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What are High Sea Sales?
A High Sea Sale transaction (also known as HSS), is a transaction carried out while the shipment is still somewhere out at sea. Such transactions are usually carried out after the products have been loaded at the port of departure and before they have arrived at the port of arrival. Traders that operate on this model are usually in the business of buying and selling commodites in bulk quantities. The HSS model ensures that local buyers will have almost immediate access to whatever quantity or commodity they need. It must be noted that the seller does not have to find one buyer for the whole shipment. He/She can sell parts of the shipment to as many buyers as desired. However, operating on this model usually only works when there is high demand in a region for a particular commodity that a trader is selling as the seller is literally setting sail from origin without knowing exactly which customer the product is going to.
That being said, there are generally no restrictions on using the HSS model for non bulk commodity transactions and there are many reasons that traders may choose to do so – such as to attempt to circumvent specific taxation regulations. This aspect is out of scope for this article.
Why do High Sea Sales?
There are a number of advantages to using HSS transactions. As mentioned above, such a transaction allows buyers to place their orders just before the products arrive. Buyers looking for smaller quantities can benefit as much as those looking for larger quantities. The HSS model dramatically shortens transportation lead time for buyers looking to purchase urgently.
Disadvantages of High Sea Sales
The main drawback of the HSS model is related to administrative procedures and requirements. The documentation and official procedures for such transactions are usually tedious. The calculation of the basis of valuation for Customs declarations is also usually not straightforward and highly contentious.
High Sea Sale transactions were extremely relevant when shipping routes were slow and shipments took weeks to arrive at their destinations. Traders with deep pockets would use their network of social links and sources to order huge quantities with the intent of releasing them into a suitable market. Most of the time, these traders also had the necessary contacts and ready customers to sell the products to even before they had arrived.
Since the shipment took weeks to arrive, there was ample time to carry out the necessary paperwork for the sales transactions as the cargo travelling on transit.
As it stands today, shipments do not take so much time and hence HSS transactions need to be done much quicker. This makes slow paperwork a problem for both sellers and buyers. In addition to that, selling products that had still not arrived is troublesome for Customs, since most Customs and tax authorities have very little precedents to take reference from with regards to treatment of such transactions. Hence, HSS transactions are sometimes even compared to smuggling activities by authorities. Customs and tax authorities continue to struggle with drawing up regulations to govern these transactions, since the question of geographical jurisdiction creates a stumbling block. It is extremely for any country draw up defensible regulations pertaining to transactions that occur outside it’s shores.
HSS transactions are sometimes even compared to smuggling activities by authorities !
Let’s take a look at some further details about HSS transactions.
- It is called a High Sea Sales transaction because it takes place at the time when the products are still at sea and haven’t arrived at their destination.
- HSS transactions take place between the eventual buyer and the carrier’s on document consignee.
- After the conclusion of the transaction, the B/L must be endorsed in favor of the new buyer.
- As far as shipments arriving by air are concerned, it is the duty of the HSS seller to inform the airline that an HSS transaction has taken place and that the carrier document is to be considered as endorsed for the buyer. The carrier’s manifest is filed in the buyer’s name.
- In some cases, the manifest does not need to be amended. For example, if the input system system has a provision for buyer’s name to be added to the system.
- For a HSS transaction, the final sale value will be used to calculate duty basis (in accordance to FOB/CIF/EXW depending on Customs).
- Sometimes Customs would append additional charges to HSS value.
- In some cases, sellers may not want to inform the buyer what the original value is. However, Customs officials may demand the original export invoice forcing the seller to reveal this information to the buyer. In order to avoid this, the seller can carry out import clearance at Customs.
- The same item can be sold multiple times before the goods arrive at destination. For the purpose of duties calculation, Customs will use the latest value of the HSS. Therefore, the latest transaction needs to reflect the previous ownership transfers. It is also important for the last buyer to obtain a copy of this documentation as Customs can ask him/her about it. If the seller is doing the clearance, then the seller should have the documents.
- Since an HSS transaction is considered to have taken place outside a country’s territorial jurisdiction, there is usually no sales tax liability due on it.
- If the goods are bought after they have arrived at the destination port, then the transaction can no longer be considered an HSS transaction even if they are yet to clear Customs. Hence, if the transaction invoice shows a date that is later than the date of arrival of the goods, then Customs officials will not treat it as a HSS transaction.
High Sea Sales are still used by many companies in the course of business. However, the concept sometimes can run at odds with certain tax base erosion policies relating to supply chain finance and accounting. With the introduction of more tax treaties, the international community may at some time have to come to an agreement on implementing globally restrictive rules and regulations concerning the continued use of the HSS model.
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