What’s the fuss on de minimis?

Australia’s experience in dealing with de minimis transactions has been complicated and is now subject to review by industry and border agencies. Andrew Hudson, Partner — Customs & Trade, looks at Australia’s experience in dealing with low-value transactions and practices overseas.

A version of this article was first published in the The DCN in September 2024.

Those in the industry live in a world dominated by acronyms (for example, ABF, DAFF, NCTF, TFIWG, ATTP, FID and the like). Lawyers also have their own special terminology which draws upon other sources, especially from Latin.

Ostensibly, Latin is a ‘dead’ language. However, it does live on in some corners of society including the legal profession and especially in relation to rules of statutory interpretation or legal principles.

Indeed, to gain entry to the University of Melbourne Law School, one of the prerequisites was to have studied a language in year 12 (thank heavens mine was French and not Latin). The various Latin ‘maxims’ were taught in our first year of law school and were included in examinations. They are also used in more irreverent ways by many lawyers!

One of the Latin maxims was ‘De minimis non curat lex’ which explains the principle that the law is not concerned with insignificant or minor matters. The maxim is often referred to as de minimis and has worked its way into international trade matters providing that transactions at low values should not attract customs duties or other border taxes. These transactions can be transacted through different reports which are not as detailed as other ‘import declarations’ and do not attract the same sort of processing fees.

The aim of the regime is to facilitate these transactions at little cost to the purchaser of the goods given the low value of the goods. This extends to lodging of the de minimis reports which can often be undertaken by anyone and do not require the use of a customs broker. However, the massive increase of low-value purchases through e-commerce during and since the Covid-19 pandemic has meant a massive increase in de minimis transactions, which are harder for border agencies to monitor and create a cost for border agencies that is not recovered in costs to process the transactions.

They are also subject to abuse by parties declaring an artificially low value for the goods or including contraband items in the hope that the perceived lower level of review of such transactions decreases the prospects of intervention by the border agencies.

The current Australian position

Australia’s experience in dealing with de minimis transactions (also known as low-value transactions or LVTs) has been complicated and is now subject to review by the industry and border agencies.

Australia has a system by which goods valued at less than $1000 in a consignment may be imported under a self-assessed clearance declaration (SAC) of which there are three types: the Cargo Report SAC Declaration, Short-Form SAC Declaration or Long Form SAC Declaration.

These do not need to be lodged by customs brokers and there is no customs duty payable on a valid SAC. The usual import processing charge (IPC) and biosecurity charges are not payable, which raises the issue of the charge on the processing of full import declarations ‘subsidising’ the cost of the processing and review of SACs.

Although no processing charges are currently payable on SACs, there is a proposal that the Department of Agriculture, Fisheries and Forestry (DAFF) will add a processing charge from October 2024, though the amount has yet to be set and is subject to ongoing industry engagement.

In terms of goods and services tax (GST), there was no GST payable on SACs until the federal government-imposed GST on LVT imports. In a diversion from normal practice, GST is payable on SACs but levied on some parties facilitating imports, including those conducting electronic distribution platforms.

Australia was the first country to impose such a charge on SACs and was then followed by New Zealand which imposed its own equivalent tax. The imposition on levying, collecting, and paying the GST was actively opposed by many overseas e-commerce providers and there was some scepticism that the scheme would work. Notwithstanding such objections, the GST on LVTs has collected more than the estimates from the Australian Taxation Office and does not appear to have created compliance issues.

However, SACs still create compliance issues for the Australian Border Force (ABF) by parties ‘splitting’ consignments attempting to turn one order over $1000 into several separate shipments below the $1000 threshold, as well as by the import of drugs and the deliberate under-valuation of consignments to bring them under the required threshold. Such actions also decrease the amount of GST payable.

There remains the ongoing concern that the failure to impose the IPC on SACs leaves other importers to ‘subsidise’ those importing through SACs and the view that only licensed customs brokers or properly accredited parties should be allowed to lodge and process SACs. All of these issues are currently subject to discussion and review by the ABF and the private sector through several advisory bodies.

Overseas practice

There is no one consistent approach to handling LVTs in other jurisdictions including the absence of consistency on the levels at which customs duty and other charges are levied on such transactions.

The EU Customs Reform which was recently announced, eliminates separate de minimis transactions and will provide for the reporting of all imports to be undertaken in a consistent way with duties and tax on all such imports.

The approach to LVTs in the United States is currently the subject of debate and an increased level of attention by the United States Customs and Border Protection (USCBP). In recent times, USCBP has focused more compliance attention on many LVTs or de minimis imports under the Entry Type 86 exemption program (Program) allowing for shipments valued at US$800 or less to be admitted into the United States tax and duty-free. There is no GST (or similar) payable at the point of import as in the United States, such taxes are imposed by states’ sales taxes.

The Program aims to streamline the entry process of low-value goods for brokers while giving the USCBP greater visibility into those shipments. Such Program filings accounted for more than 60% of all de minimis shipments in the USCBP’s 2023 fiscal year.

The USCBP has been increasing enforcement efforts and has been opening and examining the associated parcels which has led to the discovery of many imports in breach of the Program or otherwise being prohibited. For example, the USCBP has identified many goods as being the product of forced or slave labour whose import is banned in the United States (not an issue in Australia, which has no such bans), goods being in breach of intellectual property rights of legitimate holders of that intellectual property or where goods have been deliberately under-valued to avoid customs duty. The breaches of the Program led to the banning of certain brokers from using the Program and delays in e-commerce transactions, to the detriment of consumers and overseas suppliers.

Lessons for the Australian practice

The Australian approach to LVTs and the use of SACs has been the subject of concern and proposed reforms for many years. Given the outcomes overseas, the use of SACs is under review again by several advisory bodies to the National Committee on Trade Facilitation (NCTF). While the review will include considering how the transactions can fit into a new reporting system, more fundamental concerns remain including the following:

• Are the advantages of SACs outweighed by their disadvantages leading to their removal altogether as an option?
• What would be the appropriate IPC for a SAC to reflect real costs and reduce subsidisation of their processing by other declarations?
• Should the use of SACs be confined to those in an Australian program such as the Entry Type 86 Program in the United States?
• Should registration of SACs be required to be made by licensed customs brokers?
• What enhanced compliance activities are required to ensure that the correct values are declared to reduce GST ‘leakage’?
• Whether, given the escalation of e-commerce purchases, there should be a specialised team within the ABF to focus on SACs and to support more stringent penalties for inappropriate or incorrect use of SACs (including for criminal purposes). This team could work closely with DAFF which has concerns on goods being imported through SACs without approvals or permits being in place.

As a member of the advisory bodies to the NCTF, the ongoing debate and needed reform to the practice of LVTs and the use of SACs is something to look forward to.

Contact us

If you are an individual or Australian business and would like to discuss how the potential changes to the handling of low-value transactions could affect your business, please contact a member of our Customs & Trade team.