Legal risks and countermeasures for import customs
1. Legal regulations concerning skin care products and cosmetics
Since beauty and skin care products and cosmetics are related to personal safety and health, the country has very strict supervision over the industry and products, and a number of laws and regulations have been promulgated; among them, the import and export related mainly include the 'Regulations on Cosmetics Hygiene Supervision' and 'Cosmetics Detailed Rules for the Implementation of the Regulations on Sanitary Supervision (Order No. 13 of the Ministry of Health), “Measures for the Supervision and Administration of Import and Export Cosmetics Inspection and Quarantine” (General Administration of Quality Supervision, Inspection and Quarantine No. 143), “Administrative Regulations on Cosmetic Labeling” (General Administration of Quality Supervision, Inspection and Quarantine) Order No. 100). Of course, it also includes the laws and regulations of the customs and import and export inspection and quarantine departments that are generally applicable to all import and export commodities.
2. The concept of skin care and cosmetics
The 'Regulations on Cosmetics Hygiene Supervision' stipulates that 'the cosmetics referred to in these regulations refer to spreading on any part of the human body (skin, hair, nails, lips, etc.) by rubbing, spraying or other similar methods to achieve cleanness, Daily chemical industrial products for the purpose of eliminating bad odors, skin care, beauty and cosmetics.' The above clause defines cosmetics from three aspects: method of use, site of use, and purpose of use. Among them, 'skin care' is one of the functions of cosmetics. It is understood that skin care products are a kind of cosmetics.
Let’s look at the Import and Export Tariff of the People’s Republic of China (hereinafter referred to as “Import and Export Tariff”). The commodity name under tax code 3304 is “beauty or cosmetics and skin care products (except medicines)”, and the commodity name under 330490010 is “ Skin care products', the product name under 3304990099 is 'other beauty products or cosmetics', the two are in a parallel relationship, and different taxes and tax rates apply. Therefore, the 'Import and Export Tariff' distinguishes skin care products and cosmetics as a parallel relationship. From the statistics quoted at the beginning of this article, it can also be seen that the customs also uses 'skin care products and cosmetics' when making statistics. concept.
3. Legal risks of import customs clearance of skin care products and cosmetics
1. The legal risk of price review
Price review refers to the process by which the customs reviews the declared prices of imported and exported goods. In more than 90% of cases, the customs will accept the price declared by the enterprise, but there are still a large number of customs who believe that the declared price of the enterprise does not meet the definition of the transaction price, and then re-evaluates the price. If there is evidence that the company has reported false or false reports, the company may still be held administratively or criminally liable.
Case 1: The impact of multinational company transfer pricing on the transaction price determined by the customs
Company A is a wholly foreign-owned enterprise registered in China. Its main business is importing and selling cosmetics and skin care products with trademark rights of its overseas parent company in China. In May 2015, Company A received the 'Notice of Price Query' sent by its competent customs, stating that the declared price of company A’s imported goods was different from the import price of similar goods as known by the customs, and required the company to verify the authenticity and accuracy of the declared price. Provide an explanation and require the company to provide information such as the audit report of the previous two years, the export declaration form of the parent company, the brand agency agreement, and the list of foreign exchange payments in the past three years.
After multiple rounds of communication, the customs locked the core of the price questioning on the aspect that Company A’s import price might be affected by the special relationship between it and the seller (overseas parent company), and further required Company A to explain and explain that the related transaction did not affect the transaction price. Proof. Company A further provided a large amount of data and text explanations such as the explanation of the transaction price formation mechanism between it and the parent company, the overseas cost composition of imported goods, the analysis of the reasonableness of the parent company's profit, the analysis of the domestic cost composition and the reasonableness of the profit rate of A company, etc. . The customs finally accepted the declared price of A company.
The transfer pricing arrangement of multinational companies is not only a concern of domestic tax authorities, but also a key point of price review that China Customs attaches great importance to. In reality, not all transaction prices under the transfer pricing arrangement can be recognized by the customs. The key lies in whether the data and text provided by the company can support the argument that the import transaction price is 'fair' and 'in accordance with general business practices'. . The customs has no direct obligation to accept transfer pricing arrangements approved by tax authorities. Therefore, it is necessary for multinational companies to understand the customs' views on transfer pricing, and communicate and negotiate with the customs in a way that the customs can understand and agree with.
Case 2: The impact of royalties paid overseas on the transaction price
Company A is a wholly foreign-owned enterprise registered in China, which is mainly engaged in the import, processing and domestic sales of skin care products and cosmetics. Company A and Company B, its overseas parent company, signed the 'Technology Import Contract' and 'Trademark License Contract.' According to the contract, Company B permits Company A to use the company’s registered trademarks, patents, know-how, and trade secrets in China in the contract area, including such things as product formulas, manufacturing technologies, calculation standards, data materials, manufacturing methods, design, and utility For new types, drawings and other confidential and proprietary information, Company A must pay Company B a continuous commission fee equivalent to 9% of domestic net sales. In 2009, the competent customs of Company A issued a 'Price Questioning Notice' to Company A. After a series of consultations, it finally levied relevant import duties and import link taxes on some royalties related to cosmetics and semi-finished products imported by Company A.
The current marketing models of imported cosmetics are: 1. Multinational companies directly set up branches in China to operate in China 2. Foreign brand companies directly authorize Chinese companies to act as agents. The imported goods under the above model may be directly sold finished products, or semi-finished products or raw materials; usually, buyers and sellers will also sign technology and trademark license agreements, and domestic buyers need to pay related fees (license fees) to overseas companies. Under this arrangement, part of the royalties may be deemed by the customs to pay import taxes.
When collecting taxes on royalties, the customs must meet the following three conditions at the same time: 1. The enterprise does not pay import taxes on royalties; 2. The payment of royalties is related to imported goods; 3. Royalties The payment constitutes a condition for overseas companies to sell to domestic buyers. However, the criteria for judging the above three conditions are not precise enough in the current law, and there is no uniform standard for the customs control; when the three conditions are met, there is no relevant guidance on the scope and method of apportionment calculation. This not only causes confusion for enterprises, but also difficulties for customs enforcement. Therefore, under various unclear standards, it will test the company's grasp of existing legal regulations and past cases. It is necessary to use forces including customs, finance, technology, etc., to minimize the tax burden of the company.
Case 3: Other customs price review risks
Company A is mainly engaged in the import and sale of cosmetics, and has repeatedly declared a variety of cosmetics, skin care products (including non-sale samples), makeup tools and packaging accessories under a certain brand. The customs once issued a 'Price Questioning Notice' to the company, claiming that the company's declared price is different from the price controlled by the customs, and required the company to provide a description of the authenticity and accuracy of the price, and separate the sample and normal packaging. The company provided data on the cost of normal packaging and non-sale samples, which the customs accepted; however, it continued to require the company to explain the difference between the declared price of normal packaging products and the import prices of other branded goods held by the customs. However, according to public information or investigations collected by the company itself, the company’s declared price is not low compared to the declared price of other branded goods of the same grade and similar functions, and the profit from domestic sales is not absolutely high. It can be seen that when the customs conducts data comparison, the collected data is not comprehensive, and there may be a tendency to collect data. Therefore, importing companies should make full use of their knowledge of the industry and products, give full evidence, and strive for reasons.
The same tax number, similar commodity name, and the same function or purpose are the key indicators for customs to conduct cargo price risk screening. But in reality, there are extremely rich varieties of cosmetics and skin care products, and the prices of different companies and brands vary significantly. Even the same company will have product series with different brands, different grades, and different functions. This means that under the same tax number, the declared prices of imported goods vary greatly. This situation has not only caused difficulties for the customs to review the authenticity and accuracy of the prices, but also created obstacles to the reasonableness of the prices declared by the enterprises themselves. How companies can verify the authenticity and accuracy of declared prices to the customs will be a difficult task and requires certain professional knowledge.
2. Classification of legal risks
Classification refers to the process by which the customs determines the tax number of import and export commodities based on the classification basis of commodities such as the 'Import and Export Tariff', and is the most technical part of the customs supervision function. Since classification usually involves issues of regulatory conditions and applicable taxes and tax rates, classification disputes between enterprises and customs are very common and have a significant impact on enterprises.
Company A is a wholly foreign-owned enterprise registered in China. It is mainly engaged in the import of skin care products and cosmetics. Since 2014, it has applied for the import of various skin care products and cosmetics. In January 2015, its competent customs raised questions about the classification of a series of products declared to be imported as '** Xiurong Cream', and believed that the product should be cosmetics and should be classified under 3304990099 instead of 3304990010 Under this item, enterprises are required to pay relevant taxes.
The classification of cosmetics and skin care products is the main point that the customs pays attention to the classification of imported goods by enterprises in this industry. The main reason is that the classification is under the cosmetics (tax number 3304990099, usually understood as make-up or has a face or body modification function). A higher tariff rate is applicable, and import consumption tax is required; while skin care products (3304990010, usually understood as having a facial or body care function), the relatively low tariff rate can be applied without paying Import consumption tax.
However, in practice, cosmetics and skin care products have shown multiple complex functions, and it is difficult to clarify their main functions, which causes certain difficulties in the classification of related products. Even if the company has no incentive to actively save taxes, it may differ from the customs' classification opinions, which may cause classification risks.
3. Intellectual property legal risks
China is a big country of intellectual property rights, but the phenomenon of infringement of intellectual property rights is also very serious. China Customs undertakes the management function of intellectual property protection in the import and export links. In the case that the right holder has obtained the customs record of intellectual property rights and has applied for intellectual property protection, the customs has the right to determine and investigate whether the imported and exported goods are infringing. According to statistics, there are more exports of infringing products and relatively few imports. In order to fully present the risks related to skin care products and cosmetics, this section uses an export case to illustrate.
In July 2015, Company A declared to the customs for export of a batch of cosmetics. The customs inspection found that cosmetics such as eyeliner, make-up remover, liquid foundation, lipstick and so on were marked with the trademark 'XX and 图'. The goods were worth more than RMB 80,000. And A company cannot provide authorization documents or formal purchase certificates. The trademark owner believes that the above-mentioned goods are goods that infringe on their trademark rights, and apply to the customs for intellectual property protection measures within the prescribed time limit. After investigation, it was confirmed that the export of the above-mentioned goods by Company A constituted an export of goods that infringed the exclusive right of others’ trademarks. The customs made an administrative penalty decision, confiscated cosmetics with the trademark 'XX and 图', and imposed a fine of RMB 18,000.
Infringement cases of infringement of skin care products and cosmetics in and out of the country are the types of infringement cases found by the customs, which mainly infringe trademark rights. The infringer declares to the customs the import and export of cosmetics that have not been authorized by the trademark owner or purchased illegally. If the infringement is approved by the owner, the customs can investigate and investigate the infringing goods. Multinational companies should pay attention to the intellectual property record in China Customs, and make full use of the customs' intellectual property protection functions to strengthen the company's intellectual property protection.
4. Other legal risks of customs clearance
In view of different forms of import and export trade, skin care products and cosmetics-related companies also face many other types of customs clearance risks. For example, companies engaged in processing trade have many risks of violations; there are also a lot of precautions for the import and use of tax-free imported goods. All companies engaged in import and export business must guard against the risk of violations.
4. How to deal with and prevent legal risks in customs clearance
1. Understand the key points of customs audit
The three major factors of price, classification, and place of origin jointly determine the import tax burden of a company, which is also the key point of customs supervision. Among them, price and classification are the two aspects that customs are most concerned about. For multinational companies, the customs will pay particular attention to whether the transaction price formation mechanism conforms to general business practices, that is, whether it is affected by special relationships, and whether the royalties paid by domestic companies to the parent company are included in the customs value of imported goods in. The customs' attention to issues such as price and classification is not isolated. For example, when checking a certain product or a certain price factor, other matters that affect the transaction price may be discovered, or abnormal classification may be found when checking price problems. Once the tax is assessed and levied by the customs, it will continue to affect the tax burden of the enterprise; in terms of classification, if the customs finds that the declaration is false, the enterprise will not only need to pay taxes, but also may be subject to administrative penalties.
2. Fully exercise corporate rights
The customs can verify the authenticity and accuracy of the elements declared by the enterprise during and after customs clearance by means of verification and inspection. In the process of dispute resolution such as price or classification, enterprises have the right to make statements and defenses, and enterprises should take advantage of a better understanding of products, enterprises, and industries, fully provide evidence, and strive for reasons. In practice, through negotiation and communication, and even administrative reconsideration, litigation and other legal procedures, there are many cases where companies have won the case.
3. Avoid risks in advance
The customs currently has legal procedures to support enterprises to avoid risks in advance. For example, before customs clearance of commodities that may cause classification disputes, companies can apply to the customs for classification rulings and pre-classifications, which can help companies effectively avoid administrative and even criminal risks caused by customs questioning during or after customs clearance; At the place of production, there is also a pre-audit system.
4. Pay attention to customs credit rating
The customs conducts credit management on enterprises. Enterprises that have obtained advanced certification (AEO) from China Customs can enjoy priority customs clearance and lower inspectionAt the same time, advanced certification companies can also enjoy the same treatment as AEO companies in the country where the counterparty is located, provided that China has reached a mutual recognition agreement with other countries. The customs credit rating has been linked with the national taxation, foreign exchange and other government departments. The reduction of the customs credit rating will directly affect the credit rating evaluation of other administrative agencies on the enterprise, and will have a great impact on the normal operation of the enterprise. Therefore, enterprises should try their best to strive for and maintain a high credit rating in the customs.
5. Pay attention to the comprehensive strategy of intellectual property
Infringement of cosmetics-related goods accounts for a considerable proportion of intellectual property infringement cases investigated and handled by the customs, especially after the rise of cross-border e-commerce, infringement cases have become more frequent, generally focusing on trademark infringement. The customs has the right to manage infringement cases of imported and exported goods, and the proper use of customs channels will effectively prevent infringing goods from entering domestic and overseas markets. In order to improve the effectiveness of customs protection, it is recommended that companies obtain filings with the customs in advance.
6. Attach importance to self-discipline management
The import and export process of cosmetics is relatively complicated, involves different regulatory authorities, and is related to personal safety. Therefore, companies should pay special attention to the compliance management of import and export business, and promptly discover and rectify possible problems. In addition, the customs advocates self-discipline management by enterprises. If the enterprise discovers that there are violations in the customs clearance process and discloses it to the customs on its own initiative, it will hopefully receive a lighter and lighter treatment.