Recently, a brand seller in the United States was exposed for underreporting the value of Chinese imports for a long time and was heavily fined over $2.1 million by US customs, which once again brought the "gray operations" in cross-border trade to the forefront. Meanwhile, cross-border e-commerce sellers in many domestic regions have also received tax inspection notices successively. Some enterprises are required to supplement tax-related materials from 2022 to 2025, involving multiple aspects such as capital flow, export declaration, platform sales, and store entities.

On one hand, overseas customs maintain high pressure on behaviors such as underreporting, splitting orders, and transshipment; on the other hand, the domestic tax system has begun to carry out penetrative inspections on cross-border links. For the cross-border industry, the gray means of "saving a small amount of money" in the past now have risks far higher than short-term gains.

01 Fine of $2.1 million, Large Seller Underreported Value and Got Investigated

Recently, the American smart fitness brand Echelon was suspected of underreporting the value of goods and evading tariffs during the import process of Chinese goods, and was heavily fined $2.1 million (about over 14 million yuan) by the United States, which has attracted widespread attention in the cross-border industry recently.

Public information shows that the core reason for Echelon's punishment is that when importing Chinese-made goods, it was suspected of deliberately lowering the declared price to reduce the payable import tariffs. It not only evaded the basic tariff of 4.6%, but also evaded the additional tariff of 7.5% levied on Chinese-made goods.

It is understood that Echelon mainly operates smart fitness equipment such as intelligent spin bikes and treadmills, and has grown rapidly in recent years with the help of the home fitness boom. Its supply chain highly depends on Chinese manufacturing. As the United States continues to increase tariffs on China, the import costs of fitness equipment and other categories have significantly increased.

In this context, some importers began to reduce tariff expenditures by underreporting the value of goods, modifying product classifications, and transshipment through third parties. The investigation of Echelon is also regarded as another typical case of the United States strengthening law enforcement against "low declaration for tax evasion" behavior.

It is not difficult to feel that the United States has obviously strengthened the tariff inspection in the import link in the past two years.

Especially under the background of high tariffs, the US customs and judicial departments have begun to focus on cracking down on behaviors such as underreporting the value of goods, false origin, and transshipment to evade tariffs. The fines for some cases are even as high as tens of millions or even hundreds of millions of dollars.

In September last year, the United States also uncovered a shocking huge tax evasion case. Los Angeles's well-known clothing importer C’est Toi Jeans had long-term falsely issued invoices and tampered with customs declarations, underreporting the value of imported Chinese clothing by more than $51 million, and evading tariffs of about $8.4 million in total.

Ultimately, the total amount of enterprise fines and compensation exceeded ten million dollars, and the company's president and senior executives were also sentenced to 103 months and 84 months respectively. This judgment has also become a landmark case of the United States implementing criminal heavy fines for underreporting tariff behavior.

Admittedly, in the past cross-border logistics circle, "underreporting" was not a new thing.

Especially in categories with high value and high tariffs such as furniture, home furnishing, fitness equipment, and electronic products, some domestic service providers have long taken "helping customers save tariffs" as their selling point, and reduced import taxes by artificially lowering the declared amount.

According to CNBC's previous report, some Chinese suppliers and logistics service providers had helped American customers evade tariffs through "low-value declaration", "DDP tax-inclusive", and "shell importers" and other methods, and related operations have attracted high attention from US regulatory authorities.

A cross-border logistics person said frankly that the sensitivity of US customs to "China's low declaration" has significantly increased. "It used to be spot checks, but now it's more like the system is watching and checking." The fine for Echelon essentially means that overseas regulation no longer regards underreporting as a simple violation, but begins to qualify it as "systematic tax evasion", and the risk of this operation is rapidly increasing.

02 Tax Inspection for 5 Years, Sellers' Three Years of Hard Work in Vain?

In fact, it is not only overseas importers who use methods such as underreporting the value of goods and concealing costs to evade tax burdens. Previously, a Shenzhen seller mainly engaged in 3C products was fined more than 28 million yuan for concealing sales of about 120 million yuan through private account repayments and off-book operations, and the relevant responsible persons were also transferred to judicial processing according to law.

These cases show that whether it is overseas or domestic enterprises, as long as they involve cross-border trade, tax compliance has become a bottom line that cannot be touched.

As the State Taxation Administration promotes the construction of "Golden Tax Phase IV", the operation space for reducing tax burdens by underreporting, omitting, concealing income, or mixing public and private accounts and external circulation in the past is rapidly narrowing.

In this context, some cross-border sellers have recently received tax inspection notices, mainly including "Tax Assistance Inspection Notice" and "Notice of Requesting Account Book Information". The former only notifies that relevant personnel will be assigned to the seller's unit to investigate and collect evidence on its tax-related situation from 2022 to 2025;

While the latter directly requires enterprises to provide account books, accounting vouchers, statements, and other relevant information from January 1, 2022 to December 31, 2025 to the tax authorities for inspection. A Guangzhou seller said, "They sent me two full pages of A4 paper for preparation materials + situation explanation, and the pursuit was very tight".

Some enterprises that received the notice said that they consulted relevant professional institutions, explaining that this notice is not only targeting cross-border e-commerce, but is more likely to be a batch inspection carried out based on system data comparison results. At present, there are a large number of enterprises handling on-site, and the first round is mainly focused on submitting materials and understanding the basic situation. Subsequently, tax authorities may further supplement and obtain more detailed information according to the preliminary verification results.

Some sellers said that because they had too little declared data in previous years, they were investigated for 5 years, and some sellers said "Once investigated, three years of hard work in vain"... Such voices are endless.

According to industry insiders, before receiving this tax inspection notice, some sellers had already received "Risk Item Investigation Notice" or risk warning text messages from the tax bureau, but did not attract the attention of sellers. They think it is just a routine reminder and will not be further investigated; some also hold a wait-and-see attitude, thinking that as long as no substantive measures are taken, they can temporarily not handle it.

It is precisely because of insufficient judgment on the intensity of supervision and untimely risk disposal that they eventually entered the tax inspection procedure.

Hugo Cross-border learned that this tax inspection focused on revealing two typical problems that have long existed in the cross-border e-commerce industry. The first category is "having operations but no declaration". Some enterprises, although continuously generating sales and repayments on the platform, have long-term zero tax declarations on taxes, and their income and declared data are obviously inconsistent. Once identified, they often need to pay taxes, pay late fees, and bear corresponding penalties;

The second category is to mistake customs declaration compliance for overall compliance. Even if the export declaration is completed through methods such as 9810, if the accounts are incomplete, purchase invoices and logistics vouchers are missing, and funds are not properly recorded, the tax side still cannot form a complete evidence chain. Customs has export records, but there is no corresponding income and cost data on the tax side, and it is easy to trigger risk warnings after system comparison. True compliance lies in the ability of business, funds, logistics, and bill data to correspond to each other.

For small and medium-sized cross-border sellers, tax issues are no longer a "choose to deal with later" option, but a basic project that determines whether an enterprise can operate for a long time. The earlier you sort out your accounts, standardize declarations, and supplement vouchers, the lower the cost you will need to pay in the future. The practices of relying on zero declaration, mixing public and private accounts, off-book operations, or incomplete information to reduce tax burdens in the past are becoming the biggest potential risks in enterprise management.

(Source: Hugo Cross-border Editorial Department)

Seller's Home Review

Sellers should be wary of the compliance risks of "low-priced customs declaration". US customs have increased penalties, up to three times the amount of tax evasion. It is recommended to immediately review the declared data of goods in transit, adjust pricing and customs clearance strategies, and avoid huge fines and account freezes triggered by short-term profits.

Source: Hugo Cross-border
Original link: https://www.cifnews.com/article/186008