Chinese Customs: Expansion of the Proactive Disclosure System

published on 10 January 2024 | reading time approx. 3 minutes

Following the Announcement No. 54 which came into effect in July 2022, the Chinese General Administration of Customs (“GAC”) issued the “GAC Announcement [2023] No. 127” in October 2023 to optimize the Customs Active Disclosure System, which takes effect from 11 October 2023 to 10 October 2025. The GAC Announcement [2022] No. 54 shall be repealed thereby.

The new regulation includes following aspects:

Extension of the time limit for proactive disclosure

The new regulation extends the time limit for tax-related violations without administrative penalties from one year from the date of occurrence to two years, which gives enterprises more time to rectify mistakes.

Here are the specific circumstances regarding tax-related violations without administrative penalties:

Proactively disclose the tax-related violation to Customs within six months of its occurrence;
Proactively disclose tax-related violations to Customs more than six months but within two years of their occurrence, and any omitted or underpaid tax accounts for less than 30 percent of the tax payable, or the amount of the omitted or underpaid tax is less than 1 million RMB.

Expand the scope of proactive disclosure

Proactive disclosures are no longer limited to “tax-related violations”. In addition to tax-related violations, the new regulation adds six circumstances to the applicable scope of proactive disclosure, related to tax refund on export, processing trade, customs statistics, customs control, supervised goods, and inspection and quarantine.

Details are listed below:

1. Export tax refund - behavior that affects the national administration:

Proactively disclose the violation to Customs within six months of its occurrence;
Proactively disclose the violation to Customs more than six months but within two years of its occurrence, if the amount of excessive tax refund is less than 30 percent of the total tax refund or less than RMB 1 million.

2. Processing trade - behaviour that affects customs supervision:

The actual unit consumption of processing trade enterprise is lower than the declared unit consumption due to process improvement, inaccurate declaration of the proportion of non-bonded materials used and other reasons, and the resulting surplus materials, semi-finished products and finished goods have not yet been disposed of or have been re-exported through the processing trade mode.

3. Where the article name, tariff code number, quantity, specification, price, trade mode, country of origin, place of departure, place of arrival, final destination or other items of the import and export goods that should be declared fail to be declared or be declared falsely:

3.1. If the behaviour affects the accuracy of the customs statistics but timely correction is made without causing harmful consequences:

The violation is proactively disclosed to the Customs before 24:00 on the last day of the month in which it occurs and the total statistical value affected is less than 10 million RMB;
The violation is proactively disclosed to the Customs within three natural months after 24:00 on the last day of the month in which it occurs and the total statistical value affected is less than 5 million RMB.

3.2. If the behaviour affects the order of customs control.

4. If the behaviour is an illegal business activity involving goods under customs control, but does not affect the following areas:

the prohibitive administration of entry and exit
tax refund on export
tax collection
and license administration.

5. Violation of customs inspection and quarantine regulations, but the customs formalities can be completed on time without any negative consequences (except for violation related to quarantine, safety, environmental protection or health).

Clarification of administration standards

According to the new regulation, as long as the enterprise takes the initiative to report its tax-related violation and correct in a timely manner, which is recognized as proactive disclosure by the Customs, the enterprise may apply for reduction or exemption of late payment interest on tax overdue. A determination as violation without penalties by the Customs is no longer required.

In addition, the Customs clearly defined the “proactive disclosure of the same violation” which is not applicable to the non-penalty situation in the new regulation. Compared with the Public Notice No. 54, the new regulation specifies that “the same violation” refers to the violation of the same nature and of the same paragraph of the same legal provisions.

Furthermore, a time threshold of the second or more proactive disclosure within one year (12 consecutive months) is set. This means, if an enterprise voluntarily discloses the same violation again after one year, the non-penalty treatment can still be applied within the applicable scope. The relaxation on time limit means that the Customs has taken into account the difficulties in the continuous management of enterprises and promoted the active correction of errors by giving more benefits to enterprises.

However, it is worth noting that the non-penalty treatment does not apply if it involves one or more rights licenses of the right holder granted to the authorized person based on the same goods, and the enterprise proactively discloses the violation to the Customs again.

Suggestions and tips

Overall, the above adjustments in the new regulation reflect that the Chinese Customs encourages import and export enterprises to proactively disclose violations, so as to achieve the education purpose and to promote the internal management and legal compliance of the enterprises. As the new regulation has set an expiration date, it is recommended that enterprises start working on the following aspects as soon as possible in order to fully enjoy the benefits provided by the Customs:

A comprehensive customs compliance review shall be performed according to the scenarios given in the new regulation;
The violation should be disclosed to the Customs in a timely and proactive manner in order to obtain a favourable treatment for the enterprise;
Against the violation, each operational link within the enterprise shall be sorted and an internal control system and processes of the customs compliance should be established accordingly. The system shall also be reviewed regularly to improve the internal management and avoid the recurrence of the same violation within a short period;
To the special constraint imposed by the Customs on the proactive disclosure of rights licenses, all departments of the enterprise shall maintain information connectivity and conduct a comprehensive analysis of all types of license fees to ensure that the only opportunity for proactive disclosure is seized.