Israel: Importer's Obligation To Complete An Electronic Affidavit For Each Supplier: Significance And Implications

Last Updated: 14 January 2019
Article by Herzog Fox & Neeman

 In January of this year, the Customs Authority launched the "Global Gate" system. This system is a cloud-based system, the objective of which is to encourage a paperless society.

When the "Global Gate" system was implemented, several concessions were made in the clearance process that facilitated the trade process. Today, following the stabilisation of the system, and following clarification with the Chambers of Commerce and the Customs Agents' Organisations, it was decided that as of November 1, 2018, an electronic "Power of Attorney", as well as an electronic "Importer's Affidavit", must be submitted via the "Global Gate" system. As of this date, if no electronic power of attorney and/or electronic affidavit exists, the shipments cannot be released from Customs.

It should be emphasised that this transition from manual to electronic affidavits, enables a more effective control and enforcement by the Customs Authority on the import processes, particularly when an enhanced and draconian enforcement regime is expected by virtue of the implementation of the financial sanctions. In this regard, incorrect filling of the affidavits and discrepancy with the import declarations, may lead to the levying of civil and criminal liability on the companies and their directors.

With regard to the importer's affidavit, the Customs have noted that an importer's declaration will be required in every declaration valued at $5,000 or over. In cases where the system finds that no "importer's declaration" as required, the system will send an error message and it will not be possible to complete the submission of the import declaration.

The importer's affidavit (both periodic and specific), includes a statement by the importer regarding his relationships with various suppliers abroad. The periodic importer's declaration should describe the relationship with the supplier throughout the year. If there are specific shipments in which the terms of the transaction or the relationship with the supplier deviate from the normal relations throughout the year, (for example, different prices from the regular prices and quantitative discounts), then a specific importer's affidavit should be submitted detailing the unique aspect(s) of that shipment.

"Importer's Affidavit" – Main Issues

The periodic affidavit comprises 10 questions to which the importer is required to answer. These questions deal with the nature of the business relationship between the importer and the supplier, and the value of the transaction for customs purposes. The following is a brief description of the main questions and issues that the importer is required to examine (and respond to) before completing the affidavit:

1. Restrictions:

The importer must examine whether there are any limitations in the manner of selling or using the imported goods within the framework of the business relationship between him and the supplier, namely, whether the sale by the importer will be solely to certain entities or to certain uses that have been determined in advance by the supplier.

It should be emphasised that if the sale or use of the imported goods is restricted, this may lead to the disqualification of the transaction value. Accordingly, if the company believes there is a restriction, we recommend that the company should seek legal advice prior to a final decision being reached.

It should be noted that there are restrictions that do not invalidate the value of the transaction – these are listed under section 1 (b) of the affidavit. These limitations include, inter alia, restrictions imposed or required under Israeli law, such as the restrictions required by The Standards Institute, The Ministry of Health, The Ministry of Agriculture, as well as restrictions regarding the geographical areas in which the importer is permitted to sell the goods.

2. Special Relations:

In addition, the importer is required to examine whether a special relationship exists between him and the overseas supplier. This question is intended to examine whether the supplier is related to the importer, beyond what is expected of a regular commercial relationship, such as where there exists employer-employee relations, subsidiaries, sister companies, and business partners. In this regard, it should be noted that the relationship between an exclusive distributor of the product and the importer is not considered as special relationship, for the purpose of this question.

If there is a "special relationship" between the importer and the supplier, then the importer must declare whether this relationship has affected the transaction price. In order to answer this question, the importer must examine whether or not the purchase is made under market conditions and market prices.

If there is a "special relationship" between the importer and the supplier, but the importer claims that the purchase price has not been affected by the relationship, then the importer may be required to prove this. One way to prove this, is by means of an opinion regarding "transfer-pricing" which will demonstrate that the relationship did not affect the price. If necessary, our transfer-pricing experts will be able to assist in this often complex matter.

3. Additional Payments and Means of Production:

In this question, the importer is required to examine whether additional payments [not included in the transaction price, which is specified in the supplier's invoice] have been made to the supplier. The additional payments mentioned in the affidavit are in accordance with section 133 (a) of the Customs Ordinance and include:

a) Commissions and brokerage fees, excluding purchase commissions (paid to a buying agent);

b) Container costs;

c) Packaging and labour costs;

d) Royalties and licence fees relating to the goods; and

e) Other (additional costs that are imposed on the importer and are not specified in the sales account, e.g. shipping costs to Israel, kashrut (Jewish dietary supervision) licence costs, etc.)

It should be noted that royalties are a complex issue, and in this regard, the Supreme Court has recently rendered a decision on this matter, according to which, the question which is incumbent on the importer to respond to, is whether he may realistically import the goods without paying royalties or licence fees. If there is no such possibility, then the tendency would be to include these payments in the transaction value for customs purposes.

In the event the company pays royalties, we recommend seeking legal advice on this subject, in order to examine the need to include them in the transaction value.

Another question deals with the [direct or indirect] supply to the supplier of services and means of production such as programmes, technical assistance, and equipment. It should be emphasised that if the importer transfers the means of production to an overseas supplier, such as plans and sketches manufactured in Israel, then there is no need to add them to the value of the transaction, although this should be stated in an affidavit.

4. Discounts:

If discounts are granted to the importer, he must examine whether these discounts are acceptable in determining the value for import tax purposes. In accordance with position No. 04/2016 published by the ITA, the discounts will be acceptable under the following cumulative conditions:

A. The discount is directly related to the goods and is given for the imported goods. Discounts that are not given for the goods, but for other reasons (such as discounts for goods previously imported or due to meeting established annual sales targets), will not be recognised in determining the value of the goods, and may not be deducted from the value for import tax purposes.

B. The discount must be continuous and evident during the valuation of the goods. If the amount of the discount cannot be determined when valuing the goods, then the discount will not be acknowledged.

In the event that the company does benefit from the discounts, we recommend the company seek legal advice in order to examine the possibility of reducing it from the value of the transaction.

5. Authorised Signatory of Affidavit:

In accordance with the instructions published by the Customs Authority, the person who is authorised to sign the affidavit, on behalf of the company, is one of the following:

  • The company's CEO, who is also an authorised signatory of the company;
  • The company's lawyer, who is also an authorised signatory of the company;
  • The company's accountant, who is also an authorised signatory of the company; or
  • The import manager, who is also an authorised signatory of the company.

6. Amendment of the Affidavit:

If an incorrect affidavit is filed and an import declaration has not yet been submitted, it is possible to cancel the affidavit (click "cancel the affidavit" on the online form and enter the number of the form for cancellation) and update the affidavit. In this event, there are no implications arising from the incorrect affidavit. However, if an import declaration has already been submitted, then a new affidavit must be filed, which will be valid from the date of submission.

For your convenience, here is a link to the online affidavit.

"AEO" and "Authorised Importer"

In addition, we would like to remind you of the potential status of being an "AEO", or "Authorised Importer", which gives rise to simplified customs procedures, including the granting of an exemption from the need to file an importer's affidavit.

For a full review concerning "AEO" and "Authorised Importers", please see our Client Update entitled " Assessments for the Replacement of the Custom Administration's Foreign Trade Operation System of the State of Israel and the Implications for Import Processes".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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