Cases for third-party price verification

By Zhan Guohong, Dentons
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In international trade, due to the influence of external factors such as prior agreement, special economic relations and multiple payment and transaction modes, the actual transaction prices of imported goods may be questioned in many scenarios.The author believes that using the third party’s evidence to verify the actual transaction price of the goods is an effective way. However, due to different conditions in each case, the result of verification and the degree of acceptance may vary. Take smuggling cases with underreporting price as examples.

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Zhan Guohong
Partner
Dentons

Case 1: A company was suspected of smuggling general goods (underreporting the price and giving a false name) and entered the examination and prosecution procedures.The investigation authority seized two sets of invoices, one with a high price and the other a low price, and determined the amount involved in the case based on the amount of the high-price invoices. The amount of tax evasion was determined, and the case was transferred to the prosecutor for examination and prosecution. The defendant learned that the overseas supplier was an overseas listed company, and although the domestic company involved in the case assisted it in importing goods at a low price, the goods were not actually purchased by the domestic company, and the purchase payment came from the overseas supplier. Nominally, the domestic company was a purchaser, but actually it was a commission merchant. After the first batch of goods was imported and tested by sampling, the goods failed to reach the agreed quality standard, which hindered domestic sales. The domestic company suggested stopping deliveries, but the supplier refused and instead stepped up shipments.

Based on this, it was difficult to rule out the possibility that the overseas supplier might inflate its prices and trade profits. In addition, the goods involved in the case were all detained for price evaluation.

Therefore, the defendant initiated a third-party evidence verification to: (1) obtain a bank statement to specify the source and destination of the payment; and (2) retain third-party experts in the industry to give evaluation opinions on the goods involved and specify the quality and evaluation value of the goods. This evidence, based on the professional opinions of a third party, found that the goods involved were not worth the money, which provided sufficient reason for the evaluation, obtained support for prosecution, and prompted the investigation authority to conduct a price evaluation on the goods involved.

Although the price recognized by the price evaluation agency was higher than the declared value, it was less than one-tenth of the original price in the high-price invoices, which greatly reduced the amount of tax evasion. Accordingly, the prosecution decided to exempt the personnel from prosecution, and the defence achieved the expected effect.

Case 2: An import agency was suspected of smuggling general goods (underreporting the price) and enters the examination and prosecution procedures. The investigation authority determined that the amount of foreign exchange paid by the company was the actual transaction price of the goods, and accordingly determined the amount of tax evasion, and the case was transferred for examination and prosecution.

The defendant learned that the receiving party was designated by the intermediary of domestic trade, not the actual supplier. The foreign exchange payment amount by the company included the profit of the trade intermediary paid on behalf of the company upon the instructions of the domestic trade intermediary. The declared invoice was a self-made proforma invoice made by the main responsible person of the company based on the amount of the previous invoice, and the real tripartite invoice issued by the overseas supplier was not adopted, so no corresponding adjustment was made when the quantity and price of the goods were changed, resulting in an underreported price.

Because of the single trade channel and less supply, the profit of the trade intermediary was quite high. The defendant thus decided that if the actual situation of the trade could be proven, the main responsible person of the company might be exempt from prosecution.

The defence initiated a third-party evidence verification to: (1) obtain the real tripartite invoice of the goods issued by the overseas supplier and the marine insurance policy; (2) entrust a computer forensic institute to log on to the insurance company’s public inquiry website displayed on the marine insurance policy of the goods involved in the case, and issue a forensic opinion after the electronic data of the insurance policy are authenticated; and (3) request a written statement from the domestic trade intermediary.

The evidence points confirmed each other and conformed to the international trade rules. The prosecutor accepted the evidence and confirmed that the actual transaction price of the goods involved in the case was the price shown on the tripartite invoice issued by the overseas supplier, effectively reducing the amount of tax evasion. The parties involved were not exempted from prosecution, but were exempted from punishment, and were convicted.

Case 3: A company was involved in criminal proceedings for the crime of smuggling general goods (underreporting the price).

The investigation authority determined the actual transaction price of the goods based on the highest price recorded in the documentary evidence, and determined the amount of tax evasion accordingly. After examination, the prosecution authority transferred the case to the court for prosecution. The parties involved were not satisfied with the determination of the price and considered that the invoice price of the goods provided to the import agency was the real price of the goods. Upon verification, the agent did not use the invoices provided by the party involved to declare to customs.

The defendant sought third-party evidence verification to: (1) entrust the overseas third party to obtain marine insurance policies, export declaration forms and commercial invoices of the goods, which went through legal notarization and authentication outside the territory; (2) obtain documents proving that customs authorities where the goods were imported had inspected and approved the declared value; and (3) obtain information on declared value of the same or similar goods imported to prove that the declared value of the goods was not abnormal compared with the same kinds of goods.

The groups of evidence were closely linked and corroborated each other, and were in line with international trade rules. But the evidence was not accepted by the court, which held that because the company conspired with the overseas supplier in advance to underreport the price, the commercial invoices, export declaration data and marine insurance data of the goods were not credible.

This article suggests that the existence of this judicial philosophy may lead to the failure of third-party evidence verification. Although the results were not entirely satisfactory in the criminal justice field, the author still believes that in the event of disputes over the actual transaction price of imported goods, actively initiating third-party evidence verification is still an effective way to break the situation.

Zhan Guohong is a partner at Dentons.

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