Customs Consideration In Mergers & Acquisitions – Due Diligence

In the previous post, we commented on the importance of effective collaboration between Tax Practioners and Advisors. Harsh Realities of Royalty Payments on Customs Duty | LinkedIn

As Customs and Trade Practitioners, we often note that in big corporate deals, particularly mergers and acquisitions transactions, the customs compliance obligations tend to be overlooked.

In Corporate/Advisory firms, the Deals Team would regularly be asked to conduct multimillions worth of due diligence (“DD”) work; however, often the customs portion would often be a last-minute (almost an afterthought addition within the scope).

In acquisitions of companies that deal with cross-border movement of goods; failing to properly factor or perform proper customs due diligence could be financially costly (or inversely result in some major savings).

Some of the key considerations which may come into play if not looked into during a DD could include incorrect customs declarations relating to:

·????????valuation of goods;

·????????incorrect tariff classification;

·????????incorrect use of free trade agreement(s); and

·????????use of rebate items and other incentives.

All the above (not a full list) could directly result in additional customs duty liability; i.e. if not identified during the due diligence process and would be even costlier when/if identified by the revenue authority during an audit at a later stage.

A discovery during a SARS-initiated audit could even result in detention and seizure of goods; and therefore, disrupting the supply chain process. Such could even result in the further levying of penalties and demand of customs duties dating back several years.

An advanced proper customs assessment could even assist those that are drafting the contracts to factor in indemnities that protect the buyer from undisclosed/or undiscovered non-compliance (pre-acquisition). ?

For a more in-depth discussion of how we may address specific issues affecting your business from a customs perspective, please contact us.