

The provision on time limit for releasing advance rulings is 60 days after acceptance, which is not long for some type of customs matters such as dutiable value and valuation methods for imported goods. In some complicated transfer pricing related cases, customs may need more time to give a safe advance ruling on valuation methods to be used for imported goods. As customs has the right to ask the applicant for additional materials, it is not clear if customs will make use of such circumstances only to gain more time.  If this would be the case, the workload of Chinese importers and exporters will be increased a lot.  

4.       No retroactive effect of advancing rulings

Though advance ruling decision has no retroactive effect, if the goods’ classification adopted by an importer in China before the ruling is given is different from the ruling decision, the taxes paid previously on the same goods might be different, i.e lower than what was originally calculated. What will the importer have to face? 

The ambiguities seen above will be implemented from February 1st, 2018. As it is important for EU SMEs to be always up-to-date with customs regulation, it is important to keep an eye on the future development of the implementation practice.

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