In recent weeks it has been reported that the General Directorate of Customs is tightening controls in the Free Trade Zone, targeting over-invoicing for access to foreign currency. In light of this, we consider it appropriate to carry out an analysis of the scope of the powers of the customs service, as well as the extent of their application.
We start from article 112 of the Customs Code, which clearly highlights the power held by this body: “The customs service shall exercise control over persons and merchandise, including those that constitute a means of transport, insofar as they are related to the international traffic of merchandise.” That is to say, Customs exercises a control function over the international traffic of goods, but not with respect to the entry or exit of foreign currency, which is the responsibility of the Central Bank of the Argentine Republic.[I].
Competence and jurisdiction
In 1996, by Decree 1156/96 (BO16.10.1996), it was established: “The National Customs Administration and the General Tax Directorate are merged to form the Federal Public Revenue Administration. The aforementioned Administration will operate as an autonomous entity within the scope of the Ministry of Economy and Public Works and Services, assuming the powers, faculties, rights and obligations of the entities that are merged by this act. Likewise, by Decree 618/97 (BO14.07.1997) and by article 3, it was determined that “The Federal Public Revenue Administration shall be the Entity that executes the Nation's tax and customs policy, applying the corresponding legal norms. It shall have the functions and powers of the merged agencies mentioned in article 1 of this document and in particular those detailed in this article, without prejudice to those conferred by other norms: among others, that of paragraph d), which responds to, all those functions that arise from its mission and those necessary for its internal administration.”
However, the decrees mentioned have not rendered ineffective the provisions expressly established in the articles of the Customs Code, with respect to the power that the General Directorate of Customs has in functions of jurisdiction and competence. On the other hand, Decree 618/97 (BO14.07.1997), in the final part of article 4, expressly states that “The General Directors and Deputy General Directors and other officials of the Federal Public Revenue Administration may act by summons at any time and in accordance with the competence of each one, to the knowledge and decision of the causes, being invested for this purpose with all the jurisdictional power of the replaced body.". To this, it should be added that article 10 of the same decree establishes that “Both the Federal Administrator and the General Directors and Customs Administrators in their respective jurisdictions will determine which officials and to what extent will replace them in their functions as administrative judges." and Article 11 states “constitute customs: the various offices that, within the jurisdiction assigned to them, exercise the functions of applying the legislation relating to the import and export of merchandise, especially those of collecting and supervising public revenues produced by the rights and other taxes with which import and export operations are taxed and those of controlling the international traffic of merchandise.”
In accordance with the above, the General Directorate of Customs maintains the administrative jurisdictional function in the terms prescribed by the Customs Code and, accordingly, has the authority to address issues relating to infringement procedures, challenges, execution and repetition, in addition to those that reside at the operational level, for the purposes of controlling the traceability of an import and export, always on merchandise, including as such, the means of transport and those subjects that operate in international trade on the basis of their operational customs function.
Commodity
In customs terms, merchandise is any object susceptible to import or export.[ii], aligning such definition with the assumption that the merchandise is subject to import or export. Consequently, for a merchandise to be subject to customs control, it must have been subject to import or export treatment. This leads us to the need to delve into what is meant by import and export, defined by the legislator as the entry or exit of a merchandise to or from the customs territory.[iii]. Thus, it would not be necessary to consider import or export when this merchandise is introduced or extracted from the National Territory, given that the territory subject to the sovereignty of the Nation does not have the character of Customs Territory in its entirety. Indeed, the Customs Code itself makes a differentiation of areas: on the one hand, the Customs Territory and on the other, those areas that are external to such space.[iv].
Free Zone
Since the Free Trade Zone is an area outside the Customs Territory, the same system of tariffs and economic prohibitions does not apply in such space, as it does in the Customs Territory. In order to do so, the goods that enter or leave such area are not subject to customs duties, except for the retributive rates that may be applied, nor are there restrictions imposed in terms of economic prohibitions and may not even be affected by non-economic prohibitions. Likewise, the introduction or extraction will not be subject to the usual control of the customs service.[v]. Notwithstanding this, the Customs Code, with regard to entry or exit to or from this area, considers this to be an import or export.[vi].
In 1994, through Law 24.331[vii] This area was specifically regulated, determining the scope of exemptions from payment of taxes and restrictions on prohibitions of an economic nature, in line with the provisions of the Customs Code, allowing these areas to fulfill a specific purpose, whether storage, commercial or production.[viii].
Customs control limit
There is no doubt that Customs exercises control over the international traffic of goods affected by import or export, and this determines a healthy compliance with the obligations imposed by Law, in safeguarding the interests of a nation in line with what it brings in or out, with objectives greater than collection itself, extending to the needs of safeguarding the well-being of the community. In this sense, customs control lies in the review of each load to be cleared, both for its entry and exit, verifying the scope of the regime to be applied and the rate that may be required to pay, venturing into classification and value matters.
Now, such a task of fundamental importance refers to import or export through the application of the customs legislation that is in force and this must have a purpose aligned with that end, and cannot be exercised with a view to a control outside its function.
Overbilling and control of foreign currency outflow
Since ancient times, Customs has reviewed the value of imported goods, it is part of its function, this does not come as a surprise. But in general terms, the control was aimed at avoiding under-invoicing, which implies importing products at a reduced value with its consequent payment of lower taxes. Faced with the events that the national government exposes as a lack of sufficient reserves, the effect of control has turned towards possible situations of over-invoicing that could lead to the outflow of higher foreign currency. Up to this point, the control channel that starts from Customs in connection with the value of those imported goods, does not appear to be outside the power of the customs service. Obviously, as long as such control is carried out on the basis of what the GATT Agreement mandates,[ix]
However, if this tax process is only used to control the outflow of foreign currency, it may lead to a situation of incompetence, as it is not within the authority of the customs body.
Analogous antecedent
It is worth recalling Instruction No. 02/2012 of the DGA, which imposed controls on foreign currency, generating reports of customs violations. Regarding this Customs procedure, the National Tax Court ruled: “The conduct under analysis occurred after this declaration and has to do with the lack of liquidation (total or partial) of foreign currency, outside the jurisdiction of the customs service. Consequently, that action […] should not be classified within the scope of customs violations. Delving into the analysis of General Instruction No. 2/2012 of the DGA, the normative support put forward by the staff that made the provision to give course to the present investigation for the hypothetical commission of an alleged infringement, maintains the vote that leads the agreement, that it has been shown that the “General Instruction 2/2012” represents more than an extraordinary effort by the customs authority to covertly formulate an analogical application of the type of infringement provided for in art. 954 of the CA, forcing its adaptation to the investigated conduct, in frank collision with the missions and functions of the customs service, thus affecting the natural competence that the BCRA has on the matter. The vote in question understands that the then head of the DGA, by issuing this “general instruction”, by wrongly and incorrectly adapting the type of infringement to the formally reproached conduct, is invoking a competence assigned by Law 19359 to the BCRA.[X]
Then, on August 01, 2016, the Federal Public Revenue Administration (AFIP) itself, through General Instruction No. 05/16, decided to leave without effect General Instruction No. 2/12 (DGA), declaring the incompetence of Customs because it is a matter for the Central Bank of the Argentine Republic.
Free Trade Zone – Overbilling
Although goods in the Free Trade Zone are not subject to the usual control exercise, we certainly consider that this does not prevent the customs service from taking actions aimed at checking the traceability of imports or exports that may come from this area. However, its channel of verification in terms of value does not seem to find the possibility of carrying out overbilling reviews when the loads are not subject to a customs destination operation, whether of a definitive or suspensive nature. Consequently, if the purpose of reviews shines in the control of possible foreign currency outflows resulting from international commercial transactions that denote these goods entered into the Free Trade Zone, it is possible that they are acting outside the scope of the customs control exercise, since it does not correspond to its competence in this matter. Even though Law 24.331 provides that, with the exceptions established by this law and article 590 of the Customs Code, all the provisions of a tax, customs and financial nature, including those of a penal nature, that govern the general customs territory, will be applicable to free zones.[xi], added to the fact that no special restrictions will be established in the free zone on operations in foreign currency, securities, money and precious metals, with the financial and exchange legislation in force in the general customs territory governing in this regard.[xii], this does not provide for the exercise of currency control functions by customs bodies.
Conclusion
The customs service plays a priority role for the nation and ensures the well-being of the community in the consumption of products that enter under the protection of a definitive import, but this does not make it possible to extend its functions with a view to other control objectives that respond to the authority of other organizations.
The scenario of scarcity of foreign currency and the sensitive situation that the National Government is reporting regarding the country's reserves, before the eyes of the world that does not understand how with its wealth it is in the conditions of this kind, imply a task that cannot be driven by controls without competition. Despite the fact that Decree 609/2019[xiii] It specified exchange controls in the Argentine Republic, which were intensified through various Communications from the BCRA; this does not justify failing to comply with the duty to maintain, in each organization, the proper exercise of control that is its own.
The line of legality cannot be drawn on objectives that are not proper to Customs, even when the verification of value is part of the authority of this agency. If its actions have an effect, in their end, other than the control of international traffic of goods and mutate, in some way, towards the control of entry or exit of foreign currency, it would be intervening in functions that the Law, clearly, did not impose in favor of Customs.
Guillermo Felipe Coronel is a lawyer, specializing in Customs Law. Member of the Institute of Customs Law and International Trade of the Argentine Association of Constitutional Justice
[I]Law 24.144 (Organic Charter of the BCRA), among its functions: Article 4: Section a) Regulate the operation of the financial system and apply the Law on Financial Institutions and the regulations that are issued as a result; Section f) Execute the exchange rate policy in accordance with the legislation approved by the Honorable Congress of the Nation. With more Decree 609/2019 (see point XIII of these references).
[ii]ARTICLE 10. (CA): 1. For the purposes of this Code, merchandise is any object that can be imported or exported. 2. For the purposes of this Code, the following are also considered to be merchandise: a) rentals and provision of services carried out abroad, the effective use or exploitation of which is carried out in the country, excluding any service that is not supplied under commercial conditions or in competition with one or more service providers; b) copyrights and intellectual property rights. c) Provision of services carried out in the country, the effective use or exploitation of which is carried out abroad. (Section incorporated by art. 78 of Law No. 27.467 BO 4/12/2018) The NATIONAL EXECUTIVE BRANCH shall be in charge of establishing the pertinent complementary norms, as well as the provisions of this code that are not applicable. (Paragraph incorporated by art. 78 of Law No. 27.467 BO 4/12/2018) (Article replaced by art. 8, paragraph b of Law No. 25.063 BO 30/12/1998. Effective: from the day following its publication.)
[iii]ARTICLE 9° (CA) – 1. Importation is the introduction of any merchandise into a customs territory. 2. Exportation is the extraction of any merchandise from a customs territory.
[iv]ARTICLE 1° (CA) – The provisions of this code govern the entire land, water and air area subject to the sovereignty of the Argentine Nation, as well as the enclaves established in its favor.
ARTICLE 2° (CA)– 1. Customs territory is the part of the area mentioned in article 1, in which the same tariff system and economic prohibitions on imports and exports are applied. 2. General customs territory is that in which the general tariff system and economic prohibitions on imports and exports are applicable. 3. Special customs territory or special customs area is that in which a special tariff system and economic prohibitions on imports and exports are applicable.
ARTICLE 3° (CA)– The following do not constitute customs territory, either general or special: a) the Argentine territorial sea and international rivers; b) free trade zones; c) exclaves; d) the airspaces corresponding to the areas referred to in the preceding paragraphs; e) the national submarine seabed and subsoil. In these areas, the customs regimes contemplated for each case in this code apply.
[v]ARTICLE 590 (CA). – A free-trade area is an area within which merchandise is not subject to the usual control of the customs service and its introduction and extraction are not subject to the payment of taxes, except for the service fees that may be established, nor are they affected by prohibitions of an economic nature.
[vi]ARTICLE 593 (CA). – 1. The introduction of merchandise into the free zone, even when it comes from the general customs territory or a special one, shall be considered as if it were an import. 2. The removal of merchandise from the free zone, even if it is destined for the general customs territory or a special one, shall be considered as if it were an export.
[vii]Law 24.331 (Official Gazette 17.06.1994) -Free Trade Zone-
[viii]ARTICLE 6° (Law 24.331)-In free zones, storage, commercial, service and industrial activities may be carried out, the latter with the sole purpose of exporting the resulting merchandise to third countries.
[ix]Agreement on the Implementation of Article VII of the General Agreement on Tariffs and Trade of 1994 – Law 24.425 (Official Gazette 5.01.1995)
[X]ATANOR SCA v. DGA s/ appeal – File 34282-A – Chamber F of the TFN – 7/4/2015.
[xi]ARTICLE 23. (Law 24.331) – With the exceptions established by this law and article 590 of the Customs Code, all tax, customs and financial provisions, including those of a penal nature, that govern the general customs territory, shall be applicable to free zones.
[xii]ARTICLE 36 (Law 24.331) – No special restrictions shall be established in the free zone on operations in foreign currency, securities, money and precious metals, and the financial and exchange legislation in force in the general customs territory shall apply in this regard.
[xiii]Decree 609/2019 (BO01.09.2019) – ARTICLE 2.- The CENTRAL BANK OF THE ARGENTINE REPUBLIC, in accordance with the provisions of its Organic Charter, shall establish the circumstances in which access to the foreign exchange market for the purchase of foreign currency and coined precious metals and transfers abroad will require prior authorization, based on objective guidelines in function of the conditions in force in the foreign exchange market and distinguishing the situation of natural persons from that of legal persons. ARTICLE 3.- The CENTRAL BANK OF THE ARGENTINE REPUBLIC is hereby empowered to establish regulations to prevent practices and operations tending to evade, through public securities or other instruments, the provisions of this measure.
The author is a lawyer and member of the Institute of Customs Law and International Trade of the Argentine Association of Constitutional Justice.
