Once upon a time (a long time ago), the Australian Customs and Border Protection Service ("Customs") had issued a Notice describing its position on liabilities of parties to a DDP transaction in terms of obligations under the Customs Act 1901 ("Act").
That Notice basically pushed most of the liabilities back to the overseas supplier/vendor in a manner consistent with the nature of DDP obligations.
That position seemed to have shifted in recent time and I was involved in a dispute where Customs was seeking to recover underpaid duty from the local buyer in a DDP transaction. In that case, the relevant Customs officers advised that Customs was not bound by the Notice and reserved the right to take action against the Australian buyer. Which caused some distress.More recent developments
During the course of 2014, Customs moved to change its official position by the issue of a Notice cancelling the original Notice and stating a new position which allowed it to take action against the Australian parties to a DDP transaction. However, that second Notice was then, itself, cancelled on the basis that it needed further review, especially from the GST perspective.
Customs then consulted with a number of interested parties (including industry associations such as the CBFCA and myself) with a view to issuing a conclusive Notice on its position, which included discussions immediately prior to Christmas.
That Notice (the "DDP Notice") has now issued and is discussed below – which should by no means take the place of a good read of the whole DDP Notice.
The DDP Notice
Although it has only just appeared on the Customs website the DDP Notice is ACBP No 2014/50 and dated 19 December 2014. The DDP Notice identifies Customs position for GST purposes and for a variety of purposes under the Act.
The highlights of the DDP Notice for DDP transactions can be summarised as follows:
- The overseas supplier makes the "creditable importation" for GST purposes and must pay the GST, although if registered for GST in Australia it may be entitled to an input tax credit.
- Customs may seek commercial documentation from the overseas supplier, the Australian buyer and/or any licensed customs broker that lodged the entry or SAC.
- Any party who makes or causes to be made a false or misleading statement to Customs (or omits to include items causing the statement to be false or misleading) could be liable to penalties under Sections 243T or 243U of the Act (and therefore could also receive an Infringement Notice).
- If there is duty underpaid, Customs can pursue either the supplier or buyer but given the problems in recovering duty overseas, if there has been duty short – paid or entirely evaded by an overseas supplier, it is likely that Customs will seek to recover the duty by demand on the Australian buyer.
So, to a few quick thoughts on consequences:
- Overseas suppliers will potentially be concerned as those in a DDP transaction may not be registered in Australia for GST and may not want to do so for other purposes (such the concern that it could attract liability to Australian tax on earnings).
- We could have the position of different parties being pursued for GST and customs duty on the same transactions – in the case of GST, recovery could still be pursued overseas.
- Those lodging SACs and Import Declarations will need to be careful to secure access to all commercial documents as required by section 240 of the Act and not rely solely on the parties to the transaction.
- Australian buyers under DDP transactions will need to face the awkward commercial reality that even in a DDP deal with an overseas supplier, they could remain liable for duty believed to be underpaid or evaded. That places a premium on making sure that it is properly assessed in the first instance and then paid by the supplier. Both parties would then have to keep commercial documents to verify the duty payable. However, the buyer would need to ensure that its contract with the overseas supplier makes provision for indemnity if additional duties or penalties are levied.
These are only early thoughts – as always I would be delighted to provide further advice.