Declared Value for Export - Using wholesale instead of retail value.

on custom forms to the USA. Repercusions?

[lgn1]

For the past seven years, we have been dropshipping, and our suppliers have been declaring our cost, instead of the cost to the customer on the invoice.

The packing slip inside the box has no prices, and the commercial invoice is buried inside the plastic shipping pouch. Customs never open the pouch, as they have all the details electronically in advance anyways.

I have never worried about it, since it was the dropshipper's signature on the customs documents, and we were talking about informal entries to consumers anyways.

We are now taking over the shipping ourselves, as we were offered a great deal we could not refuse; as they wanted to get out of the drop shipping business.

Now that my signature, (or one of my employees) will be on the customs form, I'm a little concern.

We would like to continue the practice, as we use section 321 to ship duty free to the USA for shipments under $200 US. By declaring the wholesale value we can increase this to let say $400

We have always guaranteed to our customers; that our shipments would be duty free to the usa, so we split ship orders that exceed the limits; and ship on alternate days.

In other words, US customs will never get duty, as we would split ship (which is perfectly legal). However the courier will make more money off two shipments rather than one.

I know that US customs would like us to declare the full retail selling price to the customer; but it appears that everybody is encouraging this practice of using wholesale value. I'm not even sure if it is illegal or a grey area.

I hear in China, that people are punnish with 100 lashes, if they declare full value by mistake on their export shipments :)

Maybe, I'm just a little paranoid about being worried about small consummer shipments; when US Customs has much bigger issues to worry about.

Anybody had any experience with this?

[jwolthuis]

we would split ship (which is perfectly legal).

If you're talking about splitting a single item into multiple shipments in order to escape import duty, care to quote your CBP source?

it appears that everybody is encouraging this practice of using wholesale value.

No one is encouraging it, as that is illegal. Why stop at wholesale pricing? Since the price you're using has no relevance to what the final customer actually pays, why not use the manufacturers' cost, or simply choose a number out of thin air?

If CBP wants to see a Visa receipt for any transaction, you will be caught. Is it really worth it, to save your customers a few percent import duty?

[lgn1]

Under US Custom laws (Section 321),we can ship up to $200 per day duty free to an individual in the United States. We are not split shipping a single item. We are splitting an order for multiple unique items, into two parcels to be shipped on alternate days. Perfectly legal.

It is my understanding that wholesale value is the lowest safe value to go when shipping to consuumers. If the parcel is lost, then you can claim your replacement cost.

I have sent parcels by mail to the USA and rarely do they collect duties for anything under $500 anyways, especially for low tariff items.

Unfortunately, the courier companies is out to make a buck,and they will collect brokerage charges for anything that goes over $200 US.

For all the hassle, it is alot cheaper to split ship, or better yet; declare the wholesale value and ship only one package.

[jwolthuis]

It is my understanding that wholesale value is the lowest safe value to go when shipping to consumers.

Quoting from that same law, you must disclose the "purchase price" of each item in the currency of the purchase. (19 USC § 1481)

Not your "cost".

[lgn1]

Yes, I agree its against the law. But so is goving 5 miles over the speed limit on an expressway However the police will never stop you for going 5 miles over the speed limit on the expressway (well maybe in Georgia). It is not worth the administrative hassle.

This post is not about if its legal or not; it's about the risk reward ratio.

Frankly, I'm surprized this thread got very little response. I guess their are very few Canadians on this forum that ships to the states.

[lucy24]

Well, here is a bit of anecdotal evidence. Of what, I'm not sure.

I --in the US-- bought a DVD from the National Film Board of Canada. (The name is only relevant to show that it isn't a fly-by-night operation whose name nobody would recognize.)

It arrived in a compact little package, almost entirely covered with a Customs label that clearly and unambiguously said it contained a gift valued at $5.

This surprised me a little, since I distinctly remembered-- and my bank statement bore me out-- paying $20 for it. I realize that at some point when I wasn't looking, the Canadian dollar got to be bigger than the US one-- but not that much bigger!

I thought at the time that this has to be outside the realm of "everyone does it" and into Sweetheart Deal. Or possibly NAFTA. Can't tell which is which.

[jwolthuis]

I guess their are very few Canadians on this forum that ships to the states.

I missed that you were talking about shipments covered under NAFTA, my bad. Yes, shipments between CA, US, MX are a different ballgame, and the declared value is unaudited. Declare whatever; it doesn't really matter, until you hit the $200 mark.

Shipments to/from EU countries are not covered under NAFTA, and are looked at much closer.

[jecasc]

Declaring the wholesale price or as a gift can be a bad idea. I once ordered an item from the US and the seller declared a price that was about half of what I had payed. Problem is that the customs is not completly dumb. They have large databases with the normal prices of goods. To make a long story short: Normally I would have paid customs and import taxes to the postman. Because of the wrong declaration the parcel was 14 days delayed because it had been lying around at customs, I had to drive 50 kilometres to the customs office with a proof of what I realy had paied to collect my parcel in person. To say I was a little upset is an understatement. Especially since I had not asked for this and had expected to pay customs and taxes.

The problem with your little scheme in my opinion is: If you do not advertise your items as customs free, customers will expect to pay customs and calculate accordingly. And in some cases your wrong declaration will backfire and complicate things for your customers.

If you advertise your items as customs free - you will have a hard time claiming you "accidently" filed a wrong customs declaration and only once. No, you are systematically filling out and sending out false customs forms - for anybody to see. Let's say you do that for a few years - then somebody notices. You then have a good chance to be held accountable not for the one item where they noticed but for all your previous declarations too. And while declaring $200 too low once is probably not a big deal, declaring 1000 times x $200 or 10000 times x $200 too low might be quite a serious thing.

Not to forget you are putting your customers in the wrong - because it is also their duty to check if the customs has been correctly declared. If they do not check and correct your "mistake" they might also be liable for tax and customs evasion. At least that's how it is were I live.

And how long will it take until somebody - perhaps a dissatisfied customer or one of your competitors fills out a form like this:
[apps.cbp.gov...]

[lgn1]

Jecasc, you make some good points.

However, the customer would never be liable these days, since they would probably never be aware of the customs process.

We use Electronic Trade Documents. Our FedEx ship manager software sends our customs documents directly to customs electronically. The customer receives a packing slip (no prices) inside the box, and they receive their invoice via email. We don't include any customs documents with the package anymore, as they are not required with ETD.

The customer will never see any customs information.

Since we are talking about informal entry, the penalties would fall under civil, not criminal administration.

Technically, they could go thru all the past shipments and levy a huge penalty, and try to collect via a international collection agency.

They might have a chance to collect in Canada, but they would not have a hope in collecting from China. This is probably why the Chinese have no problem underdeclaring consumer informal entries.

I guess it's time to go see a lawyer, before deciding on how to proceed.

Back when my dropshipper was doing this, they have shipped over 20,000 under declared parcels with no problems. Their is no guarantee, that I will have the same luck.

[votrechien]

I very much sympathize with you. We're a Canadian company and we used to ship from Canada to the U.S. and understand the disadvantage you're at. That's why we switched to having everything fulfilled from the U.S. which is extremely easy to do.

I do think you're asking a question you know the answer to already. Is this legal? No. What are my chances of getting caught? Slim.

In the near term your chances of getting caught are likely very little. However, as your business grows, it's not a sustainable practice. Eventually you'll get hit by customs, and, speaking from experience, when they hit, they hit hard.

You have the luxury right now where you don't need to immediately resolve this (opposed to when you get hit and you will have to find a solution). Your solutions are likely the following:

1) Report accurately and change your policy regarding duties.

2) Use a fulfillment company and have your products shipped from the U.S..

The second option will add minimally to your bottom line and will put you at a more level playing field with your competitors. It's also quite easy to do (although the learning curve might seem steep at first). IMO, long term that's your best solution.

[lgn1]

Thanks for the suggestion, Votrechien

The other 5 companies I owned uses option 2 via dropshippers.

On the first offence, the maximun fine is four times the profit of the sale or the seaizure of the shipment; which makes it well worth the risk. This puts our maximun exposure at $400 which is peanuts to us. If we get caught, then we will probably go with option 2, as they will be watching us more carefully in the future.

[votrechien]

I agree the first time you get caught it will probably be a slap on the wrist at worst, and a simple claim of ignorance will probably suffice. But as you mentioned, customs most severe penalty they can impose is 'flagging you'. I've heard the usual rumblings that if they flag you, they will make your life a hell (theoretically they could stop every one of your customers shipments for inspection). In reality though, we had the odd run in for non-compliance on certain issues (albeit ignorantly rather than deliberately) and I never got the impression we had any flags beside our names.