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HOME > Publications > Professional Articles > Customs Note 3: Those Things About Customs Price Inspection

Customs Note 3: Those Things About Customs Price Inspection

Author: Ning Jing & Yang Yurui 2021-12-13

Abstract: Customs inspection is a common supervision means of the Customs, but also an important way for the Customs to check and rectify non-compliance of enterprises, discover and transfer suspected violations of Customs supervision regulations, suspected of constituting smuggling or smuggling crime clues. Among them, whether the declaration of price-related elements is accurate and whether there is tax evasion has always been the key of Customs inspection, and it has become a hot issue for consulting in practice because it is directly related to the vital interests of enterprises. Based on this, this issue briefly summarizes and sorts out the areas of concern by Customs price inspection in recent years, common consequences of Customs price inspection, legal liabilities that enterprises may bear, hoping to be helpful to enterprises.

Key words: Customs price inspection, collection and recovery of the duty, consequences, compliance measures

I. Areas concerned by Customs price inspection in recent years

1. What is Customs price inspection?

Customs Inspection Regulations of the People's Republic of China on Customs Inspection defines Customs inspection as: Customs inspection of accounts books, accounting vouchers, Customs declaration documents and other relevant materials (hereinafter referred to collectively as the "accounts books, documents and related materials") of enterprises and organizations which are related directly to imports and exports, as well as Customs inspection of the relevant imports and exports, within three years from Customs clearance of imports and exports or within the Customs supervision period for bonded goods, tax-exempt and tax-reduced imports and exports and the three-year period thereafter, and supervision of the veracity and legitimacy of their import and export activities thereof.

The essence of Customs price inspection is still Customs inspection. As the name implies, it is an activity that the Customs carries out inspection on the authenticity and legality of the declaration of "dutiable value related elements" by the inspected enterprises in imports and exports.

2. Price inspection involves a wide range of Customs fields and has a far-reaching impact on enterprises.

The entry point of price inspection is "dutiable value related elements" whether to declare truthfully, accurately, appears to be a point, but in fact "dutiable value related elements" contains the royalty, commission, special relationship, freight and insurance, and many other may affect the examination and approval of the Customs dutiable value, each element and involves different professional knowledge, areas. Therefore, with a point to the surface, it has a far-reaching impact on enterprises and even related industries..

With the improvement of informatization, professional ability and risk analysis methods, the Customs has intensified its inspection on elements related to dutiable value in recent years, and carried out special inspection more and more frequently in royalty, special relationship, and freight and insurance declaration. Unlike the "comprehensive examination" feature which aims to supervise and standardize the imports and exports of the inspected enterprises, special inspection mainly lies in the discovery of illegal behaviors, and is a kind of inspection mode that focuses on industries, enterprises and commodities with high risks degree or strong policy sensitivity. The Customs will often target the enterprises, industries or commodities through the preliminary investigation of risk analysis, and then carry out the inspection. Therefore, the hit rate of the special inspection is usually 100%, so the enterprises should be sensitive and vigilant.


1 Areas concerned by Customs price inspection in recent years

II. General consequences of Customs price inspection

The Customs price inspection is officially started when the enterprise receives the Notice of Customs Inspection. The inspection is usually notified to the enterprise 3 days before the implementation of the inspection. In case of compliance with the prescribed circumstances, the Customs shall conduct the inspection without prior notice and issue a Notice of Customs Inspection to the inspected enterprises at the beginning of the inspection. After the inspection, there are generally the following consequences:

(I)Non-standard behavior found in the enterprise -- Order correction

Inspection is a means for Customs to supervise the authenticity and legality of imports and exports of enterprises. If after the inspection, the Customs found that although there are non-standard behaviors in the enterprise, but there are no violations of laws and regulations, for the non-standard behaviors, the Customs will order the enterprises to correct.

For example, according to Article 30 and Article 31 of the Customs Inspection Regulations of the People's Republic of China, if there is one of the following 4 situations, the Customs will order correction.


2. Cases of order correction

Of course, in the aforementioned cases, if the enterprise refuses to correct, or the circumstances are serious, the Customs can also apply relevant penalty in accordance with the provisions. It all boils down to:

1. Minor non-standard behaviors will be ordered to correct within a time limit, failing to correct within the time limit will be fined;

2. If the circumstances are serious, the Customs declaration registration shall be revoked, and the direct accountable person(s)-in-charge and other directly accountable personnel shall be subject to a fine.

(II) Where the enterprise is discovered that Customs duties or other import-linked taxes are under-levied or not levied, it shall collect retrospectively and recover the amount and carry out according to the provisions

Where, through price inspection, the Customs discovers that there is any untruthful declaration of elements related to the dutiable value of the enterprise, resulting in the under-levied or not levied, the Customs shall collect or recover the payment from the inspected person in accordance with the law. That is to say, as long as the inspection found that enterprises under-levied or not levied of duty, the collection and recovery of the duty is inevitable. There are two issues involved:

1. Is collection or recovery of Customs duty?

The period of collection retrospectively is from the date of duty payment or the Customs clearance within 1 year, and the period of recovery the amount is from the afore-mentioned starting-point within 3 years, and even by the day add collect under-levied or not levied duty 5 of 10 thousand late payment fine from the date of duty payment or Customs clearance. For the enterprises, whether to apply collection within 1 year, or recovery within 3 years, there is a huge difference of duty amount, and it involves the issues of nature determination, so it is necessary to distinguish clearly. Generally speaking, the difference is that the collection is based on the premise of "violation of regulations" of under-levied or not levied duty caused by the inspected enterprises.

2. What is "violation the provisions"?

Since the key to distinguish the recovery and collection is whether the taxpayer "violate the provisions", then, "provisions" refers to what? According to the administrative interpretation of Customs Order No.1 issued by the General Administration of Customs in 2012, the "provisions" herein generally refer to the laws, administrative regulations, rules and announcements of the General Administration of Customs. As to how to determine whether the taxpayer "in violation of provisions", in practice, the internal work and collaboration among different departments involved in the Customs. Usually, if the inspection department discovers that the enterprise is suspected of violating provisions during the inspection, the case will be handed over to the anti-smuggling department, and the final application of collection or recovery will be determined according to the feedback of the anti-smuggling department.

To summarize, if the enterprise is found to be under-levied or not levied through inspection, the following consequences may occur according to whether the enterprise "violate the provisions":


3 The possible consequences of under-levy or non-levy

Both figure 2 and 3 relate to situations where the inspection department finds clues that the enterprise may be suspected of violating regulations and transfers them to the anti-smuggling department for handling according to the division of departments. Details will be introduced in Part (III).

3. Application of voluntary disclosure

In addition, figure 3 also involves relevant provisions on voluntary disclosure, which is summarized as follows:

(1) Applicable circumstances

Where an enterprise discovers through self-examination that it has under-levied or not levied in its imports and exports or other circumstances in violation of Customs regulations, it may voluntarily disclose to the Customs.

(2) In any of the following circumstances, voluntary disclosure cannot be determined:

- The Customs has already got the clue of violation before reporting;

- The Customs has notified the inspected enterprise for the inspection before the report;

- The contents of the report are seriously untrue or other illegal acts are covered up.

(3) Favorable policy determined by the Customs as voluntary disclosure

If it meets the requirements and is determined by the Customs as voluntary disclosure, the favorable policy is mainly reflected in no administrative penalty, reduced or lighter penalty, exemption of late payment fine, and no impact on credit rating.

In terms of tax-related violations, no administrative penalty shall be imposed if any of the following circumstances are met:

- Voluntarily disclose to the Customs within 3 months from the date of occurrence of tax-related violations, and take the initiative to eliminate harmful consequences;

- Voluntarily disclose to the Customs 3 months after the occurrence of tax-related violations that the amount of tax not levied or under-levied is less than 10% of the amount of tax payable, or the amount of tax not levied or under-levied is less than RMB 500,000, and take the initiative to eliminate harmful consequences;

In addition, the behavior of import and export enterprises that voluntarily disclose and are given a warning or a fine of less than 500,000 yuan by the Customs shall not be included in the records of the Customs in determining the credit status of the enterprises; For import and export enterprises that voluntarily disclose and pay taxes in arrears, the Customs may reduce or exempt late payment fine.

(III) If it is discovered that the enterprise is suspected of violating laws and regulations, it will be handed over to the anti-smuggling department

If the inspection department discovers that enterprise is suspected of violation laws and regulations and handed over to anti-smuggling department, the anti-smuggling department will investigate the case clues handed over. If it is determined through investigation that the relevant behavior of the enterprise violates the provisions of Customs supervision or constitutes smuggling, administrative penalty will be imposed in accordance with the Implementation Regulations of the Customs of the People's Republic of China on Administrative Penalties and other provisions. If it is suspected of constituting smuggling crime, it will be handed over to the procuratorates for prosecution. It can be said that a large part of administrative cases or criminal cases of anti-smuggling departments come from the handover from inspection departments. Therefore, enterprises must attach importance to the compliance measures to Customs inspection, so as to prevent small issues from developing gradually and defuse risks in advance.

III. Legal liability and compliance measures of the enterprise

(I) Possible legal liabilities of the enterprise

In terms of the types of legal liabilities, the enterprises need to bear after being discovered issues by Customs inspection mainly involve administrative and criminal. For specific violations of laws and regulations, please refer to the Implementation Regulations of the Customs of the People's Republic of China on Administrative Penalties.

In addition, enterprise will be held legally liable for violations of laws and regulations and may have their credit ratings downgraded. Especially the current Customs simplifies the enterprise credit ratings, if authorized enterprises in line with the credit level down, will be downgraded to dishonest enterprises, and bear many adverse disciplinary measures, such as the inspection rate of import and export reaching more than 80%, increasing inspection frequency, and paying full amount of the bond, the impact on enterprises is cross-industry, all-round. (For the interpretation of Administrative Measures on the Creditability of Enterprises Registered, please refer to the "Customs Notes 2: The Administrative Measures on the Creditability of Enterprises Registered implemented on November 1, What should enterprises pay attention to?")

(II) Suggestions on compliance measures

For enterprises, once being inspected, you can't take it too seriously enough. We suggest the compliance measures as follows:

l  Before the inspection: uphold the concept of law-abiding operation, establish and improve the internal compliance mechanism, keep sensitive to the declaration of dutiable value related elements, set up a warning line, once the red line is triggered, immediately start the internal emergency mechanism; Make good use of Customs pre-determination procedures by regular self-examination; If any emerging problems are discovered, they shall be prevented in advance; If it is discovered that there is under-levied or not levied of duty, voluntarily disclose to minimize the risk of penalty.

l  In the process: if you are notified by the Customs, you should actively cooperate and provide evidences, submit written opinions in time, and fully exercise your right of representation and defense; Seek the help of a professional lawyer when necessary.

l  After the inspection: In case of any objection to the imposition the collection or recovery of Customs duties or administrative penalties, the enterprise may safeguard its lawful rights and interests by means of administrative reconsideration or administrative litigation.

Notes summary

1. Customs price inspection involves a wide range of businesses and is highly professional, which is related to the vital interests of enterprises, and the trend is not easy to judge and control. For enterprises, once they discover inspection risks or are informed of inspection, they need to make a prompt analysis and take measures as soon as possible.

2. Enterprises in the industry should be sensitive to the price inspection carried out by the Customs. Due to the universality of industry problems, the Customs may apply the inspection results to relevant enterprises in the industry.

3. In ordinary times, it is important to take precautions. Enterprise should establish internal compliance mechanism as soon as possible, such as improving work system, optimizing business process and keeping data, so that can timely provide relevant materials to support their arguments when they face the Customs price inspection, and deal with them politely and calmly.

4. For professional or complicated problems, do not delay, seek the help of professional lawyers in time, in order to eliminate the problem in the bud or prevent the expansion of losses.