Receiving an origin verification notification can cause uncertainty. An inadequate response could result in the loss of preferential tariff treatment, as well as in the imposition of fines and surcharges. But how can you handle this procedure effectively? In this article, you will find a step-by-step guide.
What is an origin verification?
In Mexico, a large number of products can be imported without paying tariffs. Most products originating in countries with which Mexico has a free trade agreement (FTA), that comply with the rules of origin established in each agreement, can be imported with tariff benefits. And goods produced in Mexico can also apply for tariff benefits in countries with which Mexico has FTAs.
The Tax Administration Service (SAT, in Spanish) is the national tax and customs authority in Mexico. The SAT has the authority to verify whether products imported under tariff preferences actually comply with the rules of origin of each FTA. Verifications are normally performed based on the certifications of origin self-completed by the exporters-producers, although there are exceptions, such as Vietnam or Malaysia under the CPTPP.
How does an origin verification work in Mexico?
The origin verification procedure in Mexico consists of a document review via questionnaire or an on-site visit regarding imported goods. This procedure is governed by the provisions of each FTA and Mexican customs legislation. The Mexican government’s cost-cutting measures have led the SAT to stop conducting on-site visits. Questionnaires, however, are the SAT’s preferred tool. Thus, the main stages of an origin verification via questionnaire are as follows:
- Notification of the start of the verification to the exporter.
- Notification of the start of the verification to the importer; in some cases, there is a delay.
- Response to the questionnaire initiating the verification.
- Audit to the importer, during which the SAT will request the international trade records for the verified imports.
- Review of the response and evidence provided in the questionnaire for verification of origin.
- Where applicable, the SAT will notify the exporter and importer of its intention to deny preferential treatment.
- The exporter may respond to the SAT’s observations.
- The SAT may notify the importer of its intention to deny preferential treatment.
- Issuance of the final determination on the verification of origin.
As shown above, there is an additional step or “second chance” before the final determination is issued when the SAT considers that the exporter’s response and evidence are insufficient to prove that the verified goods comply with the FTA rules of origin. The exporting company may submit evidence, explanations, and additional information in response to an intention to deny preferential tariff treatment.
How to answer an origin verification?
Step 1: Review the SAT notification.
The first thing to do is to read the notification carefully to understand what information the SAT is requesting. As an importer or exporter, you need to identify the following:
- The verified goods.
- The FTA under which they were imported.
- The required documents and evidence.
- The deadline for responding.
Step 2: Consult with an international trade expert.
Responding to an origin verification without specialized advice can be risky, particularly if there are doubts about the documents relating to the traceability of the goods to prove compliance with the rules of origin. Find advice that helps you:
- Tracking the verified goods.
- Checking that the documentation is sufficient.
- Preparing a legally sound response.
- Represent your company in case the SAT has additional observations.
Step 3: Gather documents and evidence.
The key to a solid response is having evidence to support the origin of the goods. Although the information available varies between importers and exporters, some of the documents frequently requested by the SAT are as follows:
- Certifications of origin.
- Import invoices and customs declarations.
- Accounting records and purchase documents for inputs.
- Technical data sheets and production process diagrams.
- Contracts, invoices, and proof of payment for materials from suppliers.
Step 4: Analyze the rules of origin of the FTA.
Each FTA establishes specific rules for determining the origin of a product. If you are unsure how they apply or whether your goods comply with these rules, it is essential to contact an expert on this matter.
Step 5: Prepare a formal and reasonable response.
Once the documents are ready, the company must prepare a clear and structured response, including an explanation of how the goods comply with the rules of origin. In addition, it is necessary to mention the evidence provided and how it demonstrates the originating status of the goods. The response should be clear, concise, and based on the relevant FTA. Good communication is essential to ensure consistent responses between the importer and exporter.
Step 6: Submit the response within the timeframe.
The SAT grants a specific time to respond to the origin verification, which may vary depending on the applicable FTA. It is crucial to submit the response within this timeframe to prevent the authority from making a determination against the company. There are no deadline extensions.
Common mistakes
Responding to an SAT origin verification requires precision and strategy. An error in the response can result in the loss of tariff benefits, fines, and even affect future imports. The most common mistakes in these procedures are as follows:
- Not reviewing the notification and submitting incomplete information.
- Not correctly analyzing the applicable rules of origin.
- Submitting unsupported, erroneous, or inconsistent documentation.
- Failure to respond within the established timeframe.
Consequences for responding incorrectly
When a company fails to correctly prove the origin of its goods in an SAT verification, the consequences can be significant. It is not just a matter of losing the FTA tariff preference, but also the economic implications that this may have. Importing companies may face:
- Payment of omitted duties.
- Payment of fines and surcharges.
- Potential suspension from the importers’ registry.
If your company obtained an unfavorable decision in an origin verification, it is still possible to challenge the decision.
Insights
SAT origin verifications are complex procedures that require a significant amount of time, work, and resources to ensure preferential tariff treatment for imports. These procedures can have significant economic consequences if not managed with due care, as responding incorrectly to an origin verification involves risks that go beyond the simple loss of tariff benefits.
Therefore, more than a simple administrative obligation, responding correctly to an origin verification is a risk prevention measure that guarantees the stability and compliance of the company in international trade. If your company is facing an origin verification, do not wait until the last minute.