TO EXPORT OR NOT TO EXPORT? TAXES/TARIFFS AND REGULATIONS

2015

PRESENTATION FOR SATA

2Export | SATA conference | 25 Sept 2015

Selling and Exporting Products out of the USA

If you are going to sell and export goods out of the USA then you must remember-

• You will have responsibilities (and liabilities) associated with being the exporter, which includes the filing of information and/or ensuring compliance with the rules and regulations of various government entities.

• If you choose (and are allowed) to be the “importer” on the shipment into a foreign country, you will have responsibilities (and liabilities) associated with making entry into that country and paying any applicable duties, fees, and taxes.

3Export | SATA conference | 25 Sept 2015

What is an Export?

• Export - Any item that is sent from the United States to a foreign destination is an export. “Items” include commodities such as clothing, building materials, circuit boards, automotive parts, blue prints, design plans, retail software packages. It also includes software, technology, and technical information.

• Re-Export - Item exported between two foreign countries with a U.S. connection.

• Deemed Export - Any release of technology or source code released to foreign national.

• “Dual-use” – Items that have both commercial and military or proliferation applications

4Export | SATA conference | 25 Sept 2015

U.S. Department of Commerce – Bureau of Industry and Security (EAR)

U.S. Department of State – Directorate of Defense Trade Controls (ITAR):

U.S. Department of the Treasury – Office of Foreign Asset Controls (OFAC)

U.S. Census – Foreign Trade Division (AES)

U.S. Department of Homeland Security – U.S. Customs & Border Protection (Enforcement / Seizure)

Other agencies depending on specific products being exported

What Government Agencies Regulate Exports?

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Overview of Agency Oversight on Exports

Export Controls and Related Government Agencies and RegulationsAgency U.S. Department of

CommerceU.S. Department of State

U.S. Department of the Treasury

US Department of Commerce

Office Bureau of Industry and Security (BIS)

Directorate of Defense Trade Controls (DDTC)

Office of Foreign Assets Control (OFAC)

Census Bureau

Regulations Export Administration Regulations (EAR)

International Traffic in Arms Regulation (ITAR)

Sanctions and Embargoes

Foreign Trade Regulations

15 CFR 730-774 22 CFR 120-130 31 CFR 500-599 15 CFR 30

Mechanism Commerce Control List (CCL)

U.S. Munitions List (USML)

Embargoed Countries List

Automated Export System (AES)

Jurisdiction Governs commodities, goods, and commercial information (primarily civilian). Anti-boycott Regs.

Governs "defense articles and services" (predominantly military items and information).

Governs trade sanctions, embargoes, restrictions on transfers to certain end-users, terrorism, anti-narcotics.

Governs filings EEI in AES.

Export | SATA conference | 25 Sept 2015

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Four Questions to ask Before Exporting

What are you exporting…. does it require a license?

Where are you exporting? Ultimate Destination Country

Who will receive your item?

What will they do with it / What is it to be used for?

Export | SATA conference | 25 Sept 2015

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Harmonized System or Schedule B

• HTSUS – Harmonized Tariff Schedule of the United States.

• Ten digit code that can be used both in imports and in exports.

• Example: 8409.91.9990, engine parts

• First six digits are global; ex. 8409.91.

• Schedule B for Exports

Export Control Classification Number (“ECCN”)

For Dual Use items, not defense articles

ECCN – Only US uses this system.

Code used in export control regulations

5 digit Alpha –numeric code

Example: 4A994 or EAR99

All ECCNs are listed in the Commerce Control List (CCL) (Supplement No. 1 to Part 774 of the EAR), which is divided into ten broad categories, and each category is further subdivided into five product groups.

Question 1: What are you exporting?

Export | SATA conference | 25 Sept 2015

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Products Subject to Export Licensing Requirement

How is the item classified?

It may be under control of either:

• Under the jurisdiction of the Dept. of Commerce, and found in the CCL (Commerce Control List), or

• Under the jurisdiction of the Dept. of State and found in the USML (United States Munitions' List).

CCL USMLThese lists have fundamentally different structures, different levels of specificity, and different definitions. However, over the years, there is an overlap between the two lists.

Export | SATA conference | 25 Sept 2015

9Export Compliance Presentation | 2015

Commerce Control List – Ten Categories

0 = Nuclear materials, facilities and equipment

1 = Materials, Chemicals, Microorganisms and Toxins

2 = Material Processing

3 = Electronics

4 = Computers

5 = Telecommunications and Information Security

6 = Sensors and Lasers

7 = Navigation and Avionics

8 = Marine

9 = Propulsion Systems, Space Vehicles, and related Equipment

Five Product Groups of CCL Categories

A. = Systems, Equipment, and Components

B. = Test, Inspection and Production Equipment

C. = Material

D. = Software

E. = Technology

Commerce Control List (CCL)

Anatomy of an ECCN

10Export Compliance Presentation | 2015

U.S. Munitions List

The 20 categories of articles on the USML are:1. Firearms, Close Assault Weapons and

Combat Shotguns2. Guns and Armament3. Ammunition/Ordnance4. Launch Vehicles, Guided Missiles,

Ballistic Missiles, Rockets, Torpedoes, Bombs, and Mines

5. Explosives and Energetic Materials, Propellants, Incendiary Agents, and their Constituents

6. Vessels of War and Special Naval Equipment7. Tanks and Military Vehicles8. Aircraft and Associated Equipment9. Military Training Equipment10. Personal protective equipment

11. Military Electronics12. Fire Control, Range Finder, Optical

and Guidance and Control Equipment13. Auxiliary Military Equipment14. Toxicological Agents, Including

Chemical Agents, Biological Agents, and Associated Equipment

15. Spacecraft Systems and Associated Equipment

16. Nuclear Weapons, Design and Testing Related Items

17. Classified Articles, Technical Data and Defense Services Not Otherwise Enumerated

18. Directed Energy Weapons19. [Reserved]20. Submersible Vessels, Oceanographic

and Associated Equipment21. Miscellaneous Articles

The United States Munitions List (USML) is a list of articles, services, and related technology designated as defense related.

11Export Compliance Presentation | 2015

Question 2- To Where is the Item Being Exported?

Sanctioned and Embargoed Countries/Entities

There is no one place to find the list of sanctioned and embargoed countries. Each government agency, has a different list.

They use different terms and contain a different list of countries.

Some overlap but are not exactly the same, some are related only to defense articles.

• Department of Commerce Embargoes List is found in EAR https://www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/entity-list

• Department of State DDTC website list countries that are under arms embargoes per ITAR. http://www.pmddtc.state.gov/embargoed_countries/

• U.S. Department of the Treasury, OFAC economic and trade Sanctions http://www.treasury.gov/resource-center/sanctions/Pages/default.aspx

12Export Compliance Presentation | 2015

Question 3: To whom is the item being exported?

Mandatory Screening against all “Denied Party” lists

Who will receive the item; i.e. the person or entity receiving or ultimately using the item or service?

Examples:

• Denied Persons List (“DPL”) https://

www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/denied-persons-list

• Unverified List http://www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/unverified-list

• Entity List https://www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/entity-list

• Specially Designated Nationals List http://

www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx

• Debarred List http://pmddtc.state.gov/compliance/debar.html

• Interpol List Red Notice Wanted List http://www.interpol.int/notice/search/wanted  

13Export Compliance Presentation | 2015

Question 5: What will they do with it?

What is the end use of the item? The ultimate end use cannot be prohibited (nuclear, military, weapon of mass destruction, biologic weapons, etc.)

What other services do they provide? As an exporter, it is the responsibility of your company to know its customers. Conduct may prevent your company from dealing with someone, including freight forwarding, financing, and contracting in support of nuclear proliferation.

http://export.gov/ecr/eg_main_023148.asp

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Red Flags?

• The customer or purchasing agent is reluctant to offer information about the end-use of the item.

• The customer is willing to pay cash for a very expensive item when the terms of sale would normally call for financing.

• The shipping route is abnormal for the product and destination.

• When questioned, the buyer is evasive and especially unclear about whether the purchased product is for domestic use, for export, or for reexport.

• A freight forwarding firm is listed as the product's final destination.

• The product's capabilities do not fit the buyer's line of business, such as an order for sophisticated computers for a small bakery.

15Export Compliance Presentation | 2015

AES Filing

The Automated Export System (AES) is a computer system that collects Electronic Export Information (EEI).

In many cases, the law requires the USPPI or authorized agent to report EEI for goods exported from the United States and its territories.

Electronic Export Information (EEI) is the electronic export data as filed in the AES. This is the electronic equivalent of the export data formerly collected as Shipper’s Export Declaration (SED) information and now mandated to be filed through the AES or AESDirect.

Foreign Principal Party in Interest (FPPI) The party shown on the transportation document to whom delivery or end-use of the goods will be made.

U.S. Principal Party in Interest (USPPI) The person or legal entity in the United States that receives the primary benefit, monetary or otherwise, from the export transaction. Generally, that person or entity is the U.S. seller, manufacturer, or order party, or the foreign entity while in the United States when purchasing or obtaining the goods for export.

16Export Compliance Presentation | 2015

AES Filing

False or fraudulent reporting on or misuse of the Automated Export System may result in criminal penalties.

Any person, including USPPIs, authorized agents or carriers, who knowingly fails to file or knowingly submits, directly or indirectly, to the U.S. Government, false of misleading export information through AES, shall be subject to a fine not to exceed $10,000 or imprisonment for not more than five years, or both, for EACH violation. (15 CFR 30.71(a))

17Export Compliance Presentation | 2015

Penalties, Fines, Seizures, Loss of Export Privileges

• Criminal: $1,000,000 and/or 20 years prison for each violation.

• Civil: $55,000 for each violation.

• Additionally, for any violation of the OFAC regulations, seizure and forfeiture of goods may result

OFAC Penalties

• Criminal: $1,000,000 or up to 10 years for each violation.

• Civil: $500,000 each violation

• Denial of export privileges

ITAR Penalties

• Criminal: $1,000,000 and/or Imprisonment to 20 years each violation.

• Civil: $250,000 each violation, or 2X value of goods.

• Denial of export privileges.

• Seizure/ forfeiture of goods.

* International Emergency Economic Powers Act.

IEEPA*

• Criminal – ‘$1,000,000 or five times the value of the exports for each violation.

• Civil Penalties: Fine of up to $12,000 for each violation.

• Fine of up to $120,000 for each violation, for violations involving items controlled for national security reasons.

EAR Penalties

18Export Compliance Presentation | 2015

Don’t Let this Happen to You!

Deemed Export: Ingersoll Machine Tools (IMT) showed production technology for axis milling machines, to Indian and Italian nationals.

On August 11, 2008, IMT agreed to pay a $126,000 civil penalty.

Antiboycott: Laptop Plaza, Inc. furnished to its customer an invoice which stated that the goods were not of Israeli origin and did not contain Israeli materials.

Laptop Plaza, Inc. agreed to pay a civil penalty of $48,800

BIS Entity List: Interpoint Corp., exported EAR99 DC-to-DC converters an end user In China on the BIS Entity List, without the required licenses.

Interpoint Corp. paid a $200,000 civil penalty. Note: The company voluntarily disclosed the violations and cooperated fully with the investigation.

Diversion Control: Sales manager at Powerline Components, attempted to export EAR99 engine parts to Syria via the United Arab Emirates.

Sales manager agreed to a suspended $75,000 penalty, and the company agreed to a $60,000 penalty. RIM Logistics reached a settlement for $50,000.

OFAC: ING Bank N.V. moved 2 billion illegally through

U.S. financial system to Cuba and Iran.

ING Bank N.V. agreed to forfeit $619 million to the Justice Department and the NY District Attorney’s Office as part of a deferred prosecution agreement.

Violation Fine

19Export Compliance Presentation | 2015

INCOTERMS

INCOTERMS define the tasks, costs, and risks involved in the delivery of goods from the seller to the buyer.

They do say which party to the sale contract has the obligation to make carriage or insurance arrangements, when the seller delivers the goods to the buyer, and which costs each party is responsible for.

They do not deal with the transfer of property, title, or ownership of the goods or the consequences of a breach of contract.

20Export Compliance Presentation | 2015

INCOTERMS

Incoterm 2010

Export-Customs

declaration

Carriage to port of export

Unloading of truck in

port of export

Loading charges in

port of export

Carriage (Sea

Freight/Air Freight) to

port of import

Unloading charges in

port of import

InsuranceLoading on truck in port

of import

Carriage to place of

destination

Import customs clearance

Import taxes

EXW Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer

FCA Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer No No

FAS Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer

FOB Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer

CPT Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer

CFR Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer

CIF (By Sea only)

Seller Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer

CIP Seller Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer

DAT Seller Seller Buyer

DAP Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer

DDP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

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INCOTERMS - Customs Responsibilities

DDP (Delivered Duty Paid): This is the only INCOTERM that obligates the seller to handle the import Customs formalities and pay any applicable import duties, taxes, and fees to the country of import*. The buyer may be required to assist with securing any required import licensing or authorization.*Although any INCOTERM can be annotated to reflect special arrangements

EXW (Ex Works): While the buyer is required to arrange export clearance, the seller may be required to assist with securing any required export licensing or authorization.

22Export Compliance Presentation | 2015

Importer Responsibilities

Most countries (particularly those who belong to the WCO) have basically the same import/entry requirements as the USA.

• Import Documentation

• Valuation

• HTS classification

• Submission of entry

• Payment of applicable duties and fees

However, all have their own specific import/entry process.

Some countries do not allow for a non-resident to act as the Importer of Record.

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Costs Associated with Importations Into Other Countries

DUTIES:

Duty rates tend to be higher than that of the USA, particularly with lesser developed countries.

VATS:

Many counties assess Value Added Taxes (VATs) on imports, with rates generally ranging from 5-20% http://www.uscib.org/valueadded-taxes-vat-ud-1676/

FEES:

Certain countries assess various other fees associated with imports, such as: consumption tax, Customs formality fees, excise taxes, etc.

The USA has free trade agreements with various countries which can save significant duty liability. http://www.cbp.gov/trade/free-trade-agreements

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Importing Into Other Countries- Remember…..

There is no “regional” uniformity…. While there are similarities, every individual country has their own laws, regulations, and procedures which may slightly differ from others.

When considering selling your product into a country (particularly when you maybe looking to act as Importer), research that country’s specific details.

Resources:

Government: http://www.export.gov/ www.cbp.gov and others

Private service companies: www.customsinfo.com

Freight Forwarders, Customs brokers, and consultants

THANK YOU!

EXPORT COMPLIANCE PRESENTATION | 2015

EXPORT COMPLIANCE PRESENTATION | 2015