China Customs has been actively developing a customs voluntary disclosure system suited to its environment since the launch of the pilot project on enterprise self-regulation management in 2014.
The primary goal of this system is to implement the management concept of “promoting integrity, and punishing dishonesty” at the legislation level for enterprises, aiming to encourage responsible behaviour by the enterprise.
In line with this objective, the General Administration of Customs (“GAC”) has issued Announcement No. 161 of 2019 and Announcement No. 54 of 2022 (“Announcement No. 54”), respectively. These two Announcements have been instrumental in clarifying the requirements and regulations on voluntary disclosure by the Customs step by step. Equally, the rules on voluntary disclosure of non-compliance will be revised with the issuance of the Circular on Relevant Matters Concerning the Handling of Voluntary Disclosure of Violations by the GAC on 28 June 2023 (the “Exposure Draft”). According to the Exposure Draft, the new rules are proposed to take effect on 1 August 2023 and will repeal Announcement No. 54. This reflects ongoing efforts to improve the voluntary disclosure system and adapting to changing needs and circumstances.
Voluntary Disclosure Changes
Compared with the Announcement No. 54, the Exposure Draft broadens the scope of application and extends the timeframe for voluntary disclosure, which are not subject to administrative penalties. This reform aims to release preferential policies for self-regulation and voluntary disclosure by enterprises. The main changes of the new regulation are summarised as follows:
Misbehaviours which are subject to voluntary disclosure as follows:
|Announcement No. 54
|The scope boardened to following areas
|Tax-related violations only
|Misbehaviour in export tax refund
|Manipulating the unit cost in declaration report of processing trade enterprise
|Causing the inaccuracy of Customs statistics
|Violation of the supervisory regulation of the Customs
|Violation of Regulations on Administrative Penalties of the Chinese Customs — Article No. 18
|Violation of inspection and quarantine regulations of the Customs
The validation time frame for voluntary disclosure is extended to 18 months
Enterprises can report tax evasion to Customs within 6- 18 months after the violation, if it doesn’t exceed 30% of the total tax payable or RMB 1 million.
Overdue Penalty Exemption
|Announcement No. 54
|An import and export enterprise that takes voluntaryly report its tax-related violations to the Customs and corrects them in a timely manner, and the Customs determines that the disclosure is made on its own initiative, the enterprise may apply for a reduction or exemption of overdue penalty of taxes in accordance with the law.
|An import and export enterprise that takes voluntaryly report its tax-related violations to the Customs and corrects them in a timely manner, and the Customs determines that the disclosure is made on its own initiative and the misbehaviour is minor for no penalty, the enterprise may apply for a reduction or exemption of overdue penalty of taxes in accordance with the law.
The new regulation clarifies the definition of “the repeat misbehaviour with the same subject”by referring to actions with the same nature and violating the same paragraph of the same legal provision.
|Announcement No. 54
|Not applicable to the repeat disclosure of misbehaviour in relation to tax-related violation within ONE year. Not applicable to the repeat disclosure of authorisations and permits in relation to the authoriser and authorised person regarding the same commodity.
|Not applicable to the repeat misbehaviour of tax-related violation.
The Exposure Draft explicitly excludes repeat voluntary disclosure regarding authorisations and permits. In other words, enterprises will have one opportunity to apply the voluntary disclosure policy for the common royalties.
We observe that “royalty tax supplementary” (code 9500) has increasingly become the preferred method of royalty tax settlement, supplanting voluntary disclosure. Previously, enterprises used regularly to handle royalty tax compensation issues.
|Announcement No. 54
|Effective from 1 August 2023 to 31 July 2025
|Effective from 1 July 2022 to 31 December 2023
We note that the GAC’s decision to re-introduce new regulations on voluntary disclosure, just one year after Announcement No. 54, is a significant step towards promoting stability and improving the quality of cross-border trade. It shows their dedication to establishing and improving the voluntary disclosure mechanism to benefit businesses and the overall trade environment.
The reforms highlight that the new regulation marks the first time the application scope of voluntary disclosure exclusion from penalties has been broadened to encompass violations beyond those related to taxes.
With the new rules coming into effect, we suggest that companies proactively conduct comprehensive compliance reviews. This will allow them to fully utilize the voluntary disclosure regime and mitigate the impact of potential minor rule breaches affecting their operations.
Conduct an Evaluation
Import and export enterprises are urged to carry out routine self-assessments of their business operations. This should cover tax-related details like tax codes, prices, and places of origin. Furthermore, special attention should be given to higher-risk areas like import and export inspection, quarantine, and processing trade. If any compliance risks are identified, they should be promptly evaluated and consider the possibility of making voluntary disclosures to Customs.
Build or Improve Your Import and Export Compliance System
Enterprises are recommended to establish or strengthen their internal compliance systems, with voluntary disclosure being one of the contingency measures to address compliance risks. Moreover, they may consider applying to become China Customs Accredited Operator (AEO) certified enterprises to take advantage of corresponding policy benefits under special circumstances.
Establish Voluntary Disclosure Communication Channels
Enterprises should establish smooth communication channels for voluntary disclosure. Customs officers and relevant personnel responsible for voluntary disclosure must participate in voluntary disclosure-related policy dissemination and compliance training to enhance overall compliance awareness.
Moreover, it’s advised to set up a quick and effective communication channel between the company and Customs. This aids in identifying the precise Customs unit that handles proactive declarations (like the inspection or port business departments). It also assists in selecting active disclosure matters based on their specific nature and requirements.
How Horizons can Support Your Business?
- Supporting your business with compliance reviews to identify potential risks.
- Facilitating Customs communication and controlling reputational and financial risks resulting from non-compliance issues.
Navigating China’s customs and international trade landscape can be intricate, yet the right corporate solution can simplify the process. With a well-organisaed and strategic approach, costs are reduced, compliance is enhanced and inspections encounter fewer exceptions.