Legal basis and covered framework
- The order is issued pursuant to Section VII of Customs Administrative Order (CAO) No. 5-2001.
- The order operates within the post-entry audit system of the Bureau of Customs (BOC), focusing on record-keeping and compliance audit mechanics.
- The order expressly references the Tariff and Customs Code of the Philippines (TCCP), as amended and provisions dealing with valuation, tariff classification, and customs penalties.
- The order cross-references enforcement and procedure materials including Customs Special Order No. 50-2001 and Customs Memorandum Order No. 1-2002.
Policy and objectives of the post-entry audit
- Compliance audit is established as a back-end control mechanism conducted after cargo clearance.
- Compliance audit must facilitate trade by enabling release of low risk imports with minimum customs intervention at the border.
- Customs retains the option to verify the truthfulness and accuracy of import entry declarations within three (3) years from the date of filing of the import entry.
- The record-keeping requirement is designed to let Customs verify compliance with customs laws and rules, particularly for tariff classification, customs value, quantity, and country of origin.
Who must keep records and for how long
- Importers are required to keep specified records at their principal place of business.
- The required record-keeping period is three (3) years from the date of filing of the import entry.
- Customs brokers are required to keep, at their principal place of business, for three (3) years from the date of importation, copies of importation records covering transactions they handle.
- The term “importer” includes:
- the importer of record/consignee;
- the beneficial owner (the real owner as established by competent evidence);
- the agent of the persons effecting the importation; or
- any other person or entity who knowingly causes the goods to be imported.
Meaning of “knowingly causes the goods”
- “Knowingly causes the goods to be imported” covers domestic transactions where the terms and conditions are controlled by the person placing the order and not by the importer/consignee of record.
- “Knowingly causes the goods to be imported” covers cases where the person placing the order furnishes technical data, molds, equipment, production assistance, material, components, or parts with knowledge they will be used in the manufacture or production of goods to be imported.
Compliance audit triggers and access powers
- Compliance audit is undertaken when at least one of the following occurs:
- firms are selected by a computer-aided risk management system based on objective/quantifiable parameters relating to customs revenue magnitude, rate of duties, compliance track record, risk to revenue, and other officially determined parameters;
- errors in the import declaration are detected that would cause substantial revenue loss or grave distortion of relevant statistical data if uncorrected; or
- firms voluntarily request an audit, subject to approval of the Commissioner of Customs.
- Customs broken shall be audited only to validate audits of their importer clients and/or fill information gaps revealed during audits of their importer clients.
- Authorized customs officers may enter, during office hours, any premises or place where the required records are kept to conduct audit examination, inspection, verification, and/or investigation of:
- document flow;
- financial flow;
- goods inventory flow; and
- other business processes relevant to the adequacy and integrity of manual or electronic systems by which records are created and stored.
- Authorized customs officers may require the importer and/or broker to make certified copies of documents or extracts.
- Any record taken or borrowed by an authorized customs officer must be returned to its custodian within twenty-four (24) working hours.
- Certified copies made by or on behalf of the importer/broker are admissible in evidence in all courts as if they were the original.
- If the importer/broker denies full and free access during a post-entry audit, a presumption of inaccuracy attaches to the transaction declared for the imported goods.
- Denial of access constitutes grounds for Customs to conduct re-assessment using alternate methods of valuation or tariff classification as applicable, without prejudice to other criminal and administrative sanctions.
- Customs may invoke the aid of the proper regional trial court in case of disobedience; the court may punish contumacy or refusal as contempt.
Translation requirement for foreign-language documents
- Any document in a foreign language presented to a Customs officer in the exercise of Bureau powers or duties must be accompanied by a translation in English or Filipino.
- The translation must be certified correct under oath by the translator.
Records required from importers
- Importers must keep, for three (3) years from filing, records covering importations and/or books of accounts, business and/or computer systems, and all other customs commercial data in whatever form, including payment records relevant to verifying the accuracy of declared transaction value.
- Importers must keep the following categories of records when required for their corporate or regulatory obligations, or for internal taxation/compliance purposes:
- Company or entity structure records, including Articles of incorporation/partnership, list of incorporators/stockholders/partners/members of the board/owners, organizational structure, management and key personnel with authorized declarants and specimen signatures, capital composition and stock/transfer book, principals/subsidiaries and their capital composition when applicable, and lists of related exporters/suppliers required under Section II.B.2.e of CAO No. 5-2001.
- Ordering and purchase documentation, including sales and other agreements; correspondence/communications relating to import transactions (including purchase orders, vouchers, confirmations, pro-forma invoice, acknowledgment receipts, notices, advisories); and product description/specifications and similar materials.
- Shipping, importation, exportation, and transportation documentation including import/export entries, invoice/consignment notes, import/export licenses/permits, bill of lading(s), air waybills (master/house), consolidator bill of lading, shipping and freight forwarders instructions, Certificates of Origin and related certificates, freight/insurance contracts, packing lists, transshipment permits/boatnotes/special permits, quota allocation certificates, customs brokerage agreements and related accountings/receipts, arrastre and storage charges receipts, reports for short/over shipment or bad orders, goods tally records (if applicable), and correspondence with BOC and customs decisions.
- Manufacturing, stock, and resale documentation, including inwards goods register/receipts journal, stock register/inventory records, production records, costing records, sales records, and customs lists.
- Banking and accounting information, including letters of credit and applications, bank details, remittance advice, receipts/cashbooks, schedules of accounts payable/receivable, credit card transactions, telegraphic money transfers, offshore monetary transactions, cheque records, debit/credit notes or memos, and evidence of payments by other means including information on non-cash compensation transactions.
- Accounting system records including charts/codes of accounts, ledgers, financial statements, accounting instruction manuals, and systems/program documentation describing the accounting system used.
- Storage media and devices where the information is recorded or stored, including papers/books/registers and discs/films/tapes/sound tracks and other devices or things containing the recorded data.
Records required from customs brokers
- Customs brokers must keep for three (3) years from the date of importation copies of importation records covering transactions they handle.
- The broker records must include records enumerated in Section III.A sub-sections 3, 6 and 7 of the order.
Post-entry audit operations: structure and handling
- Pending creation of the Post Entry Audit Office (PEAO), the post entry audit system of BOC is initially handled by the interim Post Entry Unit (PEAU) under Customs Special Order No. 50-2001.
- The audit process includes: selecting firms using risk management; profiling and information analysis; audit notification; audit preparation/plan customization; a pre-audit conference; field audit conduct; exit conference; final reporting; and audit monitoring/implementation.
Risk-based selection and audit types
- Firms are selected using a risk management system and two types of audit exist: voluntary compliance audits and enforced compliance audits.
- Voluntary Compliance Audit is conducted under BOC’s Compliance Program, which makes compliant those firms contributing up to 80% of customs revenue.
- Successful applicants in voluntary audits are chosen using criteria that determine risk levels, and the audit focuses on whether inventory, financial, and record-keeping systems lead to compliant customs declarations.
- Voluntary audits are designed to assist firms to become compliant through recommendations and a time frame for acting on them, and they result in a risk rating, with the most compliant receiving the lowest risk rating.
- Firms found highly compliant receive SGL (Super Green Lane) treatment and other facility benefits under the Compliance Program.
- Enforced Compliance Audit targets firms not included in the Compliance Program and found to have compliance issues.
- Enforced compliance audits may be selected from those tagged for audit by collectors after VCRC review, by the TIRAU created under CSO 50-2001 through periodic analysis of the ACOS database, or through enforcement operations.
- Enforced compliance audits focus on identified compliance issues and may result in application of administrative and penal provisions of R.A. 9135.
Profiling, information analysis, and field audit authority
- Profiling and information analysis includes downloading customs data for targeted importers; collating internal and external information; profiling company activities; identifying risk shipments; sampling exception reports based on variances such as unit FOB value and tariff heading; reviewing past BOC decisions; and preparing a report for the Commissioner as basis to authorize field audit.
- After Commissioner approval to commence audit, an Audit Notification Letter (ANL) is issued and sent to the company identified for audit.
- The ANL must state: statutory basis and purpose; date and time of pre-audit conference and audit commencement; members of the customs audit team; documents/records to be readied; and request for a company tour/walk-through.
- The ANL must attach a General Customs Questionnaire and a form requiring a brief description of import purchasing (ordering) payment and inventory systems, to be filled out and returned to BOC prior to the pre-audit conference.
- The audit plan is customized upon receipt of additional information to achieve specific audit objectives transparently and expeditiously, including verification of goods flow, financial flow, order/process flow and tracing, testing of sample entries, and validation of completeness/correctness of import entry declaration information relative to the profiling-stage risks/issues.
Pre-audit conference, conduct, and verification aims
- In the pre-audit conference, the customs audit team introduces itself, presents written authority, briefs the auditee on purpose, commencement date, estimated duration, documentation for review, and identifies liaison and interview participants.
- The pre-audit conference includes a factory/office tour upon request by BOC.
- Field audit involves examination and review of records and documents based on the audit plan and includes interviews to understand firm activities affecting import entry declarations.
- Field audit extent depends on the nature of operations and the reliance auditors place on internal controls relative to storage and retrieval of audit-needed information.
- Field audit verifies, among others, that:
- imported goods are valued using the appropriate customs valuation method;
- values are correct and complete for the price paid or payable and dutiable adjustments;
- goods are properly described and correct tariff classifications are used;
- declared quantity is correct;
- country of origin declarations are correct; and
- special or preferential tariff rates are correctly applied and the importer qualifies for special/preferential rates.
- Brokers may be subject to verification to validate audit findings regarding the auditee.
Exit conference, final reporting, and supply of copy
- Prior to issuing a final report, auditors hold an exit conference with company representatives.
- The exit conference allows the company to check accuracy of facts and discusses: audit findings; improvement areas for compliance; calculation of underpayment of duties and taxes and possible administrative penalties; and company comments/observations on audit conduct and findings, which are incorporated into the audit report.
- After completion of the audit and exit conference, the PEA Unit prepares a Final Audit Report and Recommendation (FARR) for submission to the Commissioner for approval and/or appropriate action/instruction.
- After FARR approval, BOC furnishes the auditee(s) with an official copy.
Administrative penalties and criminal exposure
- Failure to keep and maintain required records triggers these consequences for the articles subject of importations for which records were not kept and maintained:
- an administrative fine equivalent to 20% ad valorem on the article/s, referencing Section 2504 of the TCCP;
- hold delivery or release of subsequent imported articles to answer for the fine and any revised assessment; and
- criminal prosecution punishable with a fine of not less than PHP 100,000 but not more than PHP 200,000 and/or imprisonment of not less than two (2) years and one (1) day but not more than six (6) years.
- Refusal or failure to give full and free access triggers the following consequences:
- punishment for contempt/contumacy/refusal by the proper court with criminal jurisdiction;
- re-assessment of importations applying the correct valuation method, tariff classification, quantity and/or country of origin based on available data, with the declared transaction value presumed inaccurate;
- an administrative fine equivalent to 20% ad valorem on the article's subject of importations for which records were not kept and maintained, referencing Section 2504 of the TCCP;
- hold delivery or release of subsequent imported articles to answer for the fine and any revised assessment; and
- criminal prosecution punishable with a fine of not less than PHP 100,000 but not more than PHP 200,000 and/or imprisonment of not less than two (2) years and one (1) day but not more than six (6) years.
- Deficiencies in duties and taxes after post-entry audit are penalized according to three degrees of culpability, subject to mitigating/aggravating/extraordinary factors supported by evidence:
- Negligence: administrative fine equivalent to not less than one-half (1/2) but not more than two (2) times the revenue loss;
- Gross Negligence: administrative fine equivalent to not less than two and a half (2-1/2) but not more than four (4) times the revenue loss;
- Fraud: administrative fine equivalent to not less than five (5) times but not more than eight (8) times the revenue loss.
- Fraud is determined when a material false statement or act in connection with the transaction was committed or omitted knowingly, voluntarily, and intentionally, established by clear and convincing evidence.
- Fraud also triggers criminal prosecution under Section 3611 of the TCCP.
- Except in fraud cases, the Commissioner of Customs may compromise the imposition of the fine prescribed under Section VI.C of CAO No. 5-2001, subject to approval of the Secretary of Finance, when the importer makes voluntary and full disclosure prior to commencement of the audit on a date fixed by the Commissioner.
- The compromise is limited to the extent of the voluntary disclosure made.
Appeals and procedure control
- The decision of the Commissioner of Customs to impose penalties under this order is appealable in accordance with Section 2402 of the TCCP.
- The procedure for determining administrative sanctions under the penalty provisions is governed by Customs Memorandum Order No. 1-2002.
Supersession and effectivity rule
- Inconsistent Orders, Memoranda, Circulars, or parts thereof are superseded or amended accordingly.
- The order’s effectivity is immediate upon signing.