Catherina Fernandez January 27 2023 Tariff and Customs Code violations: misdeclared, misclassified and undervalued goods SyCip Salazar Hernandez & Gatmaitan | International Trade - Philippines Catherina Fernandez International Trade IntroductionFactsDecisionCommentIntroductionIn Fernandez, et al v People of the Philippines,(1) the Supreme Court held that that the president, vice-president, treasurer, and corporate secretary of Kingson Trading International Corporation (Kingson), who violated section 3602 in relation to section 2503 of the Tariff and Customs Code of the Philippines (TCCP), could not hide behind the cloak of the corporation to escape criminal liability. Citing jurisprudence, the Supreme Court said that to be held criminally liable for the acts of a corporation, it must be evident that the officers, directors, and shareholders actively participated in or had the power to prevent the wrongful act. The Court ruled that, as responsible corporate officers of Kingston, the petitioners were criminally liable by assenting to the commission of the violations by Kingson or by being grossly negligent in directing Kingson's affairs.FactsKingson imported steel products from China and paid around 5 million Philippine pesos (approximately £74,500) in total duties and taxes. The Bureau of Customs found that Kingson had underdeclared the value of the imported goods by almost 50%. The Commissioner of Customs seized and forfeited the imported goods.Kingson filed a petition for review with the Court of Tax Appeals (CTA), assailing the forfeiture while the government filed a criminal complaint against the corporate officers of Kingson for violation of section 3602 in relation to section 2503 of the TCCP.DecisionThe CTA first division, the CTA en banc and the Supreme Court all found that the entry of the imported goods had been made by means of false or fraudulent shipping documents and that there had been intent to evade the payment of taxes and duties in violation of section 3602 in relation to section 2503 of the TCCP. A review of the certified true copies of the export documents from China in relation to the import entry and internal revenue declaration (IEIRD) and other supporting documents filed by Kingson showed glaring discrepancies as to the consignee's name, the description of the imported shipment and the value of the shipment, specifically:the consignee in the export documents was not Kingson, but Solid Sea Products HK;the description of the shipment in Kingson's documents stated "2,406 bundles of steel products (SCM 440 round bar)", whereas the counterpart export documents indicated "1,436 bundles of 10mm by 6m and 970 bundles of 12mm by 6m or a total of 2,406 bundles";the value of shipment as declared by Kingson was $692,254.00, while the counterpart export documents indicated a value of $1,281,271.86; andKingson had declared the shipment under Tariff Classification heading No.7228.60 at a 1% rate of duty, while the actual classification of the same shipment based on the chemical analysis of the same steel product showed that it fell under heading No.7214.2000 at a 7% rate of duty.Under section 2503 of the TCCP, undervaluation, misdeclaration in weight, measurement or quantity by more than 30% shall constitute initial evidence of fraud and the imported goods shall, by that fact, be forfeited in favour of the government. The Supreme Court ruled that both Kingson and the petitioners had failed to provide any plausible explanation for the glaring discrepancies (between the import documents that Kingson had filed and the counterpart export documents from the Chinese government), the burden of evidence having shifted to them. Hence, it could be concluded that Kingson and the petitioners had wilfully and intentionally misdeclared, misclassified, and reduced the value of the shipment by more than 30% to lower the amount of taxes and duties that Kingson should have paid.The Supreme Court also stressed that section 1301 of the TCCP imposes a definite burden on persons authorised by law to make the import entry and held that the statements under oath contained therein constituted initial evidence of the importer's knowledge and consent of violations of the provisions of the TCCP when the import was found to be unlawful. In this case, the corporate secretary's active part in the fraud was shown by her signature in the IEIRD containing the fraudulent information as Kingson's attorney-in-fact and by her declaration that she "certify[ies] that the information contained in all pages of this Declaration and the documents submitted are to the best of our knowledge and belief are true and correct".With regards the president, vice-president, and treasurer of Kingson, the Supreme Court ruled that there was circumstantial evidence to prove that these corporate officers, who are also the incorporators, board members, and stockholders of Kingson, undoubtedly knew of the importation of steel from China. First, their denial of the alleged fraud, insisting that Kingson's declarations were merely based on the documents provided by the foreign shipper, implied an admission – namely, that they had been personally aware of the details of the shipment and the contents of the submitted import documents. Second, the corporate secretary testified that when the defect in the documents was discovered, the corporate officers of Kingson had a meeting to rectify it and an addendum was executed to correct the error. Finally, the corporate officers failed to rebut the fact that they had assented or even permitted the falsification to happen – not only of the documents appended to the IEIRD, but also of the falsified chemical analysis in a bid to secure a lower tariff classification rate.CommentThe officer authorised to sign certified import documents, such as the IEIRD or the single administrative document, should ensure the accuracy and truthfulness of the information provided in the documents. The statements contained therein should be supported by proper and correct documentation. Other corporate officers who exercise direct control and supervision in the management and conduct of the company affairs, although not signatories in the documents, must also do their part to ensure that imports are made in accordance with law.For further information on this topic please contact Catherina Fernandez at SyCip Salazar Hernandez & Gatmaitan (SyCipLaw) by telephone (+632 8982 3600) or email ([email protected]). The SyCipLaw website can be accessed at www.syciplaw.Endnotes (1) GR No 249606, 6 July 2022.