Monday, June 27, 2016

Ruling of the Week 2016.15: Customs Business

One of my least favorite areas of customs regulation has to do with the ability of related companies to provide compliance expertise through shared services. The problem arises because while a company can rely on its employees to conduct customs business on its own behalf, no one but a licensed customs broker can engage in customs business on behalf of a third party. That means that if you are an employee of Subsidiary Alpha of Acme Holdings Corp. you can't fully assist your sister company Subsidiary Beta with its customs compliance. That is true even though you may be the most qualified person in the entirely to the Acme Holdings extended family. While there is a space called "corporate compliance" in which the shared services model works just fine, managing the line of acceptable advice is difficult.

The reason for this is 19 USC § 641(b)(1), which requires a valid customs broker's license to undertake customs business on behalf of a third party. Customs business is defined as:

those activities involving transactions with CBP concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges assessed or collected by CBP on merchandise by reason of its importation, and the refund, rebate, or drawback of those duties, taxes, or other charges. “Customs business” also includes the preparation, and activities relating to the preparation, of documents intended to be filed with CBP in furtherance of any other customs business activity, whether or not signed or field by the preparer. . .

19 CFR § 111.1.

This is relevant at the moment because of HQ H261011 (Jun. 3, 2016) in which the question presented to Customs was whether the use of a single bank account to pay duties on behalf of two related but separately incorporated subsidiaries constitutes customs business. Each entity would have a separate ACH account to sweep payments to Customs, but the funds would come from a consolidated account. Clearly, the banking arrangement involves transactions concerning the payment of duties, taxes, or other charges assessed by CBP. That makes this a non-frivolous question, even though it should be entirely obvious that the account from which the funds are drawn is not indicative of the practice of "customs business."

In prior rulings, CBP has held that a company cannot make payments to CBP on behalf of a sibling company without running afoul of the broker licensing requirement. According to Customs, the arrangement proposed in this case is different because each entity is continuing to pay its own funds on its own behalf. The proposal is internal to the company and not visible to Customs. Further, the subsequent accounting reconciliation between the companies is not a transaction with Customs and does not constitute customs business.

That is a good result and a valuable step. Customs should go further. I realize this may be contrary to the interests of some brokers out there, but keep in mind that it is also contrary to the interests of outside legal counsel. In-house corporate compliance is a reality. Customs' primary interest should be in ensuring that importers have access to the best available compliance resources. Companies may choose to increase those resources if they can be shared among related entities. Today, sharing customs business resources involves fairly complicated steps including employee sharing agreements, employee time management to avoid overlapping times of responsibility, creating licensed brokerage entities, and other schemes.

The problem is that Customs can't do anything about this on its own. The statute is there and Customs must apply it. It is easy enough to say something like "call your congressperson" as a means of encouraging a fix. But, politics being what it is these days, you may as well stand in your cul-de-sac and shout into a storm. Nevertheless, when the political storm clears, this is something that requires congressional attention in a way that continues to support the brokerage community.

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