В статье раскрывается практика мониторинга и оценки украинской таможней сведений, предоставленных иностранными экспортерами – производителями их национальным властям для экспортной очистки товаров, предназначенных для импорта в Украину, а также исследуются возможные правовые и экономические эффекты такого мониторинга и оценки для украинских дистрибьюторов и иностранных производителей, когда обнаруживаются расхождения между сведениями, представленными дистрибьютором в Украине (импортером), и иностранным экспортером. Особенное внимание уделяется рискам иностранного производителя товаров и украинского дистрибьютора – импортера при отклонении органами Министерства сборов и налогов Украины данных относительно таможенной стоимости товаров, которые поставляются в Украину на условиях франко-перевозчик и подобных условиях ИНКОТЕРМС. В итоге исследования авторы приходят к выводу о том, что более значительные риски лежат на стороне производителя. Таким образом, продавец должен требовать от импортеров и таможенных брокеров заявлять данные о таможенной стоимости импортированных товаров в строгом соответствии с данными иностранного производителя (эспортера).
This article uncovers the practice of tracking and assessment by the Ukrainian customs office of data submitted by exporters — foreign manufacturers — to their national authorities for the purpose of export clearance of goods to be imported into Ukraine. The article illustrates the possible effect of such assessment on manufacturers and distributors in Ukraine in case discrepancies are identified by the Ukrainian customs office between the data filed by exporters and the data filed locally in Ukraine by importers (distributors).
Let’s assume that a European manufacturer (the manufacturer) contracted a local Ukrainian company (the distributor) to distribute certain goods (the goods) in Ukraine under the following conditions — the goods are to be paid for after the supply under FCA or similar trade terms1.
According to FCA, the distributor is required to perform customs clearance of the goods for import in accordance with Ukrainian customs laws, while from the pure contractual standpoint the manufacturer seems to bear no responsibility for the import clearance, as it does not, in principle, control the compliance of the import clearance with the contract and/or the Ukrainian laws. Let’s assume further that, for any commercial reasons whatsoever, the distributor declares to the customs office of the Ministry of Revenue and Duties of Ukraine (the MoRD) that the goods were allegedly purchased from a different company, rather than the manufacturer, and at a lower price. Subsequently, the import clearance data does not go in line with what was declared by the manufacturer to the export clearance authority.
Would the described situation bear any legal risks for the manufacturer and the goods in Ukraine? More specifically, is there a practice of the MoRD to track and assess the data submitted for the purposes of export clearance outside of Ukraine (the Foreign Data) and what are the possible risks for the manufacturer and/or the distributor if any discrepancies are identified between the data filed by the manufacturer and the data filed locally in Ukraine by or on behalf of the distributor?
Tracking and assessment of the foreign data by the MoRD
Ukraine has treaties expressly providing for the possibility to request and assess the Foreign Data with more than 100 countries worldwide2.
One shall not overlook the fact that the MoRD is straightening its policy towards more active use and assessment of the Foreign Data to check the compliance of local importers with Ukrainian customs legislation. This resulted in numerous court disputes between the MoRD and local importers3.
Ukrainian law provides for a few situations when the MoRD may send out requests for the Foreign Data, including: to reassure the origin of goods4; to confirm the authenticity of documents presented before the MoRD during the customs clearance5. In addition, in June 2012 the Ukrainian Parliament granted the MoRD the right to send out the requests for the Foreign Data with the aim of verifying the customs value declared by local importers6.
Legal force of the foreign data assessment
From the domestic law standpoint the negative consequences of the Foreign Data assessment by the MoRD could be exorbitant.
For instance, the MoRD is free to refuse customs clearance if the Foreign Data does not prove the customs value indicated by the importer7. As the next example, the MoRD may launch an audit of the local importer because of discrepancies identified between the Foreign Data and the import clearance data, even after the customs clearance was completed8. Finally, the combination of Articles 352 and 495 of the CCU provides for the direct applicability of the Foreign Data as an evidence of violation of the Ukrainian customs rules, without any need for prior legalization or otherwise recognition in Ukraine.
The Foreign Data is thus applied by the MoRD as the direct source of evidence, which prevails o\jer the contracts and other documents/evidences available. Moreover, there are no legislative limits for the MoRD to potentially find the Foreign Data prevailing over conclusions of Ukrainian experts or judgments made by Ukrainian courts.
Risks of foreign data assessment for the manufacturer and the distributor
To the extent that the manufacturer usually credits the goods to the distributor (unless the latter receives them under 100% advance payment/bank guarantee) with a fair intention to obtain the respective commercial margin from customers in Ukraine in the future, any delay or refusal of the customs (import) clearance further to the Foreign Data assessment may lead to the significant loss of profits by the manufacturer. To this extent, by contrast, the distributor does not put at risk its ownership titles.
Besides, although the manufacturer is not subject to effective Ukrainian laws, its employees may be subject to administrative liability in Ukraine to the extent they appear to be directly involved in the alleged violation of Ukrainian customs law9. By contrast, the distributor and its employees may, in effect, be penalized by the MoRD and/or other law-enforcement agencies.
Hence, legal/business risks further to the Foreign Data assessment are different for the distributor and the manufacturer. More specifically, the risks can be summarized as follows.
(i) Risks for the manufacturer
The MoRD is obliged to carry out the seizure with immediate effect once the signs of a potential violation are identified pursuant to the requirements of Articles 483 and 511 of the CCU.
It is worth underlining that after the Foreign Data assessment it would be a rather complicated task to avoid the seizure of goods by reaching a compromise between the MoRD and the distributor in any form whatsoever, as it would mean a breach by the MoRD of its obligation expressly imposed by the law (i.e., the CCU).
Moreover, a legal action against the order of seizure is not effective in practice, as it does not suspend the event itself10.
We may thus conclude that the immediate legal risks for the manufacturer are concentrated in the temporary seizure of the goods by the MoRD. This scenario is hardly possible to avoid in a legal way, once the discrepancies are identified further to the Foreign Data assessment.
(ii) Risks for the distributor
There are at least two main legal risks as far as the distributor is concerned, in particular, the risk of an administrative fine and an increase of tax obligations on the basis of the understatement of the customs value.
More specifically, the identified discrepancy between the Foreign Data and the data declared during the clearance of the goods for import may result in the financial liability of the distributor and/persons acting on its behalf to the amount of 100% (200% in some cases) of the goods value, to the extent that the false information was intentionally provided by the distributor in accordance with Article 483 of the CCU11, as well as an administrative fine of up to 300% of the amount of the tax understatement in accordance with Article 485 of the CCU12.
At the same time, the above risks may well be mitigated (if not excluded) by bringing a legal action at a competent court. To this extent the respective risks are practically measurable when taking the judicial dimension thereof13.
More specifically, the risk of administrative fines depends on the interpretation by the court of the distributor’s intention to violate Articles 483 and 485 of the CCU. It is understood that the administrative fine may not be imposed in case of an accidental provision of false data. For example, due to improper communication between the distributor and the manufacturer responsible for export clearance. This is especially evident in the situation where the manufacturer has never invoiced the distributor for the supplied goods and there is no live commercial relationship between them.
On a separate note, the identified understatement of the goods value further to the Foreign Data assessment may motivate the MoRD to autonomously increase the amount of tax obligations payable by the distributor in connection with the importation of the goods14. However, one should not overlook the fact that the tax risk is usually interrelated to, and preconditioned by the effectiveness of, the administrative fine. If such fine is reversed by a general court, the administrative court may potentially be governed by the prejudice effect of the general court’s decision and subsequently reverse the decision of the tax authorities15. Besides, if the import clearance was completed, i.e. the customs values were accepted by the MoRD, the post factum tax liability of the distributor may, under certain conditions, be reversed by the administrative court as well16.
In fact, the seizure scenario and the related loss of profits may alone constitute the ultimate business risk for the manufacturer. This is because the final settlement of the entire case before the court may take months in Ukraine, if not years, and during this term the goods will not be effectively controlled by the manufacturer. Hence, from the business viewpoint, unless the distributor receives the goods under the prepayment conditions or the respective operations are covered by otherwise guarantee, the Foreign Data assessment is potentially more risky for the manufacturer, as it may result in the above-mentioned seizure of the goods and the loss of profits.
It is, therefore, in the interests of the manufacturer that the distributor and/or customs brokers employed by him for the import clearance do exercise due care to act in line with the Foreign Data and not otherwise.
If no advance payment or similar options are feasible and apart from the “know-your-partner” strategy, the manufacturer may envisage the distributor indemnifying the manufacturer for possible non-compliance of import clearance in Ukraine and subsequent seizure of the goods (even though, one shall not overlook that the indemnification option might not be always effectively enforceable in Ukraine).
1 Under these conditions the manufacturer is required to perform export clearance of the goods bearing no obligation to perform import clearance of the goods, pay any import duties or carry out any import customs formalities.
2 Kryvonos MA International legal regulation of mutual administrative assistance by the customs authorities of Ukraine, m Law and Public Governance, 2011, Issue 1. p 113-116.
3 The following recent cases are especially illustrative, selected from among many others: the decision of the Solomyansky district court of Kiev of 30 March 2012 on the case Berry-Ukraine. No. 3-3143/12p; the decision of the Kiev Court of Appeal of 19 July 2013 on the case Yuromasfi, No. 33/796/1010/2013.
4 Article 45 of the Customs Code of Ukraine (the CCU).
5 Point 8 of Section 1 of Article 336 of the CCU.
6 Point S of Section 5 of Article 54 of the CCU.
7 Ibid., point 4 of Section 6.
8 Article 351 of the CCU.
9 Please see, inter alia, the decision of the Cherkassy Court of Appeal f 2 November 2012 on the case Madaf Oil Limited No. 33/2390/337/12, whereby the MoRD tried to initiate the administrative case against a foreign citizen who signed documentation used in the import clearance in excess of powers; even though, the powers were subsequently confirmed by the foreign Seller and the MoRD decision cancelled Still, even in the worst case scenario one should not overlook the absence of bilateral treaties governing the extradition process between Ukraine and a number of European countries.
10 Article 512 of the CCU.
11 The decision of the Kiev Court of Appeal of 25 July 2013 on the case Eximtrade, No. 33/7961/1004/13, referring further to the Resolution of the Supreme Court of Ukraine No 8 of 3 July 2005 On jurisprudence m smuggling cases.
12 The decision of the Kiev Administrative Court of Appeal of 20 July 2013 on the case No. 760/14838/13-a: the decision of the Solomyansky District Court of Kiev of 24 July 2013 on the case No. 823/547/13-a.
13 Articles 467 and 532 of the CCU.
14 Article 54.4 of the Tax Code of Ukraine.
15 See the decision of the Kiev Admin! Court of Appeal of 9 July 2013 on the Berry-Ukraine, No. 826/100/13-a.
16 Ibid., with further reference to the dec sion of the Supreme Court of Ukraine of 26 June 2012 on the case No. 21-130al2.
The Ukrainian Journal of Business Law. – 2013. – № 11. – Р. 20 – 22.