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< Management of material quantity applied per unit of processing trade products >

■ Definition of material quantity applied per unit of processing trade products

Material quantity applied per unit refers to in the normal processing conditions, the needed materials and parts for processing unit of finished products. It contains net consumption and technology loss.

Net consumption refers to the materials and parts that exist in the unit of the finished product after physical changes or chemical reactions (actual consumption of the finished product required).

Technology loss refers to the consumption in normal processing but without the amount existing in the finished products, including tangible loss and intangible loss.

Technology loss refers to the consumption percentage of all the materials and parts consumed.

※ Material quantity applied per unit = Net consumption / (1 - Technology loss)

Processing trade enterprises should declare material quantity applied per unit in the stage of processing trade contract record and comply with the principle of declaration and write off honestly.

If materials that processing trade enterprises submit to the customs belong to commercial secrets, request for confidentiality to the customs is possible. For written application, the customs have the obligation to keep the commercial secrets, but enterprises cannot refuse to submit relevant materials required by the Customs because of commercial secrets.

■ Standard of material quantity applied per unit

☉ Definition

Standard of material quantity applied per unit is the criteria for material quantity applied per unit of finished product as general use or repeated use. Material quantity applied per unit is set as a maximum limit, and material quantity applied per unit of export finished product is set as minimum limit.

Standard of material quantity applied per unit is set up by customs for standard as general use. Material quantity applied per unit is set as a maximum limit, and material quantity applied per unit of export finished product is set as minimum limit.

Material quantity applied per unit is jointly formulated by the customs and relevant departments and promulgated by customs.

☉ Functions and scope of Standard of material quantity applied per unit

If the country recognizes all material quantity applied per unit declared by the enterprises, it will inevitably lead to tax evasion and other side effects. Therefore, it is necessary to develop material quantity applied per unit standard according to classifications of products for supervision.

Material quantity applied per unit standard is applicable for processing trade enterprises (general processing trade enterprises) out of customs specific supervision region and bonded supervision region, not for enterprises within the customs specific supervision region and bonded supervision region.

General processing trade enterprises should declare to customs or material quantity applied per unit record within the standard of material quantity applied per unit.

For general processing trade enterprises’ declaration within the standard of material quantity applied per unit, the customs will process write off procedures with declared material quantity applied per unit. If exceeding the standard of material quantity applied per unit, the customs will process write off procedures for bonded materials and parts according to maximum limit or minimum limit of material quantity applied per unit.

If without published standard of material quantity applied per unit, processing trade enterprises should truthfully declare to the customs and customs will process write off procedures for bonded materials and parts according to actual material quantity applied per unit of enterprises.

■ Declaration of material quantity applied per unit

Declaration of material quantity applied per unit refers to the behavior that processing trade enterprises declare the material quantity applied per unit to the customs.

Declaration of material quantity applied per unit should before export finished products or deep processing transit, and domestic sales.For simple production engineering and relatively stable net consumption of product, enterprises can declare material quantity applied per unit with registration record to the customs and simplify the contact record and write off procedures.

If enterprises can’t declare the material quantity applied per unit within the deadline, which is before the export of finished products, deep processing transit and domestic sales for reasonable cause, such reasons should be declared to the customs in advance and get approval.

Enterprises for material quantity applied per unit declaration should fill in declaration form for processing trade material quantity applied per unit.

■ Contents of material quantity applied per unit declaration of processing trade enterprises

Processing trade enterprises should declare material quantity applied per unit based on a written form or electronic data. The contents of declaration as below:

ㅇBasic issuesProduct name of processing trade raw materials and finished products, HS code, units of measurement, specifications and models, quality.☉ Material quantity applied per unit of processing trade finished products

☉ Bonded materials and parts mixed with the duty-paid materials and parts

The same materials and parts contain bonded materials and parts and duty-paid materials and parts, the product name of duty-paid materials and finished products, HS code, units of measurement, specifications and models, quality should be declared.

In the calculation of material quantity applied per unit and loss rate, the same materials and parts contain bonded materials and parts and duty-paid materials and parts, the loss of duty-paid materials and parts should be included in the loss rate.

☉ not allowed being included in the loss rate

ㅇLosses of bonded materials and parts, semi-finished and finished products due to sudden power outage, water and gas break and other human factors;

ㅇLosses of bonded materials and parts, semi-finished and finished products due to loss, damage and other reasons;

ㅇLosses of bonded materials and parts, semi-finished and finished products due to force majeure factors leading to the loss, damage and insufficient amount;

ㅇIncreased losses of materials and parts due to mismatching of the quality of and specifications of bonded materials and parts and export finished products with the requirements of contract

ㅇMixed with raw materials, the losses in the duty-paid materials and parts;

ㅇDuring processing, the losses of consumed materials.

■ Change of material quantity applied per unit and cancellation procedures

Except for the following circumstances, processing trade enterprises can apply for change of material quantity applied per unit and cancellation procedures to the customs:

ㅇBonded finished products have been declared and exported

ㅇBonded finished products have been indirectly exported by the mode of deep processing transit;

ㅇBonded finished products have been applied for domestic sales

ㅇCustoms has conducted review of the material quantity applied per unit

ㅇCustoms has conducted investigation for processing trade enterprises.

■ Review of material quantity applied per unit

Review of material quantity applied per unit means that customs reviews the declared material quantity applied per unit of processing trade enterprises to confirm whether complying with the actual processing conditions.

☉ Review power of customs

To determine the authenticity and accuracy of the Material quantity applied per unit, the customs can exercise the following powers:

ㅇInspect and copy account books and materials of processing trade as materials and parts, samples of finished products, photographs, drawings, quality, composition, specifications, processing contracts, orders, processing plans, processing report, cost accounting form, etc.

ㅇInspect and copy schedule drawings, discharge diagrams, bills of quantity, composition ratio sheet, quality inspection standards, the technical requirements of finished products, process engineering and material quantity applied per unit and other related materials.

ㅇCalculation method and the calculation formula are required to be provided by processing trade enterprises.

ㅇInspection and sampling tests of bonded materials and parts and finished products.

ㅇCan inquire the legal representative, main person of charge and other relevant personnel of the processing trade enterprises for the situation and problems of material quantity applied per unit.

ㅇCan enter the storage location of products and inspect products related with material quantity applied per unit and processing conditions.

ㅇOn-site testing of the status of material quantity applied per unit of processed products and extracting sample if needed.

☉ Obligations and adjudications, etc. Of Customs

ㅇCustoms review material quantity applied per unit of processing trade enterprises declaration. Qualified one will be accepted. If customs question the authenticity and accuracy of declared material quantity applied per unit of processing trade enterprises, the questioning book will be compiled and sent back to enterprises. Within 10 working days after receiving the questioning book, enterprises should submit written relevant materials to the customs.

ㅇProcessing trade enterprises cannot submit relevant materials or insufficient materials, or when material quantity applied per unit of submitted materials is not determined, the customs will process review of material quantity applied per unit.

ㅇCustoms can use technical analysis, the actual measurement, cost accounting and other methods alone or integrated to review the declared material quantity applied per unit.

ㅇBefore review of material quantity applied per unit, processing trade enterprises should pay the deposit or bank guarantee. After the approval of customs, customs formalities like import of raw materials and export of finished products, deep processing transit or domestic sales can be processed in advance. Processing trade enterprises in the implementation of actual transfer and the amount of deposit is no less than the tax payable, the warranty can be exempted.

ㅇIf processing trade enterprises have questioned the review results of material quantity applied per unit, written application form for re-audit can be applied to higher customs. Higher customs should re-audit within 45 days from the date of receiving application and inform the results to enterprises.

☉ Review methods of material quantity applied per unit

ㅇTechnical Analysis method

Technical analysis method means that customs analyzes and calculates the structure of finished products, components, proportioning methods, technical requirements and other factors to review material quantity applied per unit.

ㅇActual determination method

Actual determination method means that customs measures material quantity applied per unit by measuring and calculating weight, and by comprehensive analysis method to review material quantity applied per unit.

ㅇCost calculation method

Cost calculation method means that customs is based on the accounting books and processing records, warehouse account books and other statistics to analyze and calculate material quantity applied per unit.