The Cost of Incorrect Tariff Classification

Executive Summary

The use of the wrong GTIP can lead to incorrect determination of customs duties and other financial obligations, which is subject to the goods.

According to the nature of the error, the tax difference may arise, the penalties prescribed in the relevant legislation, financial loads and operational results due to delay.

However, it cannot be said that every false GTIP declaration gives the same legal result. The results vary according to the nature of concrete processing, legislation and error to be applied.

The main risk in terms of companies is to settle the product main data of the wrong classification and repeat in numerous transactions.

The effective GTIP management should cover not only the process of code determination, the technical bases of classification, legislation tracking, product changes and past processing controls.

1. What Is The Wrong GTIP Usage?

The use of the wrong GTIP is the declaration of a goods in a tariff position, which is not suitable according to the Turkish Customs Tariff regulations and the relevant classification rules.

The commercial name of the goods in the tariff classification is not enough alone.

Technical specifications, composition, purpose of use, function and corresponding tariff provisions of the item should be evaluated together.

The General Comment Rules, chapters and fascinations, position texts and related clarifying sources are important when classification is done.

For example, technical specifications do not mean that two products are commercially sold with the same name, they will be classified under the same GTIP.

The HS code, which was reported by the supplier of a similar product, does not guarantee the accuracy of the 12 digit GTIP in Turkey alone.

2. Financial Results of False GTIP Usage

The financial effects of the wrong classification may appear in several different levels.

2.1. Customs tax difference

Due to the wrong GTIP, there may be a lower rate than the customs tax rate required.

In this case, the collection of taxes that are missing according to the relevant legislation and the conditions of the transaction may come to the agenda.

2.2. Additional financial obligations

GTİP can also take care of the determination of additional customs duties, anti-damping tax or other trade policy measures subject to goods.

Therefore, GTIP error may not only be limited to basic customs tax.

2.3. Administrative fines

Within the scope of the provisions of the Customs Law No. 4458, administrative fines may be subject to the nature and conditions of the error.

In cases that require assessment in the scope of 234 clauses, it is necessary to determine the regulation and concrete processing, which is in force on the relevant date of the sanctions to be applied.

It should not be taken if the same penalty rate will be applied automatically to each GTIP error.

2.4. Financial loads connected to delay

In terms of missing charged taxes, financial loads may also occur depending on delay in the relevant legislation framework.

The nature of these should be determined according to the concrete incident of the starting date and calculation method.

2.5. Operational costs

GTIP errors may require additional document preparation, past transaction review, consultancy, legal assessment and internal control studies in companies.

In addition, in certain cases, the results may occur, such as delay, supply chain disruption and re-evaluation of pricing decisions.

3. Sample Calculation: The Role Effect of a Single GTIP Error

The following example was prepared to show how the use of the wrong GTIP can create a financial effect in a large number of transactions.

Assumptional company data:

Simplified tax difference account:

5,000,000 USD × 6% = 300.000 USD

In this example, only in terms of a single tax pen, there is a difference for 300.000 USD.

This amount is not a real customs debtor or penalty calculation.

The calculation has not included administrative fines, delay-related loads, other tax and financial obligations or exchange rate effects.

The actual financial results should also be assessed through Turkish lira based on the date of registration of each declaration.

The main issue shown for example is that a small-looking tax rate difference can turn into an important total amount in the high trading volume.

4. Why is Systematic GTIP Errors More Dangerous?

The classification error made in a single declaration may be limited to a certain process.

However, the recording of the wrong GTIP to the product main data can cause the same error to repeat.

If the wrong tariff code is defined for a specific product in the ERP system of the company, this code can be used in different dates and different import operations.

The scope of the risk in this case is not only the first faulty process.

All of the past transactions performed with the same code may require assessment in the framework of relevant legal limits and concrete conditions.

Therefore, these questions are important in GTIP controls:

• When did the faulty classification start?
• What products have been affected?
• How many declarations were made with this classification?
• What tax and trade policy measures were valid during the relevant period?
• What can be the financial effect of the error?
• Does the same error continue?

These questions are fundamental to determine whether the error is monopoly or systematic.

5. Major Causes of GTIP Errors

Over-reliance to supplier code

HS codes reported by international suppliers may be a useful start data.

However, between countries, tariff openings and national subpositions may vary.

Therefore, the code used by the supplier is risky to be accepted directly as the GTIP in Turkey.

Technical documentation deficiency

The composition of the product, function or technical characteristics of the product can give the faulty result of classifications made sufficiently known.

No trace of product changes

Despite the technical characteristics of the product, the previous GTIP can create incompatibleness.

No tracking of regulatory changes

Changes in tariff ruler, classification decisions and related regulations may require re-evaluation of product classifications.

ambiguity of responsibilities

In the company, if the GTIP is determined by who, who confirms and is not clear that in which cases it will be reevaluated, control deficiencies may occur.

6. Does the GTIP Error Burning Only Tax Difference?

No.

GTİP can also be decisive in the implementation of permit, compliance, surveillance and product security regulations in some import operations.

For example, due to improper tariff classification, a particular control or permission obligation that a product is subject may be missed.

However, each GTIP change may not necessarily be said that it gives a new permission or financial obligation.

The actual nature of the item, the scope of the relevant arrangement and the history of the transaction should also be evaluated.

7. How to Detect Wrong GTIP Usage?

Companies can examine existing classifications with a risk-based tariff control program.

In this review;

1. The product is removed from the main data and used GTIPs.
2. Products with high import volume are determined.
3. Technical specifications are given priority to complex products.
4. The basis of the classification is controlled.
5. Detailed tariff analysis is made for the required products.
6. The effect of specified differences in the past processing is evaluated.

It is also important that there are only different codes in the controls, which is why the current code is used.

8. Does the Binding Tariff Information Remove Risks from the Middle?

Binding Tariff Information (BTB) is an important tool that can provide legal specificity to the tariff classification of goods under certain conditions.

However, the scope of the ITB should be taken into account the terms of validity, the definition of the goods and the relevant legislation.

BTB is not a general document that provides automatic assurance for all products or all past operations of the company.

The accuracy of the product information provided in the application and the compliance of the imported goods under the decision.

Therefore, BTB should be evaluated as part of a wider tariff compliance system.

9. What to Do When Error GTIP Is Detected?

Technical and legal assessment should be performed first when the suspected of faulty classification occurs.

Recommended approach:

First stage — Technical verification

The characteristics of the goods and the corresponding tariff provisions are evaluated correctly by reviewing the classification.

Second stage — Determination of the affected processes

Transactions performed with the same product and code are detected.

Third stage — Financial and legal impact analysis

Tax rates, trade policy measures and other provisions in force in the relevant dates are taken into account.

Fourth stage — Evaluation of legal options

The correction, notification, application or other roads permitted by the legislation are examined in the framework of concrete conditions.

fifth stage — Permanent control measures

The product is updated the main data, approval mechanisms and classification procedures.

Detection of a defective GTIP does not mean there is a single type and automatic correction method in terms of past operations.

C-INSPEC Perspective

GTIP Error Most Time One Data Management Issue

The wrong tariff classification in customs transactions often becomes visible on the declaration.

However, the source of the error can be found in much earlier processes.

The technical specifications of the product are determined in the engineering or product management unit, the purchasing department can create commercial identifications.

The foreign trade department conducts customs clearance through product information transmitted to it.

In these processes, there is no adequate connection between technical information, classification decision and operational application, can cause systematic GTIP errors.

For example, when a product has changed technical specifications, this information may be continued to use the old GTIP if it is not transferred to responsible persons from the customs classification.

Therefore, the GTIP management should not only be taken to the responsibility of the external trade unit.

A powerful tariff compliance system should be installed on the correct technical data, documented classification decision, open responsibilities and regular reassessment.

Basic performance indicator in terms of upper management is not only the number of faulty GTIPs, how reliable and traceable of classification processes.

10. Five Stage GTIP Risk Management Program for Companies

1. Creation of product inventory

Imported products are brought together GTİP, technical property, supplier, origin and processing volume information.

2. Risk-based classification control

High volume, complex or high financial effect are given priority to products.

3. Documentation of technical and legal basis

The reasons for classification decisions are supported by technical documents and related legislation.

4. Evaluation of the past transaction effect

What declarations of detected errors are affected and the probable results are reviewed.

5. Continuous monitoring and change management

Regular control mechanisms are created for new products, technical changes and legislation updates.

This approach transforms the GTIP management into a continuous compliance process from one-time code detection activity.

Frequently Asked Questions

Conclusion

The use of the wrong GTIP is a risk of compliance that can lead to significant financial and operational results in import operations.

In particular, mistakes that repeat in the same group of products can create an increased effect on the past operations of the company.

Therefore, the management of GTIP risks depends not only on the correct preparation of the customs declaration, but also the effectiveness of the company’s product management and internal control processes.

Sustainable compliance in the tariff classification is provided by establishing a system that can explain why the code is correct and protect the accuracy.

Legislation and Official Sources

1. 4458 No Customs Law — Tariff, customs duties and related penalties provisions.
2. Turkish Customs Tariff regulation — tariff arrangements of the relevant year.
3. Customs Regulation — Tariff classification and Binding Tariff Information provisions.
4. Ministry of Commerce — Tariff classification and GTIP information.
5. Ministry of Commerce — Binding Tariff Information descriptions.