First of two parts
The new guidelines on the establishment, operation, supervision and control of customs bonded warehouses (CBWs) was recently issued by the Department of Finance (DoF) and Bureau of Customs (BoC).
Customs Administrative Order (CAO) No. 13-2019, which took effect last November 8, 2019, seeks to implement the CBW provisions under the Customs Modernization and Tariff Act (CMTA). It also updates previously issued BoC regulations on the matter.
In general, all articles imported into the Philippines are subject to the payment of customs duties, taxes and other charges. However, as an exception, Section 812 of the CMTA allows articles to be imported, under a conditional arrangement, and entered by an operator in a licensed CBW on a duty-and-tax free basis, for the purpose of manufacturing the same into finished products for eventual exportation within the prescribed storage period.
CBWs are warehouse facilities licensed by the BoC to import, receive and store goods, raw materials, accessories and packing materials either for manufacture into finished products for export or for storage for the account of authorized end users or clients.
CBWs are classified as either “manufacturing” or “non-manufacturing.”
A “customs bonded manufacturing warehouse” may be a miscellaneous, garments and textiles, customs common bonded warehouse, industry-specific bonded warehouse, or a private manufacturing bonded warehouse.
On the other hand, a “non-manufacturing customs bonded warehouse” includes public or private, airlines customs bonded warehouse and airlines catering customs bonded warehouse, and multinational regional bonded warehouse.
The entry of goods under the CBW scheme shall be effected through the filing of a warehousing goods declaration. The importer is required to post sufficient security equal to the assessed duties, taxes and other charges. This is a condition for the storage and withdrawal of the bonded goods within the prescribed period, or the payment of duties, taxes and other charges upon compliance with all importation requirements.
In and out of goods
The rationale for the duty and tax exemption is because a CBW is removed from the jurisdiction of the Philippine customs territory. This concept is akin to that of special economic zones — a territory regarded by legal fiction as foreign soil, although indubitably it is within the geographical territory of the Philippines.
Thus, the treatment of imported goods under a CBW scheme is quite similar with that of imported goods entering special economic zones (SEZ). The raw materials imported are deemed to have not entered the Philippine customs territory and therefore, never introduced into Philippine commerce (Bureau of Internal Revenue Ruling 008-96, January 18, 1996; Value- Added Tax Ruling 011-98, March 4, 1998). Consequently, even movement of goods from a CBW to a SEZ, or vice-versa, will likewise be not subject to duties and value-added tax (VAT) on importation as there is, in effect, no importation to speak of.
In the same vein, sale or transfer of goods from the customs territory into the CBW or into the SEZ, as the case may be, shall be considered as constructive export, subject to zero-rate VAT.
The condition for duty and tax exemption, however, differ as to the period of storage of the imported goods. While CBWs have prescribed storage periods, there is no such condition relating to goods entering SEZ.
If the goods are stored, whether raw materials or finished products, are withdrawn, sold, or disposed of to buyers within the Philippine territory, the same will trigger the payment of customs duty and taxes to be settled by the operator (in case of CBWs) or by the buyer in the customs territory (considered as technical importer) in case of goods are sold by a SEZ-registered entity. The withdrawal shall be covered by a goods declaration for consumption.
The CBW scheme virtually eliminates the process of claiming a duty drawback (or effectively, duty refund) on the duties that would have been paid on the importation of said goods. This in effect helps the cash flow position of the importer as a result of the exemption from duties and taxes as well as the concomitant cost in securing duty drawback.
The allowable storage period (to be duty and tax exempt) is one year from the time of the arrival of the article at the warehouse.
For bonded goods that require longer processing into finished products, the Customs Commissioner, in consultation with the Secretary of the Department of Trade and Industry, may, based on industry standard and practice, establish a period beyond 1 year, subject to the approval of the DoF Secretary,
For perishable goods, the storage period is three months, extendible for valid reasons to another three months.
Goods not withdrawn after the expiration of the prescribed period shall be deemed as abandoned.
CBWs are considered extension of the BoC premises in so far as the dutiable goods stored and introduced are concerned, thus, are under the supervision and control of the BoC.
The BoC, however, assumes no legal responsibility in respect to the safekeeping of articles stored in CBWs. In case of loss, the operators of said CBW shall be responsible for the payment of duties and taxes due thereon.
License to operate
The application to operate a CBW, including accreditation as a member, a subcontractor or a client-exporter of an existing warehouse, is filed with the BoC District Collector where the
CBW is located.
Once the application is granted, the authority to operate a CBW, including warehouse extensions and additional facilities, is valid for three years, subject to a possible renewal of the license to operate. The application for renewal should be filed not later than 90 days but not earlier than 120 days before expiration.
If the lease contract submitted during the application is less than three years, the validity of the authority to operate a CBW will be coterminous with the lease contract unless a new one with a longer period is submitted.
To be concluded next Thursday
Mark Anthony P. Tamayo is a CPA-lawyer and a partner of Mata-Perez, Tamayo & Francisco (MTF) Counsel, a member firm of the International Tax Specialist Group (ITSG). The International Tax Review has consistently named him as one of the recognized indirect tax leaders in the Philippines and has awarded him the Asia Tax Practice Leader of the Year in 2016. If you have any questions or comments, you may email the autohor at [email protected] or visit MTF website at www.mtfcounsel.com.