The following blog entry is an update of the one dated April 8 2016.
The various feedbacks received from the practice gives us until today a two-sided picture: some companies are saying that they have not observed any changes when importing goods into China, others have already been confronted with queries and questions from the customs authorities.
The additional information (special relationship, impact on customs value, payment of royalties) have to be provided when the formal import permit declaration is lodged in China. This task is mostly handled by the local customs broker. Worthwhile to mention that those new information are not linked with the information that have to be provided when utilising the FTA between Switzerland and China.
We observe an uncertainty of companies regarding the (real) practical implications of these newly published rules by the China customs authorities.
To be on the safe side, some companies have asked PwC to establish a customs valuation documentation to support their transfer prices from a customs standpoint. That strategy worked quite well.
Others have been confronted with queries from the customs authorities. Those could have been answered without further implications. However, it was not possible to avoid the supply chain disruption.
It is important to note that the persons that are in charge with the import formalities (mostly 3rd party service providers) need to be oriented about the answers to be provided during the import procedure. This guarantees at least a certain control of your supply chain and avoids misunderstandings, which often leads to follow up questions of the customs authorities.
Aside from the practical implications those new rules have also been criticized from a legal perspective. According to Article 1 of the WTO Valuation Agreement, the fact that the buyer and the seller are related is not in itself sufficient to qualify the transaction value as unacceptable. In such situations the customs authorities have to examine the circumstances surrounding the sale and the transaction value shall be accepted provided that the relationship did not influence the price. If during this examination the authorities have doubts / grounds that the relationship has influenced the price, the customs authority is obliged to communicate its grounds to the importer and the importer shall be given a reasonable opportunity to respond. The importer can request a written communication of the grounds from the customs authority. With the new information to be provided, the above-mentioned procedure is not guaranteed anymore (see the following Article that questions the legal validity under WTO law of this new information: http://www.lexology.com/library/detail.aspx?g=cfd46531-9cf9-492b-9008-784759542373).
We are happy to respond to your questions. We will continue to follow the development of the above and will update you regularly.