Managing an investigation triggered by a disgruntled employee
An employee of the client left involuntarily and as a consequence reported alleged under-valuation of imported goods to the Anti-smuggling bureau (ASB). The ASB initiated an investigation that entailed the temporary detention of employees, seizure of documentation and extensive interviews. Incoming shipments were held at the port and significant cash deposits collected.
How we helped
We firstly assisted the client to release the employees from temporary detention and to release incoming shipments. We then independently reviewed the technical customs valuation issues and alleged offence. As a result, robust defence documentation, which linked transfer pricing and customs valuation, was prepared and submitted to the ASB that supported the past import declarations. Tactical advice was provided to the client in respect of how best to resolve the case.
Benefit for the client
There was no criminal prosecution of the company or employees. The claw-back of customs duties and financial penalty was reduced. The company's reputation suffered no long-term damage and business continuity was ensured.
An unbalanced handbook and “missing” capital equipment
The client's customs handbook did not balance and duty-free capital equipment was missing. The Customs authority therefore assessed a claw-back of customs duties and imposed financial penalties. The Enterprise Classification was downgraded from "A" to "B" and the external auditor required the financial statements to be qualified due to potential unquantified financial exposures.
How we helped
We conducted an independent compliance review that identified the root causes for the customs handbook imbalance and recommended solutions. We developed a compliance improvement plan, including transition to e-handbook, and new standard operating procedures. Cost saving improvements for bonded transfers and outsourced processing were also identified. Several months later we completed follow-up compliance testing to ensure that the recommendations were implemented and that customs compliance levels were satisfactory. We also reviewed the supply-chain for relevant Free Trade Agreements, and changed procedures to take advantage of lower duties in destination markets for future exports.
Benefit for the client
No further assessments for claw-back of customs duties and financial penalty were made by the Customs authority. The auditor no longer required qualification of the financial statements and the Enterprise Classification was reinstated.
Lowering the cost of sourcing for North American customers
The cost of sourcing from China was becoming even more expensive due to inflation and labour cost increases, appreciation of the RMB, and reductions in the export VAT refund rates. The client requested us to review the procurement supply-chain to identify cost saving opportunities and areas for improvement.
How we helped
We independently reviewed the sourcing model, VAT refund procedures, surveyed and interviewed selected vendors, reviewed the existing HS Codes, reviewed the INCOTERMS and export procedures. We also undertook high-level financial modelling that quantified potential cost savings.
Benefit for the client
Products were re-classified under a new HS Code, a pre-classification decision obtained from Customs, which resulted in the VAT refund rate increasing from 5% to 13%. A new procurement structure was identified that resulted in a reduction of VAT leakage equivalent to 1.5% of the value of the goods being sourced.
A foreign invested enterprise establishing a distribution centre
Our client's manufacturing base and consumer market was becoming increasingly China and North East Asia focused. Establishing a distribution centre in traditional locations like Singapore and Hong Kong would not have met the demands of the future business in terms of operating cost and lead times.
How we helped
We worked with the client to identify the correct bonded zone location, legal structure and operating model, so as to address the respective customs, supply-chain, foreign exchange, operational, tax, and transfer pricing issues. The distribution centre included non-bonded and bonded storage in a single-roof location, VAT refunds were secured, origin under Free Trade Agreements was preserved and a tax Permanent Establishment in China avoided.
Benefit for the client
A preferred Asia bonded distribution centre in China was established. The competing and sometimes conflicting tax, customs, legal and supply-chain requirements were successfully optimised.