Current Issues with Customs in Vietnam

KPMG Vietnam Webinar27 September 201710:00 am (GMT+7)11:00 am HKT1:00 pm AEST

Current Issues with Customs: Agenda

10:00 - 10:20

Customs Environment in Vietnam • Customs valuation • Classification mismatch/controversy• Import-export compliance• Post-clearance audits• Updates in the law • Way forward with WCO/OECD guidelines• Year-end TP adjustments and customs valuation

10:20 - 10:30 Free trade agreements (FTAs) and challenges; Cost-saving and compliance programs (FSFE and TFAs)

10:30 - 11:00 Question & Answer Session

11:00 End of Webinar, Questionnaire

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Question and Answer Session

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Key Presenter

Rohit has been providing indirect tax and international trade services for over nine years. He has worked in New Delhi, India and was in Hong Kong for over five years, providing Indirect Tax advisory to clients in Asia-Pacific region.

Rohit has extensive experience in advising multinational companies with regards to customs and trade matters throughout Asia and assisting Asian businesses exporting to North American and European markets. This has encompassed the development of regional and global trade strategies, customs valuation, HS classification, application and implementation of trade regimes, first sale for export, excise taxes and a range of value added taxes.

Rohit SinhaSenior Manager, Trade & CustomsIntegrated International TaxKPMG Vietnam

Customs environment in Vietnam

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Customs valuation

— Approximately 25% of transactions questioned̶ Relationship, HS code interpretation, valuation method noted as major reasons

— Related vs unrelated party imports̶ Special relationship – special attention from customs̶ Unfamiliarity among importers, customs brokers̶ Experience sharing (luxury goods importer)

— Commercial vs non-commercial imports̶ Use of pricing database as reference by customs

Customs environment in Vietnam1

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Classification mismatch/controversy

— Strict interpretation of GIRs and guidelines

— Compliance with AHTN (latest in 2017)̶ Importers may not have updated the HS codes per AHTN

— Experience sharing (disallowance of duty relief under ATIGA)

Customs environment in Vietnam2

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Import-Export compliance

— Comprehensive, time consuming̶ Room for digitizing the process

— Inconsistent interpretation of law by different customs offices̶ Experience sharing (different HS codes applied by two offices)

— Management of imported material for production of goods for export ̶ EPE vs non-EPE (separate records, BOM accuracy, imported vs domestic material usage)̶ Management of duty-exempt fixed assets (usage, transfer, liquidation, reporting)

— EPE executing import right for trading activity: ̶ Separate physical storage area, accounting records, VAT implication etc.

Customs environment in Vietnam3

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Post-Clearance Audits (PCA)

— Multiple scenarios under which a PCA can be initiated̶ Suspicion of non-compliance, PCA campaign, periodic every 5 years

— Importer’s track record, industry, volume etc. can play an important role

— Assertive approach from customs̶ Controversy and litigation

Customs environment in Vietnam 4

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Updates in laws to address evolving business

— Expected as the economy grows̶ Experience sharing (mismatch in material quantity records, liquidation and subsequent claim for

refund of taxes)

— New laws/provisions introduced recently̶ Law on foreign trade management̶ Updated decree and circular on customs procedure, duty and tax management̶ Decision for list of goods to be declared and customs clearance performed at the port of entry

Customs environment in Vietnam5

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Way forward with WCO/OECD guidelines

— Growing link between transfer pricing and customs valuation, both impacting each other

— WCO guideline issued in 2015:̶ To assist customs authorities understand the relationship between the two̶ Improve consistency and accuracy in valuation and duty computation

— Methodology based on the OECD transfer pricing guidelines

— Both WCO and OECD guidelines are soft laws. However:̶ Countries working on updating domestic laws to implement the guidelines̶ Recent changes in Japan customs procedures

Customs environment in Vietnam6

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Year-end TP adjustments and customs valuation

— Upward adjustment results in lower customs value

— Japan Customs recently introduced measures to accept year-end adjustments (upwards and downwards)

— Retrospective revision of value in Vietnam?

Customs environment in Vietnam7

Free TradeAgreementsand challenges

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Merchandise export growthin 2016

Vietnam export is growing and continue to grow with new FTAs

Indonesia Philippines

Vietnam Signed / DevelopingFTAs

Singapore ThailandMalaysia

9%

Vietnam

ASEAN - China ASEAN - India ASEAN –Australia / NZ ASEAN - KoreaASEAN

Vietnam - Japan

Source: World Bank ; WTO Center

0%

Vietnam - Chile Vietnam - KoreaVietnam -Eurasian Economic

UnionVietnam - EU

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FTAs and challengesEffective utilization

Untapped leveraging due to complex procedures and compliance

Growth in exports

Ineffective utilization, slower growth

Domestic market competition

Market entry strategy, local players

Labor productivity

Skilled vs semi-skilled vs unskilled labor

Halfway reforms

Barriers to trade (TBT such as labeling. NTBT such as valuation, duty rate)

National treatment

Cost Savings and Compliance Programs

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US Importer

ManufacturerVietnam

Vendor(outside US)

Invoice 2

Invoice 1 Goods

First Sale For Export Program (for US imports)- A long-established customs valuation method that

can reduce customs duty costs on US imports

- First Sale is the use of “Invoice 1” rather than “Invoice 2” as the US customs value

- Depending on supplier profile, it may reduce duty costs by 5% to 15%

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Trade Facilitation AgreementTrade Facilitation Agreement- Introduced by WTO in 2013; concluded in February 2017 by WTO member countries

- Standard procedures and information for cross-border movement of goods- Speedy movement, release and clearance of goods

- Improved cooperation between customs and other regulators- Technical assistance and training

- Phased implementation for developed vs developing countries

- Developing and LDC member countries can group measures into the following categories:

A. At the time Agreement enters into force (one year later for LDCs)B. Entry into force + (X) time (only “local action” needed)C. After TACB

Document Classification: KPMG Confidential

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