The Five Best Practices for Product Tariff Classification
Your product tariff classification is the most important decision you make during the customs process. This is because your commodity code dictates your tax rates, paperwork requirements, surveillance measures, and more. Because everything depends on your classification, it’s critical to get it right.
In this article, we explore the five best practices for efficient product tariff classification – how to make the right decision, key considerations, and how to safeguard your business from mistakes. Our classification expert, Johannes Peter, supports with his comments.
Contents:
- Start with your database
- Be overzealous with high-impact decisions
- Ensure product tariff classification is a priority
- Work with a dedicated classification expert
- Be prepared to justify any decision
- Learn from the product tariff classification experts for free
#1: Start with Your Database
Start with a database – all necessary information including technical specifications – especially for dual use of export controls like chapters 84 and 85 (mechanical machines and electrical machines, respectively).
A comprehensive product tariff classification database is essential to making, updating, and defending any decisions around the commodity codes you use – and it’s not only the commodity code that you need to record.
Your database should record every product or SKU (stock keeping unit) that you import or export with technical specifications, any customs origin information, and any other relevant information included. It is also essential to have recorded notes of the processes used to reach your classification decision.
“One of the major mistakes that we often see is that traders don’t have detailed technical specifications which are needed for the proper classification, especially when it comes to dual-use goods or export controls.
The exact materials and their percentage of the composition is one level, but sometimes the length, the thickness or another variable can be the deciding factor. This is extremely common in chapters 84 and 85, for example, where one small aspect of a mechanical or electrical machine can mean it needs to be classified under a different code.”
Customs Support Group’s experts are here to help you to build and maintain your product tariff classification database. From industry-leading experience to advanced CustomsTech, our customs and trade solutions help you to remain compliant, avoid painful penalties, and keep your goods moving on schedule. Contact us today to find out what we can do for you.
#2: Be Overzealous with High-Impact Decisions
With your database in place, the next step is to prioritise certainty when you are making decisions on whether goods are classed as low- or high-risk. Although many goods have a clear dual-use or prohibition risk related to them, sometimes a more innocent-looking product could have a high risk attached to it.
In these situations, getting your product tariff classification wrong can lead to more serious penalties. This is why it’s essential to double check the notes to ensure that you are heading in the right direction.
“You need to have basic knowledge about classification and also know the composition of the goods to determine whether it’s high risk or low risk. If you are missing these details, then it is important to be proactive and fill those information gaps.
For example, you could have an item which is mostly made of plastic – where you could make the decision that the main composition of the item is enough to put it into chapter 39 for plastic articles. This is usually low risk because of the duty rates and lack of restrictions. However, there could be a key technical aspect of the article which means it should be in chapter 84. If you did not prioritise an investigation during the product tariff classification process, then you can leave yourself exposed because you have gone in the wrong direction.”
Many of Customs Support Group’s dedicated classification specialists have in-depth expertise on specific sectors, giving them real insights on where mistakes are commonly made and which questions to ask when making a classification decision. Contact us today to get a classification health check.
#3: Ensure Product Tariff Classification is a Priority
It can seem like a basic or tedious part of customs clearance, especially during export clearance when there is no duty involved, but the right goods classification is essential to your customs function – and should not be treated trivially.
Your product tariff classification is responsible for your import duty, rules of preferential origin, documentation requirements, and more. Everything can change from one commodity code to the next, and your exposure can be great if you are working with the wrong set of conditions.
“There are two major things that you need to ensure are correct when you are talking about customs clearance: your classification and your customs valuation.
If you have these two things correct, then you’re already in good health compliance-wise. On the other hand, if one of these things is wrong, then this is where you can run into severe trouble.”
#4: Work with a Dedicated Classification Expert
It’s good to have someone in your organisation who has a basic understanding of how classification works, but a specialist makes a real difference. If you do not have in-house expertise, then seeking third-party help can give you the peace of mind you need – even if it is only to verify the decision you have already made internally.
“For each chapter and for product tariff classification generally, there are important rules and notes that must be followed.
For example, the first rule of classification is that the titles of sections, chapters, and subchapters are for reference only, yet we often see that a misclassification has occurred because the description has been taken at face value.
Where there are exemptions and remarks inside the notes, these can send you in a completely different direction. These important nuances can be easy to overlook, yet make a significant difference.
This is why it is so important to have all the technical information, a complete database, and a proper process. Your due diligence is what helps you to arrive at a more accurate conclusion, and is what helps you to protect your decision.
If there is ever any doubt, then requesting Binding Tariff Information is a key method of obtaining the clarity you need.”
#5: Be Prepared to Justify and Defend Any Decision
Mistakes can be made in classification, or the authorities may disagree with your decision. When there are incidents of misclassification, your preparation can be the difference between receiving some guidance for corrective action or a serious penalty.
“Even if you end up with a wrong classification, it is important you can prove that you did your proper due diligence and that you chose your tariff code for a good reason. It will be a major issue if you don’t know how you arrived at your decision or if it looks like you just guessed.
If you can show your process and work with officials to understand where the error was made, then this will likely be considered a working error – depending on the classification – and the authorities will simply ask you to update the code and pay anything that is owed. This is a much better outcome than fines, additional surveillance, or legal repercussions.”
Customs Support Group has dedicated classification experts working throughout Europe, providing in-depth expertise to businesses of all kinds. Whether you need help with a single product tariff classification or global commodity code mapping, our specialists are here to help.
