Post Clearance Audit

CMTA_CAO_Draft_DOF_Reviewed_Post Clearance Audit_2016-09.
28
[DATE]
CUSTOMS ADMINISTRATIVE ORDER (CAO)

NO. _____________
SUBJECT: POST CLEARANCE AUDIT AND PRIOR DISCLOSURE PROGRAM

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Introduction. This CAO implements the (a) post clearance audit functions of the Bureau,
found in Sections 1000 to 1006, Title X; (b) the function of the Bureau regarding
assessment and collection of revenues from imported goods and other dues, fees,
charges and penalties accruing under this CAO as provided in Section 202(a) Chapter 1,
Title II, in relation to Section 1131, Chapter 7, Title XI, and (c) other related provisions
of Republic Act No. 10863 otherwise known as the Customs Modernization and Tariff Act
(CMTA).
The CMTA expressly repeals the Tariff and Customs Code of the Philippines, as amended,
and all other laws, acts, presidential decrees, executive order, rules and regulations or
parts thereof inconsitent with the CMTA. Specifically relevant to this CAO, the following
are expressly repealed by the CMTA: Executive Order No. 155 s. 2013 and Department
Order Nos. 011-2014 and 044-2014 issued by the Department of Finance (DOF).
Section 1.Scope.This CAO covers:
1.1. The post clearance audit of all records required to be kept by all Importers,
beneficial or true owners of imported goods, customs brokers, agents, locators
as provided for in Sections 1003 (a), (b), and (c), Title X of the CMTA; and
1.2. The Prior Disclosure Program (PDP) as a compliance and revenue measure.
Section 2.Objectives.
2.1. To prescribe the principles, purposes, mechanics and methodology of the post
clearance audit system, recordkeeping requirement, and the period covered
by the conduct of audit;
2.2. To implement the post clearance audit under a regime of informed

compliance;
2.3. To stress the importance of the requirement to keep records and to comply
with other legal obligations of Importers and other customs stakeholders and
the adverse consequences of non-compliance with customs rules and
regulations;
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CMTA_CAO_Draft_DOF_Reviewed_Post Clearance Audit_2016-09.28
2.4. To promote compliance with customs laws and regulations by providing a non-
punitive facility for Importers to voluntarily disclose or report to customs plain
errors or innocent mistakes in the goods declarations and in the payment of
duties, taxes and other charges;
2.5. To provide a clear set of policies and guidelines in the application and availment
of the PDP on fines and surcharges for deficiencies in the payment of duties
and taxes; and
2.6. To generate additional customs revenues with least administrative cost to both
the government and the concerned Importer.
Section 3.Definition of Terms.
3.1. Importer shall include the following:
3.1.1. Importer-of-record or consignee, owner or declarant, or a party who:
a. Imports goods into the Philippines or withdraws admitted goods

from the free zones into the customs territory for consumption or
warehousing; files a claim for refund or drawback; or transports
or stores such goods carried or held under security; or
b. Knowingly causes the importation or transportation or storage of
imported goods referred to above, or the filing of refund or
drawback claim.
3.1.2. An agent of any party described in Section 3.1 of this CAO;
3.1.3. A person whose activities require the filing of a goods declaration;

or
3.1.4. A person ordering imported goods from a local importer or supplier

in a domestic transaction shall be considered an importer if:
a. the person placing the order controls the terms and conditions of
the importation;
b. the person placing the order and the importer or supplier are
related in such a way that the former may be considered as the
beneficial or true owner of the imported goods, as may be
exemplified by the following circumstances:
i) the person placing the order is the sole buyer of the goods
imported by the importer on record;
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ii) the importer on record is an affiliate of the juridical entity

which placed the order;
iii) the importer on record and the entity which placed the order
are owned by the same set of majority stockholders in both
corporations;
iv) the person or entity placing the order furnished the importer
or the exporter with technical data, molds, equipment, other
production assistance, material, components, or parts with
knowledge that these will be used in the manufacture or
production of imported goods / goods to be imported.1
3.2. Customs Clearance- refers to the completion of customs and other

government formalities necessary to allow goods to enter for consumption,
warehousing, transit or transshipment, or to be exported or placed under
another customs procedure.2
3.3. Inadvertent Error - shall mean a mechanical, electronic or clerical error that
an Importer demonstrates was not intentional and occurred notwithstanding
the maintenance of internal controls reasonably adapted to avoid such errors.3
3.4. Prior Disclosure Program is a program based on international best

customs practice, authorizing the Commissioner of Customs to accept prior
disclosure by Importers of errors in goods declaration resulting in deficiency in
duties and taxes on past importations.4
3.5. Locators - persons authorized to bring imported goods into free zones, such
as the special economic zones and free ports.5
3.6. Fraud commission or omission of any act resulting in material false

statements such as submission of false or altered documents in connection with
any importation knowingly, voluntarily, and intentionally done to reduce the
taxes and duties paid either through misdeclaration, misclassification or
undervaluation.6
1
cf CMTA, Title X, Section 1003
2
cf CMTA, Title X, Section 102 (k)
3
cf U.S.C.S. Appx 12 CFR 202.2 and CMTA, Title X, Section 1005 (a)
4
cf U.S. Customs 1592 and WCO Agreement on Trade Facilitation Article 6: 3.6
5
cf CMTA, Title X, Section 1003 (c)
6
cf TCCP, Section 3611 (c) and CMTA, Title X, Section 1005 (b)
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3.7. Negligence failure to exercise reasonable care and competence, through

act or acts of omission or commission, in ensuring that a statement made is
correct resulting in a deficiency in taxes and duties paid.7
3.8. Misdeclaration refers to a false, untruthful, erroneous, or inaccurate

declaration as to quantity, quality, description, weight or measurement of the
goods resulting in deficiency between the duty and tax that should have been
paid and the duty and tax actually paid.
3.9. Misclassification refers to insufficient or wrong description of the goods

and use of erroneous tariff heading resulting in deficiency between the duty
and tax that should have been paid and the duty and tax actually paid.
3.10. Undervaluation refers to a declared value that is lower than the correct
value of the imported goods by not reflecting the full price actually paid or
payable, or by failing to include any dutiable adjustment to the price of the
goods, or by using an incorrect valuation method, or by non-observance of the
valuation rules which results in a deficiency between the duty and tax that
should have been paid and the duty and tax actually paid.
Section 4.General Provisions.
4.1. Records to be Kept by the Bureau. The Bureau shall keep a database of
Importer and customs broker profiles which shall include a record of audit
results and the following information and papers:
4.1.1. Articles of incorporation;
4.1.2. The company structure, which shall include but not be limited to:
a. Incorporators and board of directors;

b. Key officers; and
c. Organizational structure;
4.1.3. Key importations;
4.1.4. Importation privileges enjoyed;
4.1.5. Record of Violations and Penalties;
7
cf TCCP, Section 3611 (a) and CMTA, Title X, Section 1005 (a)
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a. Infringements committed;
b. Instances of prohibited importation;
c. Instances of smuggling;
d. Instances of technical smuggling;
i) Misdeclaration
ii) Misclassification
iii) Undervaluation
4.1.6. Risk categories;
4.1.7. Audit Reports; and8
4.1.8. Other information and documents from the various offices of the
Bureau that may be necessary in order to facilitate the conduct of
post clearance audit.
4.2. Entities required to maintain and keep records.
4.2.1. Importers. - All importers, including those mentioned in the

definition of importers insofar as the application of post clearance
audit and Sec. 1005 of the CMTA are concerned, are required to
maintain and keep all records of their importations, books of
accounts, business and computer systems and all customs
commercial data including payment records.
4.2.2. Brokers and other parties. - All customs brokers and all other
parties engaged in customs clearance and processing, are required
to keep copies of the records covering transactions that they handle.
4.2.3. Locators. - Locators are required to keep records of all its activities,
including in whole or in part, records on imported goods withdrawn
from said zones into the customs territory. 9
4.3. Purposes of keeping records. - The records shall be kept for the following
purposes:
4.3.1. For verifying the accuracy of the transaction value declared by the
importers/customs brokers on the import entry;
8
9
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4.3.2. For conducting audit examination, inspection, verification and/or

investigation of the records in relation to specific transactions or to
the adequacy and integrity of the manual or electronic system or
systems by which such records are created and stored; and
4.3.3. For collecting the proper duties and taxes.
4.4. Period and place to keep records. Importers, brokers, and locators are
required to keep the records at their principal place of business for a period of
three (3) years from the date of importation.
4.5. Records Required to be Kept. The following records are required to be kept
by Importers, locators or persons authorized to bring imported goods into free
zones and all parties engaged in Customs Clearance and processing for the
purpose of post clearance audit:10
4.5.1. Company or entity structure including the following to the extent

that they are relevant for the verification of the accuracy of the
transaction value declared on the goods declaration and necessary
for the purpose of collecting the proper duties and taxes on
imports, as the case may be:
a. Articles of incorporation, articles of partnership, registration

certificate with the Department of Trade and Industry and the
like;
b. List of incorporators, stockholders, partners, board of directors,
owners;
c. Organizational structure;
d. Management and key personnel involved in import processing
including authorized declarants and their specimen signatures;
e. Capital composition;
f. Stock and transfer book, General Information Sheet, list of
partners/owners;
g. Principals and subsidiaries, or affiliates and their capital
composition;
h. List of exporters/suppliers and nature of relationship with
importer pursuant to Section 701 (c), Chapter 1, Title VII of
the CMTA;
10
cf CAO No. 4-2004, Section IV.A.2
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i. Audited financial statements and tax returns for income tax,

withholding tax, value added taxes, excise taxes, documentary
stamp taxes, and capital gains taxes;
j. General contracts and agreements with regular suppliers;
k. Company profile/history and description of operations;
l. Minutes of Board of Directors meetings; and
m. Permits and licenses.
4.5.2. Ordering and purchase documentation to the extent that they are
relevant for the verification of the accuracy of the transaction value
declared on the goods declaration and necessary for the purpose of
collecting the proper duties and taxes on imports, including the
following:
a. Sales and other related agreements, in whatever form, including,
whenever applicable, those covering distribution, royalty,
agency, warranty, terms of payment and the like;
b. Correspondence or communication relating to the import
transaction, in whatever form, including, whenever applicable,
purchase orders, vouchers, confirmations, pro-forma invoices,
acknowledgement receipts, notices, advisories and the like; and
c. Product description or specifications, such as brochures, manuals,
catalogues, pamphlets, fliers, literatures.
4.5.3. Shipping, importation, exportation and transportation documentation

including the following to the extent that they are relevant for the
verification of the accuracy of the transaction value declared on the
goods declaration and necessary for the purpose of collecting the
proper duties and taxes on imports, as the case may be:
a. Goods declaration and proof of payment of duties and taxes;
b. Commercial, non-commercial invoices, and/or consignment
agreements;
c. Import and export licenses or permits;
d. Ocean bills of lading, master air waybills, house air waybills,
and/or consolidator bills of lading;
e. Shipping instructions and/or freight forwarders instructions;
f. Certificates of origin, certificates of eligibility, certificates of
inspection and loading and/or certificates of identification;
g. Freight and insurance contracts;
h. Packing lists;
i. Transshipment permits, boatnotes and/or special permits to
transfer;
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j. Quota allocation and/or certificates;

k. Customs brokerage, logistics or forwarding agreements, billings,
statements of accounts and/or receipts;
l. Receipts for arrastre charges, cargo handling and storage fees;
m. Short shipped and/or bad order reports;
n. Goods tally records;
o. Letters of credit, applications for letter of credit, bank details;
p. Remittance advice;
q. Credit card transactions;
r. Telegraphic money transfers;
s. Offshore monetary transactions;
t. Evidence of payments by any other means, including information
detailing non-cash compensation transactions;
u. Permit to operate Customs Bonded Warehouses, Customs
Facilities and Warehouses and Free Zones;
v. Formula of conversion/manufacture;
w. List of monthly importable materials/quota;
x. List of imported purchases;
y. Summary of export/local sales;
z. Summary of liquidated and unliquidated entries;
aa. List of sub-contractors;
bb. List of inventory;
cc. Production report; and
dd. Privileges enjoyed by the BOI registered Importers and Free Zone
locators.
4.5.4. Manufacturing, stock and resale documentation including the

following to the extent that they are relevant for the verification of
the accuracy of the transaction value declared on the goods
declaration and necessary for the purpose of collecting the proper
duties and taxes on imports:
a. Inward goods register/receipts journal;

b. Stock register/inventory records;
c. Production records;
d. Costing records;
e. Purchases book; and
f. Sales book.
4.5.5. The following bank documents, financial statements and other

accounting information to the extent that they are relevant for the
verification of the accuracy of the transaction value declared on the
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goods declaration and necessary for the purpose of collecting the

proper duties and taxes on imports:
a. Cash receipts and disbursements books;

b. Subsidiary ledgers of accounts payable and accounts receivable;
and
c. Cheque records.
d. Bank reconciliation records.
4.5.6. To the extent that they are relevant for the verification of the accuracy
of the transaction value declared on the goods declaration and
necessary for the purpose of collecting the proper duties and taxes
on imports, and if applicable, charts and codes of accounts, general
and subsidiary ledgers, general journal, accounting instruction
manuals, and systems and program documentation that describes
the accounting system used by the Importer; and
4.5.7. Whenever applicable, papers, books, registers, discs, films, tapes,

sound tracks, and other devices or things in or on which information
contained in the records described in Sections 4.5.1. to 4.5.6. of this
CAO are recorded or stored.
Section 5.Post Clearance Audit.
5.1. Audit and Examination of Records. Within three (3) years from the date
of final payment of duties and taxes or Customs Clearance, as the case may
be, the Bureau may conduct an audit examination, inspection, verification, and
investigation of records pertaining to any goods declaration, which shall
include statements, declarations, documents and electronically generated or
machine readable data, for the purpose of ascertaining the correctness of the
goods declaration and determining the liability of the Importer for duties, taxes
and other charges, including any fine or penalty, to ensure compliance with
this CAO.11
5.2. Selection Criteria.
5.2.1. Post clearance audit of Importers shall be undertaken when firms are
selected by a computer-aided risk management system, the
parameters of which are to be based on objective and quantifiable
data which shall include, but not be limited to, the following:
11
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a. Relative magnitude of customs revenue to be generated from the

firm;
b. The rates of duties of the firm's imports;
c. The compliance track records of the firm;
d. An assessment of the risk to revenue of the firm's import
activities;12
e. Country of Origin;
f. Errors in the import declaration are detected which if uncorrected
would result in substantial revenue loss or grave distortion of
relevant statistical data;13
g. The compliance level of a trade sector; and
h. Non-renewal of Importers customs accreditation.
5.2.2. For this purpose, the Management Information System and

Technology Group (MISTG) shall design and establish a computer-
aided risk management system, to be approved by the
Commissioner, that will facilitate the risk assessment and conduct
of audit.
5.2.3. Customs brokers and Importers duly authorized agents may be

audited to validate audits of their Importer clients and fill in
information gaps revealed during an audit of their Importer clients.
14
5.3. Conduct of Post Clearance Audit.15
5.3.1. The Post Clearance Audit Group (PCAG) shall prepare a set of post
clearance audit procedures, for approval by the Commissioner to
strictly govern the audit system and procedure as well as the
conduct of the audit examination itself to achieve the highest level
of objectivity, fairness, efficiency and transparency. The guidelines,
whenever applicable, shall include the following
procedural/operational concerns:
a. Profiling/Information Analysis PCAG shall perform risk

profiling analysis activities on the Importers based on other
information and documents from the various offices of the
12
13
cf CAO No. 4-2004, Section IV.C.
14
cf CAO No. 4-2004, Section IV.C.2.
15
cf CAO No. 4-2004, Section IV.D.
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Bureau. This includes data gathering and evaluation of import

and export operations.
b. Audit Notification The Commissioner shall issue an Audit

Notification Letter (ANL) to the company identified for audit.
The ANL shall contain the name/s of the authorized customs
officer/s to perform post clearance audit and is subject to a 30
day validity for service to the Importer.
c. Audit Plan The audit team shall prepare a general audit

plan to fit the circumstances of the audited company with the
end view of achieving the specific audit objectives in the most
expeditious and transparent manner.
d. Pre-Audit Conference Before the start of the audit, the

audit team shall meet with the importer on a pre-arranged
schedule to discuss all matters pertaining to the conduct of the
audit. The following shall be covered during the pre-audit
conference:
i. Authority of the auditors to conduct the audit;

ii. Scope and duration of the audit;
iii. Written designation of officer or staff of the importer
authorized to provide information and answer queries
of the auditors;
iv. Work area designated for the auditors;
v. Access to premises of the importer;
vi. Documents to be examined;
vii. Certified copies of documents to be provided to the
auditors;
viii. Designation and authority of the certifying officer of
the company;
ix. Conduct of walk-through of the systems relevant to
importation.
e. Conduct of Audit Proper The audit proper shall

commence on the date when the audit team actually
conducts examination, inspection, verification and
investigation of accounting and financial records and goods
declaration and other records mentioned in Section 4.5. of
this CAO.
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f. Conduct of exit conference. When the auditors have

performed compliance audit and have gathered all
documents relevant to the investigation or inquiry, the audit
team shall hold an exit conference with the importer to
discuss the following matters:
i. Turn over of all original documents provided to the

auditors during the audit;
ii. Schedule of providing the importer with the
management letter;
iii. Response of the importer to the management letter;
iv. Possibility of negligence or fraud to be communicated to
the importer;
v. Duty of the importer to provide further documents and
testimony when summoned by the Commissioner in
relation to any negligence or fraud that may be
discovered by the audit review team;
vi. Issuance of the final audit report.
g. Audit Reporting The audit team shall prepare and

submit the Final Audit Report and Recommendation (FARR)
to the Commissioner of Customs for approval and issuance
of Demand Letter. The Bureau shall furnish the Bureau of
Internal Revenue (BIR) and the Department of Finance
(DOF) a copy of the FARR within thirty (30) days from the
issuance thereof.
h. Audit Monitoring and Recordkeeping PCAG shall, with

the assistance of the Management Information System and
Technology Group, establish a secure electronic system of
maintaining audit reports and records. PCAG shall develop an
internal monitoring system to ensure that all tasks related to
audit operations are completed and on time and that
approved audit recommendations are properly implemented.
5.3.2. The conduct of post clearance audit shall depend on the yearly Post
Clearance Audit (PCA) program of the PCAG. The audit may be
divided into stages or may have varying scopes. Initially, the
Importer shall be required to produce for examination documents
enumerated in Sections 4.5.1, 4.5.2 and 4.5.3. The audit may be
expanded to cover documents enumerated in Section 4.5.4, 4.5.5,
4.5.6 and 4.5.7.
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5.3.3. Nothing in this section shall be construed as restricting or calling into

question the rights of the Bureau to satisfy itself as to the truth or
accuracy of any statement, document or declaration presented for
customs valuation purposes, and as may be necessary for the
purpose of collecting the proper duties and taxes.
5.4. Access to Records.16
5.4.1. Any authorized Bureau personnel under PCAG shall be given by the
Importer and customs broker full and free access to the premises
where the records are kept, or be provided with full and free access
to a cloud based data-room, to conduct audit examination,
inspection, verification and investigation of records relevant to such
investigation and inquiry, such as but not limited to the importers:
a. Document flow;
b. Financial flow;
c. Goods inventory; and
d. Other business processes necessary or relevant in determining
the adequacy and integrity of the manual or electronic system
or systems by which such records are created and stored and
to ensure compliance with customs laws and existing rules and
regulations, particularly in relation to customs valuation, tariff
classification and country of origin with the end in view of
collecting the proper duties and taxes.
In addition, the authorized customs officer may require the importer

and customs broker to make certified copies of any such documents
or extracts thereof.
A copy of any document certified by or on behalf of the importer is

admissible in evidence in all courts as if it were the original copy.
5.4.2. A customs officer is not entitled to enter the premises in this section
unless, before so doing, the officer produces to the person
occupying or apparently in charge of the premises written evidence
of the fact of being authorized which shall be the certified true copy
of the ANL. The person occupying or apparently in charge of the
premises entered by an officer must provide the officer with all
reasonable facilities and assistance for the effective exercise of the
officers authority under this section.
16
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5.5. Document in Foreign Language. Where a document in a foreign language

is presented to a customs officer in relation to the carrying out of any duty or
the exercise of any power of the Bureau of Customs, said document must be
accompanied with a translation in English, certified correct under oath by a
translator accredited by the Department of Foreign Affairs or by a foreign
embassy.17
5.6. Power of Commissioner to Obtain Information.
5.6.1. Submission of information related to importation. Pursuant

to the power of the commissioner to obtain from any person any
information related to importations such as costs and volume of
production, receipts or sales and gross income of taxpayers, all
importers, whether selected to be the subject of a post clearance
audit or investigation or not and without need of summons from the
Commissioner, shall submit on a quarterly basis the following
documents and information:
a. For trading concerns:
i. Itemized list of imported goods including tariff

classification, itemized cost, taxes and duties paid;
ii. Sales report of imported goods, including list of buyers,
quantities sold per buyer with reference to sales
invoices;
iii. Report of gross income from importations;
b. For manufacturing concerns:
i. Itemized list of imported goods including tariff

classification, itemized cost, taxes and duties paid;
ii. Report of imported materials used in production;
iii. Production report;
iv. Sales report;
v. Gross income from imported raw materials;
17
cf CAO No. 4-2004, Section IV.A.5.
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5.6.2. Request for information from government agencies and

offices. The Commissioner may request from any office or officer
of the national and local governments, government agencies and
instrumentalities, including the Bangko Sentral ng Pilipinas (BSP)
and government-owned or -controlled corporations (GOCCs),
information related to the importations and transactions covering
the imported goods including the names, addresses, and financial
statements of corporations, regional operating headquarters of
multinational companies, joint accounts, associations, joint ventures
or consortia and registered partnerships, and their members, whose
business operations or activities are directly or indirectly involved in
the importation or exportation of imported goods or products
manufactured from imported component materials.
The Commissioner shall enter into a Memorandum of Agreement

with the concerned agencies and government offices to define the
coordination between the Bureau and the concerned agency or
office, how the post clearance auditors can have access to
information held by the concerned agency or office, and the
regularity of submission of information to the Bureau for the
effective implementation of the post clearance audit.
5.6.3. Power to obtain information from banks and other financial
institutions. The Commissioner may obtain information from
banks or other financial institutions on commercial documents and
records pertaining specifically to payments relevant to import
transaction. This power of the Commissioner shall not be construed
as granting the Commissioner the authority to inquire into bank
deposits of importers or their agents.
5.7. Result of the Completion of Audit on the Goods Declaration. After the Post
Clearance Audit is completed, the affected goods declaration may be altered or
modified to conform to the findings.18
5.8. Administrative and Criminal Offenses.
18
cf CMTA, Title IV, Chapter3, Section 427
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5.8.1. Failure to Keep Records. Any person who fails to keep and
maintain the prescribed records required to be kept and maintained
in this CAO shall be subject to the following:
a. Suspension or cancellation of accreditation as Importer with the

Bureau;19
b. Surcharge of twenty percent (20%) on the dutiable value of the
goods which is the subject of the importation for which no
records were kept and maintained;20
c. Hold delivery or release of subsequent imported articles to
answer for the fine and any revised assessment;21
d. Criminal prosecution punishable with imprisonment of not less
than three (3) years and one (1) day but not more than six (6)
years, and/or a fine of one million pesos (PhP1,000,000.00);22
and
e. Waiver of the right to contest the results of the audit based on
records kept by the Bureau.23
5.8.2. Failure or Refusal to Give Full and Free Access. Any person
who denies an authorized customs officer full and free access to
the records required to be kept and maintained as prescribed in
this CAO shall be subject to the following:
a. Punishment for contempt, for contumacy or refusal from the

proper court having criminal jurisdiction;
b. Re-assessment of the importations subject of audit applying
the correct valuation method, tariff classification, quantity
and/or country of origin, as applicable, based on available data,
the declared transaction value being presumed inaccurate;24
c. Suspension or cancellation of accreditation as an importer with
the Bureau;25
d. Surcharge of twenty percent (20%) on the dutiable value of the
goods which is the subject of the importation for which no
records were kept and maintained;26
19
cf CMO No. 11-2014, Section 8
20
21
cf CMTA, Title X, Section 1002 and Title XIV, Chapter 1, Section 1427
22
cf CMTA, Title XIV, Chapter 1, Section 1427
23
24
25
cf CMO No. 11-2014, Section 8.c.
26
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e. Hold delivery or release of subsequent imported articles to

answer for the fine and any revised assessment;27 and
f. Criminal prosecution punishable with imprisonment of not less
than three (3) years and one (1) day but not more than six (6)
years, and/or a fine of one million pesos (PhP1,000,000.00).28
5.8.3 Failure to Pay Correct Duties and Taxes on Imported Goods.

Any person who, after being subjected to post clearance audit and
examination, is found to have incurred deficiencies in duties and
taxes paid for imported goods, shall be penalized according to two
(2) degrees of culpability, subject to any mitigating, aggravating or
extraordinary factors that are clearly established by available
evidence as described hereunder:29
a. Negligence When a deficiency results from an offender's

failure, through an act or acts of omission or commission, to
exercise reasonable care and competence in ensuring that a
statement made is correct, the offender shall be charged for
committing negligence, and, if found guilty shall be penalized
with a fine equivalent to one hundred twenty five percent
(125%) of the revenue loss.
Provided, That subject to Section 108, Chapter 2, Title I of the

CMTA, a penalty of ten percent (10%) of the revenue loss shall
be imposed on an Inadvertent Error amounting to simple
Negligence.
b. Fraud - When the material false statement or act in connection

with the transaction was committed or omitted knowingly,
voluntarily and intentionally, as established by clear and
convincing evidence, the offender who is charged for
committing fraud and is found guilty thereof, shall be penalized
with a fine equivalent to six (6) times of the revenue loss and/or
imprisonment of not less than two (2) years, but not more than
eight (8) years.
5.8.4. Interest on Unpaid Duties, Taxes, Other Charges and Fine

or Penalty. Unpaid duties, taxes and other charges, shall incur
legal interest of twenty percent (20%) per annum computed fifteen
27
cf CMTA, Title X, Section 1002 and Title XIV, Chapter 1, Section 1427
28
cf CMTA, Title XIV, Chapter 1, Section 1427
29
Page 17 of 25 CAO No. __________
(15) days from the time the final assessment becomes due and
demandable until final payment.30
5.8.5 Remedies. The importer adversely affected by the assessment

issued by the PCAG and approved by the Commissioner (approved
FARR) may file a request for reconsideration to the Commissioner
within fifteen (15) days from receipt. When said request is denied
by the Commissioner, the Importer may appeal the same to the
Court of Tax Appeals (CTA) within thirty (30) days from receipt of
the adverse ruling or decision of the Commissioner.31
Section 6.Prior Disclosure Program.
6.1 Who may avail of the Prior Disclosure Program.
6.1.1. Any Importer without waiting for the issuance of an ANL, may avail
of the PDP;
a. By submitting the duly accomplished application form prescribed

by the Bureau for prior disclosure stating the errors in goods
declaration and tendering payment of the initial estimate of
deficiency duties, taxes and reduced penalties32, if applicable.
b. By paying the balance, if applicable, for the deficiency within a
non-extendible period of sixty (60) calendar days from the filing
of the PDP application form.
6.1.2. Any Importer who has received an ANL may still avail of the PDP
provided the following conditions are satisfied:
a. Before or during the Pre-Audit Conference, the Importer manifests

his intention to avail of the PDP;
b. The Importer submits the duly accomplished application form for
prior disclosure stating the errors in goods declaration and tenders
payment of the initial estimated deficiency duties, taxes and
30
cf CMTA, Title I, Chapter 1, Section 104 and Title IV, Chapter 3, Section 429
31
cf CMTA, Title I, Chapter 2, Section 114 and Title XI, Chapter 1, Section 1104
32
cf 19 U.S. Customs 1592
Page 18 of 25 CAO No. __________
reduced penalties, if applicable, within thirty (30) calendar days

from the Pre-Audit Conference; and
c. The Importer pays the balance, if applicable, for the deficiency
within a non-extendible period of sixty (60) calendar days from
the filing of the PDP application form.
6.1.3. The Importer who intends to avail of the PDP shall secure the
services of an independent auditor to assure the Bureau that the
voluntary disclosure, in all aspect, has been verified and certified
under oath to be correct, accurate and complete. However, PCAG
shall not be bound by the findings of the independent auditor when
PCAG finds that there are additional payment due from the Importer
as a result of its review.
6.2. Exclusions from the PDP. The following shall not be qualified for the PDP:
6.2.1. Goods declaration which are the subject of pending case with any
other customs office;
6.2.2. Goods declaration which are covered by cases already filed and
pending in courts; and
6.2.3. Goods declaration involving Fraud as defined under Section 5.8.3.b.

of this CAO.
6.3. Benefit of the Program. An approved applicant of the PDP shall be subject
to a reduced penalty of ten percent (10%) of the deficiency duties and taxes.
6.4. Verification and Action on the Application for PDP.
6.4.1. After the receipt of the PDP application form, initial payment and
other supporting documents, the PCAG shall verify if the application
is complete. If incomplete, PCAG shall require the submission of
additional relevant documents.
6.4.2. In relation to the specific goods declaration subject of the prior
disclosure application, when there are preliminary findings of Fraud
or that there are other material inaccuracies, mistakes or errors in
Page 19 of 25 CAO No. __________
the entry declaration or outright violations committed that are not

the subject of the disclosure but has an adverse impact on
government revenues, PCAG shall recommend the conduct of
formal and full audit.
6.4.3. In all cases, the tender of payment shall be accepted by the Bureau
to be applied to the deficiencies in duties and taxes as voluntarily
disclosed regardless of whether the prior disclosure application is
finally approved or denied by the Commissioner.
6.5. Interest on Unpaid Duties and Taxes. The deficiency duties and taxes
on the goods declarations and customs issues disclosed shall incur a legal
interest of twenty percent (20%) per annum computed fifteen (15) days
from the time the final assessment becomes due and demandable until final
payment.33
Section 7.Civil Remedies for the Collection of Duties, Taxes, Fines, Surcharges,
Interests, and Other Charges.34
7.1. Remedies for the Collection of Duties, Taxes, Fines, Surcharges,

Interests and Other Charges. The civil remedies of the Bureau for the
collection of import duties, taxes, fees, or charges resulting from the conduct
of a post clearance audit shall be obtained by:
7.1.1. Distraint of goods, chattels, or effects, and other personal property

of whatever character, including stocks and other securities, debts,
credits, bank accounts, and interest in and rights to personal
property, and by levy upon real property and interest in rights to real
property; and
7.1.2. By civil or criminal action.
Either or both of these remedies may be pursued at the discretion of the

Bureau: Provided, That the remedies of distraint and levy shall not be allowed
when the amount of duties and taxes involved is not more than Ten Thousand
Pesos (P10,000.00).
The Bureau shall advance the amounts needed to defray costs of collection
by means of civil or criminal action, including the preservation or
33
cf CMTA, Title I, Chapter 1, Section 104 and Title IV, Chapter 3, Section 429
34
cf CMTA, Title XI, Chapter 8, Sections 1132, 1133 and 1134
Page 20 of 25 CAO No. __________
transportation of personal property distrained and the advertisement and sale

thereof, as well as of real property and improvements thereon.
7.2. Constructive Distraint of the Property.
To safeguard the interest of the government, the Commissioner may place

under constructive distraint the property of a delinquent importer who, in
the opinion of the Commissioner, is retiring from any business subject to
duty and tax, or is intending to leave the Philippines, or to remove the
property therefrom, or to hide or conceal the property, or to perform any
act tending to obstruct the proceedings for collecting the duty and tax due,
or which may be due.
The constructive distraint of personal property shall be effected by requiring

the importer or any person in possession or control of such property to sign
a receipt covering the property, to obligate to preserve the distrained
property on the state and condition at the time of the governments seizure
of the same, and not to dispose of the same in any manner whatsoever,
without the express authority of the Commissioner.
In case the importer or the person in possession and control of the property
sought to be placed under constructive distraint refuses or fails to sign the
receipt herein referred to, the customs officer effecting the constructive
distraint shall proceed to prepare a list of such property and, in the presence
of two (2) witnesses, leave a copy thereof in the premises where the
property distrained is located, after which the said property shall be deemed
to have been placed under constructive distraint.
7.3. Summary Remedies.
7.3.1. Distraint of Personal Property.
Upon the failure of the person owing any delinquent duty, tax, and
other charges to pay at the time required, the Commissioner shall
seize and distraint the goods, chattels or effects, and the personal
property, including stocks and other securities, debts, credits, bank
accounts, and interests in and rights to personal property of such
persons, in sufficient quantity to satisfy the duty, tax, or other
charge and the expenses of the distraint and the cost of the
subsequent sale.
Page 21 of 25 CAO No. __________

The officer serving the warrant of distraint shall make or cause to

be made an account of the goods, chattels, effects, or other
personal property distrained, a copy of which, signed by the said
officer, shall be left either with the owner or person from whose
possession such goods, chattels, or effects or other personal
property were taken, or at the dwelling or other place of business
of such person and with someone of suitable age and discretion,
to which list shall be added a statement of the sum demanded and
note of the time and place of sale.
Stocks and other securities shall be distrained by serving a copy of

the warrant of distraint upon the importer and upon the president,
manager, treasurer, or other responsible officer of the corporation,
company or association, which issued the said stocks or securities.
Debts and credits shall be distrained by leaving with the person

owing the debts or having in his possession or under his control
such credits, or with his agent, a copy of the warrant of distraint.
The warrant of distraint shall be sufficient authority to the person
owing the debts or having in his possession or under his control
any credits belonging to the importer to pay to the Commissioner
the amount of such debts of credits.
Bank accounts shall be garnished by serving a warrant of

garnishment upon the importer and upon the president, manager,
treasurer, or other responsible officer of the bank. Upon the receipt
of the warrant of garnishment, the bank shall turn over to the
Commissioner so much of the bank accounts as may be sufficient
to satisfy the claim of the government.
A report on the distraint shall, within ten (10) days from receipt of
the warrant, be submitted by the Commissioner to the Secretary of
Finance: Provided, That the Commissioner shall have the power to
lift such order of distraint subject to the rules and regulations
promulgated pursuant to this CAO.
7.3.2. Levy on Real Property.
After the expiration of the period within which to pay the duty, tax,
and other charges as prescribed in this section, real property may
be levied upon, before, simultaneously, or after the distraint of
personal property belonging to the importer. To this end, the
Page 22 of 25 CAO No. __________
Commissioner or the duly authorized representative shall prepare

a duly authenticated certificate showing the name of the importer
and the amounts of the duty and tax and penalty due. The
certificate shall operate with the force of a legal execution
throughout the Philippines.
The levy shall be effected by writing upon the certificate a

description of the property on which levy is made. At the same
time, written notice of the levy shall be mailed to or served upon
the register of deeds of the province or city where the property is
located and upon the importer, or if the latter is not in the
Philippines, upon the agent or the manager of the business from
which the liability arose, or if there be none, to the occupant of the
property in question.
In case the warrant of levy on real property is not issued before or

simultaneously with the warrant of distraint on personal property,
and the personal property of the importer is not sufficient to satisfy
the duty and tax due, the Commissioner or a duly authorized
representative shall, within thirty (30) days after execution of the
distraint, proceed with the levy on the real property of the importer.
Within ten (10) days after receipt of the warrant, a report on any
levy shall be submitted by the levying officer to the Commissioner:
Provided, That the Commissioner may lift such warrants of levy
issued, subject to the rules and regulations promulgated pursuant
this CAO.
Section 8.Periodic Review. Unless otherwise provided, this CAO shall be reviewed
every three (3) years and be amended or revised if necessary.
Section 9.Repealing Clause. CAO Nos. 02-99, 05-2001, 04-2004, 05-2007, 03-2015
and all other Orders, Memoranda, Circulars or parts thereof which are
inconsistent with this CAO are hereby deemed repealed and/or modified
accordingly.
Section 10.Separability Clause. If any part of this CAO is declared unconstitutional

or contrary to existing laws, the other parts not so declared shall remain
in full force and effect.
Page 23 of 25 CAO No. __________

Section 11.Effectivity. This CAO shall take effect fifteen (15) days after its publication
at the Official Gazette or a newspaper of national circulation.
The Office of National Administrative Register (ONAR) of the UP Law center

shall be provided three (3) certified copies of this CAO.
NICANOR E. FAELDON
Commissioner
Approved:
CARLOS G. DOMINGUEZ III

Secretary
Page 24 of 25 CAO No. __________

Informational Section.
1. History.
CAO No. 5-2001 - Implementing Republic Act 9135: An Act Amending certain
provisions of Presidential Decree No. 1464, Otherwise known as the Tariff and
Customs Code of the Philippines, as amended (Customs Code), and for other
purposes. Implementing the WTO Valuation System and the recordkeeping and
post entry audit systems in order to facilitate importation and protect government
revenue at the same time. This CAO was approved on November 16, 2001.
CAO No. 4-2004 Amendment to CAO 5-2001 (Implementing Republic Act No.
9135: An Act amending certain provisions of Presidential Decree No. 1464,
Otherwise known as the Tariff and Customs Code of the Philippines, as amended
(Customs Code), and for other purposes)
2. Related Policies.
E.O. No.160 Creating the Post Entry Audit Group in the Bureau of Customs
CMO No.1-2002 Procedure in the Determination of Administrative Liability and
the Imposition of Administrative Fines for (a) Failure to keep records; (b) Failure
and/or Refusal to give full and free access; and (c) Failure to pay correct duties
and taxes on imported goods.
CMO No.2-2002 Recordkeeping and Post Entry Audit Guidelines
CAO No.5-2007 Voluntary Disclosure Program of the Bureau
CMO No.18-2007 Rules and regulations implementing the Customs Voluntary
Disclosure Program pursuant to CAO 5-2007
CMO No. 16-2010 Rules and regulations to implement CAO 4-2004 more
particularly on Dutiable Value
CMO No. 11-2014 Revised Guidelines for Registration of Importers and Customs
Brokers with the Bureau of Customs pursuant to DOF Department Order No. 33-
2014
3. Webpage, Forms, Handbooks and other References.

Audit Notification Letter
List of Documentary Requirements for Post Clearance Audit
PCAG General Customs Questionnaire
Voluntary Disclosure Form
Page 25 of 25 CAO No. __________

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CMTA_CAO_Draft_DOF_Reviewed_Post Clearance Audit_2016-09.

CUSTOMS ADMINISTRATIVE ORDER (CAO)

SUBJECT: POST CLEARANCE AUDIT AND PRIOR DISCLOSURE PROGRAM

2.2. To implement the post clearance audit under a regime of informed

Section 3.Definition of Terms.

3.1. Importer shall include the following:

3.1.1. Importer-of-record or consignee, owner or declarant, or a party who:

a. Imports goods into the Philippines or withdraws admitted goods

3.1.2. An agent of any party described in Section 3.1 of this CAO;

3.1.3. A person whose activities require the filing of a goods declaration;

3.1.4. A person ordering imported goods from a local importer or supplier

ii) the importer on record is an affiliate of the juridical entity

3.2. Customs Clearance- refers to the completion of customs and other

3.4. Prior Disclosure Program is a program based on international best

3.6. Fraud commission or omission of any act resulting in material false

3.7. Negligence failure to exercise reasonable care and competence, through

3.8. Misdeclaration refers to a false, untruthful, erroneous, or inaccurate

3.9. Misclassification refers to insufficient or wrong description of the goods

Section 4.General Provisions.

4.1.1. Articles of incorporation;

a. Incorporators and board of directors;

4.1.3. Key importations;

4.1.4. Importation privileges enjoyed;

4.1.5. Record of Violations and Penalties;

4.1.6. Risk categories;

4.1.7. Audit Reports; and8

4.2. Entities required to maintain and keep records.

4.2.1. Importers. - All importers, including those mentioned in the

4.3.2. For conducting audit examination, inspection, verification and/or

4.3.3. For collecting the proper duties and taxes.

4.5.1. Company or entity structure including the following to the extent

a. Articles of incorporation, articles of partnership, registration

i. Audited financial statements and tax returns for income tax,

4.5.3. Shipping, importation, exportation and transportation documentation

j. Quota allocation and/or certificates;

4.5.4. Manufacturing, stock and resale documentation including the

a. Inward goods register/receipts journal;

4.5.5. The following bank documents, financial statements and other

goods declaration and necessary for the purpose of collecting the

a. Cash receipts and disbursements books;

4.5.7. Whenever applicable, papers, books, registers, discs, films, tapes,

Section 5.Post Clearance Audit.

5.2. Selection Criteria.

a. Relative magnitude of customs revenue to be generated from the

5.2.2. For this purpose, the Management Information System and

5.2.3. Customs brokers and Importers duly authorized agents may be

5.3. Conduct of Post Clearance Audit.15

a. Profiling/Information Analysis PCAG shall perform risk

Bureau. This includes data gathering and evaluation of import

b. Audit Notification The Commissioner shall issue an Audit

c. Audit Plan The audit team shall prepare a general audit

d. Pre-Audit Conference Before the start of the audit, the

i. Authority of the auditors to conduct the audit;

e. Conduct of Audit Proper The audit proper shall

f. Conduct of exit conference. When the auditors have

i. Turn over of all original documents provided to the

g. Audit Reporting The audit team shall prepare and

h. Audit Monitoring and Recordkeeping PCAG shall, with

5.3.3. Nothing in this section shall be construed as restricting or calling into