An internal letter issued by the General Directorate of Risk Management, Liquidation and Circulating Capital of the Ministry of Commerce (“Ministry”) has raised concerns among customs brokers and brokerage companies as it indicates a change of policy by the Ministry regarding the implementation of the rules about the application of certain customs fines.
Ministry’s Internal Letter
On 21 May 2020, the Ministry has circulated an internal letter among Regional Directorates of Customs and Foreign Trade advising that liabilities of the importer/exporter, the customs broker and the customs brokerage company should be assessed separately when issuing fines for tax loss caused by discrepancies and/or incorrect information found in customs declarations and documents annexed to the said declarations. In other words, the Ministry has instructed the Regional Directorates to issue separate fines to the foregoing parties in cases where the tax loss was caused by a customs declaration and annexed documents which were filed by a customs broker acting as an indirect representative on behalf of the importer/exporter. This development signals a significant change of policy by the Ministry in comparison with the previous implementation of the law.
What has changed?
The change of policy was not a result of an amendment of the applicable rules but stems from a change in the Ministry’s interpretation and implementation of the rules. In particular, the Ministry’s interpretation laid out in their internal letter refer to the following legal provisions:
i. Articles 5, 181, 192 and 229 of the Customs Code,
ii. Article 14/1 of the Misdemeanours Code, and
iii. Article 6 of the Customs General Communique (Collection Procedures) (Serial No. 2) (“Communique”).
Review of the Applicable Rules
Article 5 of the Customs Code provides a general framework of representation in customs procedures including customs brokerage and Article 181 sets out the rules on the attachment of customs liabilities in different regimes of customs tax liability such as import and export.
Article 181 of the Customs Code
1. Customs liability starts from the date on which the customs declaration to be issued is registered for;
a) the entry into free circulation of the goods subject to import taxes,
b) temporary import by partial exemption from customs import taxes of the goods subject to import taxes.
2. The owner of the declaration is the person who has customs liability for import. In case of indirect representation, the person for whom a customs declaration is issued is also liable. In case of indirect representation, the liability of the representative is limited to cases where the [representative] knew or should customarily have known due to his occupation that the information used in the declaration is incorrect. This provision shall apply to customs liabilities arising under articles 188, 190 and 1941.2
3. If the information used in the declaration issued for one of the regimes specified in the first paragraph [above] causes a failure to entirely or partially collect taxes that must have statutorily been collected, persons who supplied the information for the purpose of issuing the declaration and knew or should have known that such information was incorrect, are also liable for customs taxes.
Furthermore, Article 229 of the Customs Code specifies that, where the customs brokerage activity is conducted by a brokerage company, the company shall also be liable for tax loss along with the actual customs brokers.
Article 229 of the Customs Code
1. Customs brokers shall notify their place of business addresses to be used for service in writing to the Customs and Enforcement Head Directorate responsible for the area where the business place is located.
2. In cases where the customs brokerage is performed by an incorporated civil law legal person, assistant customs brokers can become a partner of legal persons that customs brokers establish. However, a customs broker or assistant customs broker cannot be a partner of multiple legal persons. If the customs brokerage is a legal person, in cases where the signatories of a customs declaration or other document deemed to be a declaration knew or should have known of the circumstances that caused a tax loss, these [signatories] shall be jointly and severally liable, together with the legal person to which they are connected, towards the customs authority.3
The Misdemeanours Code comes into play because it is the general piece of legislation that regulates misdemeanours and the applicable administrative penalties. It thus applies to misdemeanours stipulated under the Customs Code. Article 14 of the Misdemeanours Code is the key legal provision not only because it introduces a different liability regime, i.e. separate as opposed to joint and several liability and thereby provides the basis for customs brokers to be fined separately, but also makes the customs broker’s “intent” a prerequisite.
Article 14 of the Misdemeanours Code
(1) If the misdemeanour has been committed jointly by multiple persons, administrative fines shall be imposed on each one of these persons as an offender.
(2) Where a particular status of offender is required, joint offenders who do not possess such status shall also be imposed with administrative fines as an offender.
(3) The existence of an act that has been committed by intent and is in violation of the law is sufficient to be considered a joint offender. An administrative fine shall be imposed on a joint offender regardless of whether the others are responsible.
(4) In cases where an act identified in the law as a crime in respect of a person that possesses the quality of specialized offender and a misdemeanour in respect of the other persons, has been committed jointly by persons who do or do not possess the said quality, provisions of jointly committed crimes shall be applicable.
The Ministry seems to have formed its view on the matter with a perspective that is limited to the first paragraph of Article 14. In other words, while it may be correct that the principal importer/exporter, the customs broker and the brokerage company may be liable to pay separate administrative penalties/fines for tax loss, paragraph 3 of Article 14 stipulates for two explicit requirements: intent and violation of the law. Where there is a tax loss, violation of customs regulations usually exist. However, intent may be lacking, especially where the act is performed by a representative (customs broker) within the scope of his/her instructions from the principal (client/exporter/importer). In this respect, by virtue of paragraph 3 of Article 14, the existence of an intentional act by the customs broker is required to issue a separate penalty/fine to the customs broker for causing a tax loss.
This position is supported also by Article 8 of the Communique. Paragraph 1 of Article 8 explicitly stipulates that “the misdemeanour act that is subject to a fine must have been committed with intent, in other words, knowingly and intentionally”. The Communique also provides a test of an “intentional act” whereby the customs broker’s act shall constitute an intentional act in the sense of Article 14(3) of the Misdemeanours Code if the circumstances listed under Article 6(1) of the Communique has been caused by an intentional act of the customs brokers. These circumstances have been listed as follows under Article 6(1):
(1) The existence of the following circumstances shall be investigated in the detection of cases where the indirect representative knew or should customarily have known due to his occupation that the information used in the declaration is incorrect as per the second paragraph of Article 181 of the Customs Code:
a) the customs declaration is not in conformity with the documents and information that have been used in issuing the declaration,
b) the customs broker has not investigated by means available to him/her, a contradiction between the documents annexed to the customs declaration,
c) it can be understood without the need for additional investigation that the documents annexed to the customs declaration are forged, incorrect or erroneous,
d) the documents annexed to the customs declaration do not conform with the forms or conditions required under national or international legislation,
e) despite the fact that the type, nature and quality of the goods subject to the declaration can be ascertained by a physical examination, without any need to perform a test or a detailed examination, or from information contained in documents annexed to the declaration, the declaration made based on the tariff may lead to the non-payment or short payment of customs taxes or avoiding measures other than taxation,
f) on condition that their liability is established as per the second paragraph of Article 181 of the Customs Code, a police investigation report, report or indictment has been issued against them with a request for prosecution under the Customs Code, the Anti-Smuggling Code no. 5607 dated 21.03.2007 or other relevant laws stipulating for a penalty in respect of the transaction that caused a tax loss.
As per the above articles, unless there exists an indication that the customs broker has committed the acts laid out above by intent, there would be no legal basis to issue separate penalties/fines to the customs broker and/or the brokerage company for tax loss. The Turkish Court of Cassation have indicated the same principle in several of its judgments.
The Ministry’s Internal Letter has caused significant concern among customs brokers as it potentially brings about the risk of customs brokers facing liability for an administrative penalty/fine separately and in addition to any penalty/fine issued to their clients. In an effort to express their concerns, Customs Brokers Associations of Ankara, Bursa, Istanbul, Izmir and Mersin have applied to the Ministry by two letters, one dated 28 July 2020 and addressed to the General Directorate of Risk Management, Liquidation and Circulating Capital of the Ministry and the other dated 10 August 2020 and addressed to the Minister of Transport, with calls to corrective action.
The Associations’ applications seems to have been addressed to some extent in a letter dated 17 September 2020 issued by the Istanbul Regional Directorate of Customs and Foreign Trade of the Ministry. In this letter, after referring to the legal provisions quoted above, the Regional Directorate have advised that customs brokers and brokerage companies have been issued separate penalties/fines in instances where the customs taxes calculated as default by the online BILGE system4 were deleted by the customs broker when filing a customs declaration. The Regional Directorate has further advised that such an act by the customs broker constitute an act that is both intentional and in violation of the law in the sense of Article 14(3) of the Misdemeanours Code which requires the customs broker and the brokerage company to be fined separately. Lastly, the Regional Directorate has invited the Istanbul Customs Brokers Association to bring to their attention for review and further assessment cases where customs brokers were fined separately.
The fact that the issue was also raised at a webinar held in October 2020 in the presence of the Deputy Minister of Transport after receipt of the Regional Directorate’s letter indicates that the matter is still unresolved in the eyes of the Customs Brokers Associations. In their applications, the Associations have called for corrective action and asked the Ministry to clarify the matter in a further letter to be issued to Regional Directorates.
The latest development concerning the matter is the notification by the General Directorate of Risk Management, Liquidation and Circulating Capital dated 3 September 2020 and addressed to the Ankara Customs Brokers Association which was also circulated among the Customs Brokers Associations of Bursa, Istanbul, Izmir and Mersin on 25 September 2020 advising that the matter has been considered and no instance has been detected where customs brokers were issued an administrative penalty under joint offenders provisions, i.e. Article 14 of the Misdemeanours Code, pursuant to a subjective evaluation by customs authorities. The General Directorate has also advised that if examples of the instances described in the Customs Brokers Associations’ complaints are brought to the General Directorate’s attention, they would be evaluated in detail on a case-by-case basis. Following this invitation, some Customs Brokers Associations have invited their members to share such examples to be brought to the General Directorate’s attention.
Even though the matter is yet to be resolved, the dialogue between the authorities and the associations representing customs brokers is promising. For the time being, we recommend customs brokers to exercise an increased level of caution when filing customs declarations and ensure that there is no discrepancy between the instructions they have received from their clients, the customs declaration and especially the documents annexed to or referred in the declaration. Should a separate penalty/fine be nevertheless issued, customs brokers should consider bringing an objection within 15 days of service of the penalty/fine.
1 Articles 188, 190 and 194 relate to various other regimes of customs tax liability such as export or cases where an exemption may be applicable.
2 Emphasis added.
3 Emphasis added.
4 BILGE (Bilgisayarlı Gümrük Etkinliklikleri - Computerized Customs Activities) is an online system where authorized users such as customs brokers can file customs declarations.