Technology companies are often at the forefront of economic and industrial evolution. Usually, that does not gel very well with customs and international trade regulations that are at best conservative and at worst outright hostile to new development.
This industry is therefore one of the most commonly challenged in the traditional technical areas of tariff classification and customs valuation. The Harmonized System, which is only revised every five years, and even its allegedly fool-proof Rules of Interpretation are not equipped to determine the most appropriate classification of new products.
From a customs valuation perspective, the issues are no less daunting. Determining when research turns into development and therefore may become dutiable is an art that is not appreciated by the authorities. Payments for IP and know-how may have little to do with the products that cross borders, but are still challenged as dutiable by most authorities in Asia. Declaring the value of embedded software that may be partly unlocked long after importation is unlikely to be clearly regulated. The list goes on.
From a process perspective, life in this industry is equally tough. Licensing and standard requirements for importation of technology that are not well understood by the authorities can feel unpredictable and random at times. Downloads of software may be of little interest to Japan Customs, but trigger a criminal smuggling charge in Thailand. And an increasing number of countries are introducing export control regimes covering the export of technology in circumstance that an average company does not even consider an export (think of a developer attending a team meeting with his early drawings).
Consequently, players in this industry are high on the radar screen of the authorities for audits and challenges. Often there is no unambiguous answer to the many questions the authorities ask. And because the authorities feel that many companies are ill-prepared to deal with their queries, they feel emboldened to assess additional import taxes and penalties.
We understand the key drivers for technology companies of first mover advantage, protecting IP, safeguarding market reputation and ensuring business continuity. Preparing for and mitigating risk is therefore of paramount importance.
Our service focus for this industry reflects these priorities. We offer:
The US based customer of a Singapore exporter was challenged on the dutiability of software embedded in the products it had imported but not declared to Customs. The exporter turned to WMS for our views and thoughts on mitigating factors.
How we helped
We analysed both product and payment flows in detail. We confirmed the classification of the imported product as declared, which was dutiable at 8%. In addition, we agreed that the US authorities’ argument that the payment for the embedded software should be included in the declared customs value.
However, we also established that under the US-Singapore Free Trade Agreement, the definition of carrier medium, as introduced by World Customs Organization Decision 4.1., was expanded to cover the product in question. As such, by using the US – Singapore FTA and the application of Decision 4.1., duty was only payable on the “carrier medium” (i.e. the product) and not the embedded software.
Benefit to the client
By retrospective application of the terms of the US – Singapore FTA, a multi-million dollar duty assessment was successfully avoided.
Partner, Taiwan, PwC Asia Pacific Customs and Trade