Alex Frishberg writes: Disputes can be won with proper argument, documents.
As any importer knows by now, import-export in Ukraine is an uneven combination of law and practice. From a legal viewpoint, it’s a simple concept: just sign a profitable contract with your Ukrainian partner, arrange to ship your goods to Ukraine, and get paid for it. But there are risks all along, which mercilessly eat away at your profits, so a wise businessman often chooses to “go slow.”
Make sure you do background research on your partner, and instead of signing one big contract, enter into several contracts for lesser value, allowing your Ukrainian partner to prove their reliability and trustworthiness.
The next set of problems is waiting for you at the border: customs duties, value-added tax (VAT), excise taxes, certification problems, among other issues related to the state Customs Service.
The big question for an importing company is how to find solutions if you run into trouble, how to find the right people, and what arguments you can make in order to persuade the customs service that you are correct in your pricing.
The Ukrainian Customs Service is the only authority which decides how much you should pay in customs duties. At the same time, the customs authorities, on the whole, do not want to work with you because they really, truly do not care and have little reason to pretend otherwise. Moreover, Ukrainian law is also not on the side of importers and exporters.
For all these reasons, it is better to foresee and prevent any problems rather than face them unexpectedly when you are at the customs terminal.
The most painful topic for any importer is whether the customs service will scrutinize the declared import price with a view to raise the customs duty. To help determine the “real” price, there is a customs database, but it contains no guaranteed minimum prices, nor guaranteed medium prices.
The customs database is split into regional databases and databases of each customs terminal. In all databases, customs independently makes checks and they remove the low values. The customs database will analyze your price by taking the range based on the HS code (Harmonized Commodity Description and Coding System) in your declaration from the minimum to the maximum. It discards the minimum and maximum positions. By default, the customs service will always apply the medium value.
If your actual price is higher than the middle value, you will not have any problems at the customs terminal. If your price falls between medium and minimum value under the database, it is still in the discretion of the customs inspector to question your price. You will need to make sure that price is supportable. If, however, the price comes in lower, then the customs official can refer it to the tariff department, which can define the customs price.
The bad news is that the tariff department is not going to make your life easier because the efficiency of their work is measured in the percentage of the customs declarations they increase.
The good news is that if you are still within the customs database range, the tariff department may well confirm you price. They have a wider range of measures than the customs inspectors and may look for similar roots with other such items (e.g., the department inspector may compare prices under the tariff code and the country of origin; thus, if you have an origin in China, the inspector could compare prices with India or Malaysia).
The big question is: how do you persuade them?
Note that there are all kinds of “additional documents” that can assist in proving the customs price, but no actual final list of what these documents may be.
If you decide to officially fight against the tariff department, you may request a list of documents that they are demanding from you. You may start with the terminal tariff department, then proceed to the regional tariff department, and finally to the state tariff department.
The more you appeal to higher customs authorities, the more it is likely that you will get an answer. But do not stop there. There are opportunities to be a member of an association, like the European Business Association. Also, use your embassies. The message should be the same: Your company is transparent, it’s constantly increasing its volumes so that customs has a possibility to gain more revenue.
When you have consistent trouble at your customs terminal, you need to find a solution. First, you need to understand the reason for your trouble. If you are registered in Kyiv, you can move to another customs post. Try to find a terminal which will listen to you and ask them to help you change your customs accreditation card.
There are no wrong shipments, only wrong documents. If there are mistakes in the documents, or if one shipment does not correspond with the documents, your company will face a risk of paying too much money. You should always have proper documents, know your shipments, know how and why the price is set, etc. If your documents are clear and your price is reasonable and well-substantiated in advance, you will have a minimum risk of interfacing with the dreaded tariff department.
And don’t rely on the system. You should rely more on the people who run it.
Alex Frishberg is the founding partner of Frishberg and Partners, a Kyiv-based law firm. He can be contacted at [email protected].
