Recently a customs broker expressed alarm to us that the Australian Border Force (ABF) had demanded underpaid duty directly from the customs broker rather than the importer. This raises the important issue of who in the supply chain is potentially liable for customs duty. The issue is bound to come up more often as certain businesses are put under pressure by the impacts of Covid-19 and some other businesses attempt to avoid high dumping duties.
Below we consider the various parties who may be potentially liable for underpaid customs duty.
Who is potentially liable for customs duty?
Short answer – almost anyone who has had any connection with the goods. The Customs Act imposes liability for underpaid duty on the “owner”. This doesn’t seem too bad until you read the definition of “owner” in the Customs Act. “Owner” is defined as:
"Owner " in respect of goods includes any person (other than an officer of Customs) being or holding himself or herself out to be the owner, importer, exporter, consignee, agent, or person possessed of, or beneficially interested in, or having any control of, or power of disposition over the goods."
The “owner”, “importer”, “exporter” and “consignee” are at least parties that are commercially involved in the importation of the goods. However, the definition also includes an “agent”. Presumably this is someone who acts on behalf of the owner. This could include the customs broker or freight forwarder.
A person “possessed of” or “having any control of” the goods can include the any party that has physical control or possession of the goods at any stage. This would include the parties that carry or store the goods.
Based on the above, it is very likely that most logistics professionals providing services in respect of imported goods will fit within the definition of “owner”.
How have the Court’s interpreted the definition of owner?
Sometimes when the legislation acts to impose wide liability, the Court will interpret the wording narrowly. However, in an attempt to protect the revenue, the Courts have taken a different approach. On different occasions that Court have held that:
Numerous people will at the same time will meet the definition of “owner”
Once liability as “owner” attaches to a party, it is not removed until the duty is paid
The only way a party can discharge its liability as owner is for the duty to be paid
The liability of the owner applies both to duties demanded at the time of import and duties subsequently demanded following a post importation audit
In short, the Courts have been happy to uphold the wide definition of “owner” and have rejected arguments that an “owner” can discharge their liability by parting with the goods.
Approach taken by the ABF?
Usually, this issue does not arise at the time of importation. The goods should not be released until a party has made payment of duty. However, the situation is different if there is a post clearance audit and it is found that duty was underpaid.
The ABF set out its position in Department of Immigration and Border Protection Notice No. 2017/16. In this notice the ABF noted the following:
The ABF has an obligation to collect underpaid duty
This may involve issuing demands against a party that does not have an obligation under the commercial agreement to pay import duty
Generally, the demand will be made on the importer named in the import declaration
Before making a demand on another party, consideration will be given to:
All the parties who could be classified as the owner
The involvement and actions of the parties in relation to the goods
The impact a party’s conduct may have had on the under payment of duty
Does the ABF ever demand duty from a party that is not the importer of record?
While a wide range of parties in the supply chain have a theoretical liability for duty, this only becomes a problem if the ABF actually elects to demand duty from parties other than the importer or record. In our experience, this rarely happens. But this is not the same as saying that it never happens.
Some examples of where the ABF has demanded duty from a party other than the importer on the import declaration are:
DDP Transaction – where a foreign company was the importer under a delivered duty paid (DDP) transaction. The foreign company deliberately undervalued the goods. It was not alleged that the Australian consignee had any knowledge of the undervaluation. The ABF nevertheless demanded duty and GST from the Australian consignee. In this case the relevant factor seemed to be that the importer took the risk of being a party to a DDP transaction.
Failed direct debit payment – more recently, the ABF has demanded duty from a customs broker in circumstances where the importer of record was unable to pay. In this case, the importer had set up a direct debit payment system with the ABF. The ABF had processed the payment in relation to the duty payable on the goods. It seems that that ABF made the choice to release the goods prior to actually receiving the funds. The direct debit was eventually dishonoured but the goods had already been released. The ABF made the decision to demand the underpaid duty from the customs broker even though:
the dishonoured payment was not from the customs broker’s bank account;
the ABF elected to release the goods before confirming the receipt of the funds; and
the customs broker had not contributed to the underpayment of customs duty.
The ABF rarely makes demands on parties other than the importer of record where the underpayment of duty is identified following a post clearance audit. This is even the case when the underpayment relates to tariff classification or other issues that are within the technical expertise of the customs broker.
In most cases a demand would be made on the importer and it is expected that if there was a genuine claim that the broker had caused the underpayment, the importer would seek contribution from the broker.
Just to make certain that customs brokers are liable
If there was any doubt that the definition of “owner” extended to licensed customs brokers, the issue is made irrelevant by section 183 of the Customs Act. The section has the blunt heading “Agents Personally Liable” and provides that customs brokers shall be deemed to be the “owner” of the goods.
The existence of this section doesn’t leave any room for argument as to the liability of customs brokers.
What can you do to protect yourself?
The reality is that for most importers, the amount payable in customs duty will be less than the amount payable to the forwarder for the international transport of the goods. Your biggest risk is not the underpayment of customs duty but rather the non-payment of your own invoices!
In the absence of underpaid duty, it will be very rare that there is the potential for release of the goods without payment of all duty. An authority to deal with the goods will only be issued once payment has been made. An example is given above where a declined direct debit payment resulted in the release of goods without payment. It is recommended that you remind clients of an expected direct debit in the following circumstances:
it is a new client
the client does not regularly pay duty on its imports
the duty amount is much larger than the amount usually paid by the client
the client is behind in paying your own invoices
you are aware that the client is in financial difficulty
The biggest risk arises where an underpayment is identified following an audit. Examples would be misuse of a free trade agreement or tariff concession order, incorrect tariff classification, undervaluation of goods and not paying required dumping duty. In these circumstances the goods will have been cleared and possibility no longer exist. The importer may be wound up or simply not interested in paying any additional duty.
The ABF say that it will take into the behaviour of the relevant parties. From experience, it is rare to see a customs broker receive an infringement notice or other penalty where the ABF believes that the customs broker acted in a professional manner. Consider the various tobacco smuggling cases – innocent customs brokers (who are “owners” and potentially liable for duty) are never sent duty demand notices or prosecuted.
More importantly, acting professionally and exercising due diligence will help with preventing the events that result in an underpayment of duty. The more information you have about the goods, the more likely the correct duty will be paid at the time of importation. The motivation to do this will be good business practice and your obligations as a customs broker. However, the likelihood of avoiding direct liability as an “owner” should be additional motivation.
The reality is that even the best customs brokers cannot prevent all underpaid duty. Customs brokers are not ABF auditors and will only see the information that their clients choose to provide. In this case, awareness of the risk is just as important as prevention. Be aware that you are potentially liable as “owner” and this will impact how you select clients, price your services, select insurance and what due diligence you will undertake. This due diligence may not just be about the specific import but also the financial standing of the client.
If you have concerns about your potential duty liability or what steps you can take to reduce the risk of an ABF demand, we recommend speaking to a customs compliance specialist.