Post Clearance Audit and Prior Disclosure Program

Post Clearance Audit

Within three (3) years from the date of final payment of duties and taxes or customs clearance, the Bureau of Customs, through Post Clearance Audit Group (PCAG), may conduct an audit examination, inspection, verification, and investigation of importation records to assess the correctness of goods declaration.

The criteria for selecting companies to be audited comprises of:

1. Relative magnitude of customs revenue to be generated from the company;
2. Rates of duties of the company’s imports;
3. Compliance track records of the company; and
4. Assessment of the risk to revenue of the company’s import activities.

Post Clearance Audit is mandated to importers, locators, customs brokers, and all other parties engaged in customs clearance and processing. They are required to keep records at the principal place of business for a period of three (3) years. For importers, maintenance of records shall start from the date of final payment of duties and taxes or customs clearance, whichever is later. For locators and other parties engaged in customs clearance, it shall start from the date of filing the goods of declaration.

What are the records required to be maintained?

1. Documentation of the organization and structure of the company;
2. Documentation on orders and purchases;
3. Documentation on shipping, importation, exportation, and transport;
4. Documentation on manufacturing, stock, and resale;
5. Financial documents and other accounting information;
6. Charts and codes of accounts, general and subsidiary ledgers, general journal, accounting instruction manuals, and systems and program documentation that describe the accounting system used by the importer; and
7. Any other relevant information or record.

Failure to keep records shall result to the following penalties:

1. Suspension or cancellation of accreditation as importer or broker;
2. Surcharge of 20% on the dutiable value of the goods which is the subject of the importation for which no records were kept and maintained;
3. Hold delivery or release of subsequent imported articles to answer for the fine and any revised assessment;
4. Criminal prosecution punishable with imprisonment of not less than 3 years and one day but not more than 6 years, and/or fine of P1M; or
5. Waiver of the right to contest the results of the audit.

In the conduct of Post Clearance Audit, the Commissioner shall issue an Audit Notification Letter (ANL) to the company identified to be audited. It shall be valid for thirty (30) days prior to its expiry, and must be served to the importer either by personal service at the principal place of business, personal service at the registered mail, or through the registered electronic mail address.

During audit, full and free access to the premises where the records are located shall be given. Failure or refusal to full and free access to authorized customs officer will result to following penalties:

1. Suspension or cancellation of accreditation as an importer or broker;
2. Punishment for contempt, for contumacy or for refusal to provide access, from the proper court having criminal jurisdiction over the matter;
3. Re-assessment of the importations subject of audit, the declared transaction value being presumed inaccurate applying therein the correct valuation method, tariff classification, quantity and/or country of origin, as applicable, based on available data;
4. Surcharge of 20% on the dutiable value of the goods which is the subject of the importation for which no records were kept and maintained;
5. Hold delivery or release of subsequent imported articles to answer for the fine and any revised assessment; or
6. Criminal prosecution punishable with imprisonment of not less than 3 years and one day but not more than 6 years, and/or fine of P1M.

Upon completion of the audit, the Bureau of Customs shall give a copy of the final audit results to the Bureau of Internal Revenue and Department of Finance within thirty (30) days from the issuance. Any company who is found to incur deficiencies in payment of correct duties and taxes shall be penalized. If found guilty of negligence, a fine equivalent to 125% of revenue loss will be imposed. On the other hand, if the offender is charged for committing fraud and found guilty, will be penalized with a fine equivalent to 6 times of revenue loss and/or imprisonment not less than 2 years but not more than 8 years. Inadvertent error amounting to simple negligence shall only result to payment of 25% penalty of the revenue loss.

Considering the high penalties that may be imposed after the post clearance audit, it is advisable for companies to consider availing the Prior Disclosure Program.

Prior Disclosure Program

Prior Disclosure Program (PDP) is an option given to importers to voluntarily report to the Bureau of Customs any errors or deficiencies in goods declaration. Based on the international best customs practices, it is a program authorizing the Commissioner of Customs to accept prior disclosure of errors and omissions in goods declaration of importers. 

Who may avail PDP?

1. Any importer who has not been issued ANL; and
2. Any importer who has received ANL, provided that the necessary documents are submitted within ninety (90) days from the receipt of ANL.

A PDP application shall not be applicable for goods declarations that are subject of pending cases with any other customs office, for goods declarations already covered by cases filed and pending in the court and for goods declarations involving fraud.

What are the documents required to be accomplished to avail PDP?

1. Duly accomplished application form disclosing the errors in goods declaration; and
2. If applicable, tendering payment of deficiency duties and taxes.

Should there be any adjustments to the application, the importer may amend the PDP application within an additional non-extendible period of thirty (30) calendar days from the filing of the application.

An approved PDP application will result in any of the following:

1. In case of non-receipt of ANL, the applicant shall only pay the deficiency in duties and taxes plus a legal interest of 20% per annum. 
2. If the applicant received an ANL, the applicant shall pay the deficiency in duties and taxes plus a penalty of 10% (based on the deficiency) and a legal interest of 20% per annum.
3. If the applicant disclosed and filed within 30 days from the payment date or accrual of royalties and other proceeds any subsequent resale, disposal, or use of importations accruing directly or indirectly to the seller, or any subsequent adjustment to the price paid or payable, the applicant shall only pay the deficient duties and taxes without any penalty or interest. However, if the applicant fails to pay within 30 days, the above provisions shall apply.

MP Camaso and Associates offers a wide range of services, including Post Clearance Audit to local entities in the Philippines. Need professional assistance? Consult with us today!