Australian Border Force targets DDP shipments

Australian Border Force targets Delivered Duty Paid (DDP) shipments

In its latest Goods Compliance Update, the Australian Border Force (ABF) noted a growing trend of suppliers undervaluing consignments and splitting single orders into multiple consignments valued at less than $1,000. This practice appears to be aimed at evading import duties, taxes, and fees, particularly for shipments using Delivered Duty Paid (DDP) terms.  

Under DDP terms, overseas suppliers are responsible for the customs clearance and payment of relevant duties and taxes. However, the use of DDP terms can pose significant risks for the Australian purchaser in commercial transactions. These risks include:  

The recovery of underpaid customs duty and goods and services tax (GST) from the Australian consignee
The risk of denial of an input tax credit where the Australian consignee’s Australian business number (ABN) has been used without the appropriate agency agreement in place
Embedded customs duties without the ability for the Australian purchaser to mitigate those duties.

Customs duty recovery

The definition of ‘owner’ for customs purposes is intentionally broad, encompassing the ultimate consignee of the goods. This allows for recovery of underpaid customs duties and taxes. Consequently, if goods are undervalued, or orders have been split to fall below the $1,000 low-value threshold, where underpaid duties and taxes are not recoverable from the supplier, the Australian consignee may be liable for these costs.

The ABF can seek repayment of short-paid duties for up to four years, and the intentional misreporting of a good's value can lead to significant penalties, up to $19,800 per import declaration or 100 per cent of the duty short paid, whichever is greater. 

GST Complications

Commercial transactions using DDP terms means that an overseas supplier ordinarily should be registered for GST in Australia, unless it, as a non-resident, appoints a resident agent. This is because there are two GST taxing points in a DDP transaction, GST on the taxable importation and GST on the supply of goods in Australia.

It’s not sufficient to simply use the Australian consignee’s ABN on the import declaration. Doing so, without an agency agreement in place could lead to a denial of the input tax credit on the taxable importation for the Australian consignee.  

Customs duty minimisation

Australia has numerous ways to legally reduce or even completely negate customs duties, including the use of free trade agreements and tariff concessions. Numerous tariff headings also attract a free rate of duty. DDP prices generally include an amount to cover any customs duty, and even if that duty is not ultimately paid by the supplier, the purchaser still pays that amount in the price. For large-value items, the embedded customs duty cost can be significant, potentially adding a substantial amount to the total cost of the goods.

Contracting for customs duty visibility allows the Australian entity to effectively manage the ability to reduce its customs duty liabilities. This proactive approach can lead to substantial cost savings and improved financial efficiency for businesses.

Suggested actions

Our experts suggest:

Applying caution when contracting with DDP incoterms, as they can pose compliance and financial risks  
Verifying documentation to ensure that customs declarations accurately reflect the true value of goods  
Requesting customs duty visibility in the contractual terms, with avenues to minimise duties and pass duty savings onto your business  
Keeping all commercial documentation for a period of five years, as required under the Customs legislation  
Seeking professional advice on the customs duty and GST implications of the transactions, especially when considering allowing non-residents to use your company’s ABN.

How BDO can help

BDO’s experienced team of customs, international trade, excise, and GST specialists can provide tailored support to help businesses navigate complex regulations, ensure compliance, and minimise costs.

Our international trade specialists provide expert support in customs and excise compliance, including risk assessments, ruling applications, procedural guidance and refund opportunities.

Our GST experts provide advice on Australian business operations, sales, purchases and other transactions to help you meet your GST obligations and maximise your cash flow.