Why Customs Risk Is a Company-Wide Responsibility

Executive Summary

The customs compliance is not only the operational processes carried out by the foreign trade department.

Different functions of the company produce information and decisions that affect the accuracy of customs transactions.

Specifically, the following areas are important:

1. Commercial contracts and pricing conditions of the purchasing department.
2. Payment and group transaction records of the financial department.
3. Financial records and consensus of the accounting department.
4. Technical product information of product management and engineering units.
5. Stock and price records of production and planning departments.
6. Contract and regulatory obligations assessments of the legal department.
7. Data and system controls of information technologies.
8. Risk inspection and corporate control responsibility of upper management.

Therefore, an effective customs compliance system requires defined responsibilities between departments and regular information sharing.

1. What is the Customs Risk?

The risk of customs can be assessed as the possibility of encountering legal, financial or operational negative consequences due to the customs clearance and related commercial activities of the company.

These risks;

• wrong GTIP classification,
• missing or incorrect customs value,
• incorrect origin application,
• incorrect assessment of trade policy measures,
• non-exclusive customs regime obligations,
• missing or non-reliable documents,
• not to be followed by legislation changes

can occur in different areas.

However, the emergence of the risk in the customs process does not necessarily mean the cause of the risk is located in the foreign trade department.

This distinction is important for corporate risk management.

2. Who Produces Information on the Customs Declaration?

Customs declaration is a transaction document that is collected from different sources.

For example;

This table is an example. The distribution of tasks may vary depending on the organization structure of the company.

But the basic real changer:

The foreign trade department often converts the information generated by other departments into customs clearance.

Therefore, the accuracy of information sources is one of the basic components of customs compliance.

3. How Does Purchasing Department Affect Customs Risks?

Purchasing department plays an important role in determining the commercial conditions of import operations.

Supplier selection, product price, delivery shape, contract conditions and some additional payment obligations are decided at this stage.

These decisions may affect customs asset and import costs.

For example, in addition to the product price in the purchase contract, a particular license payment may be predicted.

The effect of this payment to the customs asset should also be evaluated in the relevant legislation framework.

Similarly, supplier change may affect the origin or technical characteristics of the product.

Therefore, important changes in terms of customs compliance of the purchasing department must notify the relevant units in time.

Basic control questions for purchase

• Are you checking out the knowledge of origin in the new supplier evaluation?
• Are product changes reported to foreign trade department?
• Is there any additional payment obligations in the contracts?
• Are import taxes included in the total cost account?

4. How Does Finance Department Affect Customs Risks?

Finance department manages the company’s payment processes and various financial obligations.

However, some payments may require evaluation in terms of customs value.

For example;

• royalty and license bills,
• additional payments to associated companies,
• after import price corrections,
• certain commissions,
• Other payments that may be linked to imported goods

can carry importance.

All of these payments are not included in the customs value automatically.

However, the evaluation of the relevant conditions can also pose a risk.

Some transactions, especially without information on the foreign trade unit of the financial department, may require re-review of past imports in terms of customs value.

5. Role of Accounting Department

Accounting records are important data sources in the evaluation of financial results of customs transactions.

Regular consensus between import declarations and accounting records can help identify unexplained differences.

For example, the total payments made in a certain foreign supplier can be numbly with import bills, a difference to research.

However, every difference does not mean the customs value error directly.

The nature of the payment should be evaluated together with relevant contracts and legislation.

The role of the accounting department in customs compliance is not limited only to the retention of tax records.

It also supports the evaluation of consistency with financial data of customs clearance.

6. Role of Product Management and Engineering Units

GTİP classification is based on the technical characteristics of the goods and the corresponding tariff legislation.

Therefore, the units that know the technical characteristics of the product are important information sources in terms of customs classification.

For example;

• composition of the product,
• purpose of use,
• technical function,
• working principle,
• material properties,
• finished or part quality of the product

grading can take importance in evaluation.

A change in product design may require re-evaluation of GTIP in some cases.

However, if this change is not reported to the foreign trade department, the use of the past classification can be continued.

Therefore, a suitable control mechanism should be installed between the management of product main data and the customs classification.

7. Role of Production and Planning Departments

Production and planning departments are based on important responsibilities in companies that use special customs regimes.

For example, within the scope of Processing Rejimi in Included;

• production prescriptions,
• cash rates,
• stock movements,
• fire and waste records,
• finished production quantities

can carry importance.

These records must be compatible with related customs clearances.

For example, changes in the production prescription may require re-evaluation of relevant permission and document conditions.

However, every production change does not automatically mean illegalness to the legislation.

It is important to evaluate the change in terms of the relevant regime conditions.

8. Role of Law Department

Law department can play an important role in the evaluation of the company’s commercial contracts and regulatory obligations.

Specifically;

• purchasing contracts,
• license and royalty agreements,
• distribution contracts,
• in-group agreements,
• Investments associated with import and export

It can bear importance in terms of customs legislation.

However, only general trade law examination of contracts may not reveal all of the customs risks.

For example, the terms of payment in a license agreement may also be evaluated in terms of customs value.

Therefore, it is important to share appropriate information between legal and foreign trade functions.

9. Role of Information Technology Department

An important part of customs transactions is based on the data contained in the ERP and other information systems of companies.

In these systems;

• product codes,
• GTIP information,
• supplier records,
• information of origin,
• prices,
• stock movements,
• order and billing records

You can take place.

However, the data contained in the system should be up-to-date and accurate.

For example, if a product changes the GTIP, the former code in the ERP system may affect the following processes.

Therefore, the task of information technologies department is not only to ensure the operation of the systems.

It also contributes to the creation of technical controls that support the reliable management of critical data.

10. Role of the Customs Broker and Liability of the Company

Customs clearances are undertaken important tasks in the execution of the customs transactions of the companies.

However, working with customs clearance does not eliminate the need to ensure the accuracy of the company’s own commercial and technical records.

For example, the delivery of the wrong technical product information of the customs clearance may affect the classification assessment.

Not to share additional payments linked to import similarly, can lead to incompleteness in customs asset assessment.

Therefore, between the company and the customs clearance;

• open information sharing,
• document control,
• task and responsibility definitions,
• error notification processes,
• regular communication

must be provided.

The scope of legal responsibilities should be assessed within the framework of the form of representation and relevant provisions of the legislation.

11. Role of Top Management in Customs Risks

Customs risks may affect the financial performance and operational continuity of the company in some cases.

For example, a systematic classification error can cover numerous import processes.

Similarly, non-exclusive regime obligations may lead to financial results within the scope of the relevant legislation.

Therefore, it is important to evaluate the customs clearance of the upper management only as a operational issue.

The role of upper management;

• to make the risks visible,
• determination of duties and responsibilities,
• Providing sufficient resources,
• monitoring of critical findings,
• Supporting corrective activities

can cover areas such as.

However, the scope of the legal responsibility for each manager should also be assessed according to the legal structure, task distribution and relevant legislation of the company.

12. How Does Customs Risks Affect the Financial Results of the Company?

Customs risks may not only consist of transaction-based tax differences.

according to the conditions of the kitchen;

• additional tax obligations,
• administrative sanctions,
• delay-source costs,
• collateral and cash flow effects,
• operational delays,
• contractual disputes

can come to the agenda.

Each of these results should be evaluated according to the relevant legislation and concrete processing properties.

For example, there is a systematic GTIP error in a certain group of products, the company may require a re-review of past import processes.

However, the financial size of the risk depends on the legal rules that the transaction volume, the related periods and the application should be applied.

13. Does Customs Risks Affect Corporate Reputation?

Problems regarding customs compliance may also be effective on the business relations and operational reliability of the company in some cases.

The regulatory compliance in companies operating especially in international supply chains can be one of the elements that the business partners evaluate.

However, it can not be said that every customs error is automatically caused by reputation loss.

Such results depend on the nature, scope and the way of managing the company’s process.

However, strong internal control mechanisms can contribute to more reliable management of the company’s commercial processes.

14. How to Create Risk in Communication Deficiency between Departments?

An important part of the customs risks can be caused by the fact that the information contained in different departments is not shared on time.

For example;

Scenario 1 — Product change

The engineering department changes the technical characteristics of the product.

However, the foreign trade department is not informed of this change.

As a result, the need to re-evaluate existing GTIP can escape to review.

Script 2 — Royalty contract

Law department prepares a new license agreement.

Finance department performs relevant payments.

However, there is no necessary information sharing to evaluate these payments in terms of customs value.

Scenario 3 — Term end price correction

Finance department realizes the end correction of the period related to associated company operations.

However, the external trade department can not examine the connection of the correction with import operations.

Scenario 4 — Production recipe change

The production department changes the prices of certain products.

However, the related records and permission conditions within the scope of Processing Rejimi are not reevaluated.

Each of these examples shows that the customs compliance needs coordination between departments.

C-INSPEC Perspective

Customs Compliance Not a Department Duty, Corporate Governance Subjects

The assessment of the customs compliance of the companies only in the responsibility of the foreign trade department can lead to the real resources of the risks.

Because the customs declaration is one of the last stages that the decisions taken in different departments of the company and the data produced together.

For this reason, it may not only be enough to increase declaration checks to improve customs compliance.

For example, the main data management of the product should be strengthened to prevent the repeat of GTIP errors.

Controls associated with financial and purchasing processes should be created to reduce the risk of customs clearance.

In addition, a reliable consensus mechanism should be installed between the production and stock records to manage the risk of processing Rejimi.

For this reason, customs compliance in the C-INSPEC approach is addressed as a corporate risk management system covering all related functions of the company.

This system is based on three basic principles:

First principle — Common responsibility

The departments that produce information that affect the customs processing should have defined responsibilities for the accuracy and timely sharing of their data.

Second principle — Central coordination

Risks for customs compliance, control results and critical changes must be managed by a central coordination mechanism.

Third principle — Management surveillance

Critical customs risks should be evaluated not only at operational level, but also in appropriate management levels.

The actual power of the customs compliance lies not only in the prevention of all errors of the foreign trade department, but at the time of producing the correct information of all related functions of the company.

15. Sample Customs Compliance Responsibility Matrisi For Companies

This matrix is an example.

According to the organization structure of the company, duties and responsibilities can be determined in different ways.

What is important is that responsibilities are open, enforceable and traceable.

16. How to Board the Customs Compliance System Between Departments?

The following stages are available for an effective system.

Step 1 — Determination of Risk Areas

GTİP, precious, origin, special regimes and other critical areas are evaluated.

Step 2 — Mapping of Information Resources

It is determined that each customs declaration element is produced by the department or system.

Step 3 — Definition of Liability

The units that produce, control, confirm and use the information are determined.

Phase 4 — Change Notification Mechanism

Notification processes are created for new products, suppliers, contracts and price changes.

Step 5 — Regular Mutabakat

Convenient controls are performed between customs, accounting, finance and inventory records.

Step 6 — Risk Reporting

Critical findings and uncompleted actions are reported to relevant management levels.

Step 7 — Continuous Improvement

The root causes of repeated errors are evaluated and control mechanisms are improved.

17. Customs Risk Indicators For Upper Management

These indicators are recommended for internal risk management; there is no mandatory legislation reporting format for all companies.

18. Frequent Errors in Corporate Customs Compliance

The approaches to which companies need to avoid are:

1. Only leave the customs compliance to the foreign trade department.
2. Evaluate product changes in terms of customs classification.
3. Not to check between financial payments and customs clearance.
4. Not to review commercial contracts in terms of customs effects.
5. Not to include production and inventory data to custom regime controls.
6. We do not check the accuracy of the information transmitted by the customs clearance.
7. Keep up-to-date product data on ERP system.
8. Do not make regular consensus between departments.
9. Don’t report critical risks to top management.
10. Don’t research root causes of repeated errors.

The elimination of these deficiencies can contribute to the company’s customs compliance more reliable and sustainable management.

Frequently Asked Questions

Conclusion

Customs clearance is carried out by bringing together the information produced in different departments of companies.

Therefore, the evaluation of customs risks only in the responsibility of the foreign trade department can cause some significant risk resources to be overlooked.

Purchasing, finance, accounting, product management, production, law and information technologies functions may affect the accuracy of customs transactions.

An effective customs compliance system should create open responsibilities and reliable information sharing mechanisms among these functions.

It is also important to monitor the risks of upper management and support the necessary control improvements.

The customs compliance is born from the control culture, which is formed together with all related functions of the company, not from the processes carried out by a department.

Legislation and Official Sources

1. Customs Law No. 4458.
2. Customs Regulation.
3. Then Control Regulation of Control and Risk Procedures.
4. Ease Regulation of Customs Operations.
5. 5520 No Institutions Tax Law — provisions on transfer pricing.
6. Ministry of Commerce — official descriptions of customs transactions, audits and compliance applications.
7. World Customs Organization — Guidelines for customs compliance and risk management.