In 2013, the EU adopted a new community customs code – the Union Customs Code (UCC) – to replace the 1992 code. The new code is gradually implemented as from 1 May 2016. This is only one of the topics dealt with in this Insights which also addresses the Commission’s attempts to harmonise sanctions for non-compliance with the customs rules and a new regulation on mutual exchange of customs information.
The Single European Market is based on the fundamental principle of free movement of goods. The EU customs union ensures this by making goods traded between Member States exempt from customs duty. However, goods that are imported to a Member State from a non-EU country are subject to customs duty.
The customs rules are amended on an ongoing basis, adding to their complexity, and detailed knowledge of EU law and the case law of the European Court of Justice is also necessary. The customs rules are harmonised at EU level and the national customs authorities therefore generally apply the same rules to import, export and transportation of goods in the EU. It means that a product is subject to the same tariff rate no matter in which Member State it is imported. It is for the national customs authorities in each Member State to implement EU’s customs rules and to actually collect the customs duty.
Importers of goods from non-EU countries incur a significant financial risk if they do not use the rules on import duty correctly. If, for instance, an importer does not classify the correct tariff rate on a product, or if an importer from a third country is not aware that imported goods are subject to anti-dumping duty, he may not be able to pass on the duty as the product has in many cases already been resold.
Both when starting up new activities and in the ordinary course of business, it is therefore important to ensure compliance with the rules without cheating oneself or one’s customers or business partners.
New customs code
The EU has been preparing a new customs code for a long time. The code was brought up to date in 2008, but never entered into force due to i.e. IT problems and ratification of the Lisbon Treaty. Instead, a new Union Customs Code was adopted, Regulation (EU) no. 952/2013, referred to as UCC. The new code was to align and update the rules and introduce digital solutions in the area. In addition to the new code, a number of implementing provisions have just been adopted.
These provisions lay down the processes, deadlines and procedures that must be met under the new customs regime. Below, we describe some of the new elements that are relevant to importers and exporters in the EU.
Authorised economic operator (AEO) and centralised clearance
EU’s AEO certificate gives importers and exporters a number of advantages when trading goods across borders. Businesses that are AEO certified have easier access to customs simplifications and to security and safety control reliefs.
Under the new Union Customs Code, the AEO certificate is replaced by authorisations. An AEO certified operator may apply for authorisation to benefit from customs simplifications (AEOC). Under the new customs code and the implementing provisions, applicants must meet new criteria to obtain AEOC authorisation, including in relation to their professional qualifications and competencies.
Under the new code, AEO certified operators will be able to rely on the new rules on centralised clearance. These rules allow businesses to pay customs duty in the country where they are established regardless of the physical location of the goods.
Binding tariff information (BTI decisions)
Binding tariff information makes it possible for importers and exporters to obtain a binding decision on the tariff classification of their goods (commodity code in the customs tariff). At present, the BTI decision is valid for six years, unless revoked before then. Under the new regime, the BTI decision will be valid for only three years.
It is not possible under the new code to file simultaneous applications for a BTI decision for the same product in more than one country in order to obtain a more favourable decision.
The customs authorities will reject an application if it has already been filed in one Member State. Under the previous customs code, a BTI decision was only binding on the customs authorities. Under the new code, it will also be binding on the applicant.
Determination of the customs value
The basis for calculation of the customs value is the transaction value, i.e. the price of the goods when imported into the EU. Royalties and licence fees must be included when determining the customs value. Royalties and licence fees must therefore be added to the customs value if they relate to goods to be valued and if they are payable by the buyer as a direct or indirect condition of sale, unless the royalties or licence fees have already been included in the price.
If just one of the following criteria is met, payment of royalty or licence fee will be regarded as a condition of sale and should therefore be added to the customs value:
- The seller or a person related to the seller requires the buyer to make this payment.
- The payment by the buyer is made to satisfy an obligation of the seller in accordance with a contractual obligation.
- The goods cannot be sold to or purchased by the buyer without payment of royalties or license fees to a licensor.
According to the Danish customs and taxation authorities ("SKAT"), what is new is that the costs associated with the right to reproduce the imported goods must now also be added to the royalties or licence fees.
SKAT's digital systems
The numerous changes and the cooperation between the national tax authorities make it necessary for SKAT to update its digital systems. The digital changes will be introduced gradually over the next few years and will be finally implemented in 2020. The Danish Ministry of Taxation estimates that the costs of the new IT solutions will be more than DKK 1 billion.
SKAT may assist in monitoring trademarks, etc.
The EU customs authorities play an important role in the protection of intellectual property rights and seizure of counterfeit products. In October 2015, the European Commission published a report on the customs authorities’ protection of intellectual property rights in 2014.
It is stated in the report that the EU customs authorities seized 35.5 million counterfeit products in 2014, representing a total value of EUR 616 million. Most of the goods were cigarettes, followed by toys and medicine.
The protection of intellectual property rights is considered to be of great importance to EU’s economic growth and job creation. In 2013, the European Parliament and the Council adopted a Regulation that gives tax authorities easier access to destroy goods which are suspected of infringing intellectual property rights without having to obtain a judgment first.
Holders of intellectual property rights may ask SKAT to look after their trademarks, designs and patents and rights holders in other EU Member States have the same possibility. If an infringement is established, the customs authorities will seize the goods and inform the rights holder.
Common sanctions for violations of EU customs law (may be) on the way
The EU has exclusive legislative powers in the customs area. However, the enforcement of the rules and the sanctioning in case of non-compliance are left to the national legislators, meaning that the Member States impose different sanctions. The EU Commission now attempts to put an end to this and has therefore made a proposal which has been contested since it was put forward.
Reason for the EU Commission’s proposal
Depending on the Member State’s legal system, non-compliance can result in fines, seizure of goods, permanent exclusion from industrial or commercial activities and even imprisonment.
These differences make it difficult to manage the EU customs union and they influence competition within the Single Market. The EU Commission therefore proposes a common approach to violations of EU customs law.
The EU Commission’s proposal
The EU Commission proposes three categories of sanctions for acts and omissions that are considered as customs infringements:
- Customs law violations with strict liability
- Customs violations as a result of negligence
- Intentional customs violations
The Commission's proposal lists the types of acts and omissions that are sanctioned, classifying each type into the above categories. Customs infringements are punishable by fines alone and the fine level depends on the gravity of the infringement. Thus, strict liability customs infringements are sanctioned by the lowest fines while intentional infringements are sanctioned by the highest fines (up to 30 % of the value of the goods or up to EUR 45,000 if the infringement is not related to specific goods).
Kromann Reumert’s assessment of the EU Commission’s proposal
The Danish government is in doubt as to whether the proposal meets the principle of subsidiarity according to which the EU may only adopt common EU rules if the objective of such rules cannot be sufficiently achieved at national level. The basis of authority of the proposal has also been questioned.
We therefore expect the Commission’s proposal to be adopted in a diluted form, if adopted at all.
Customs duties and oil in transit
Operators handling or storing oil in transit risk major claims for payment of customs duties from SKAT if there are even minor errors in their declaration of oil to be warehoused at a bonded warehouse.
If SKAT makes a claim
If an operator is informed that SKAT intends to charge customs duties, it should consider i) whether there is any basis for such liability, and, if so, ii) whether the amount is payable by the operator. Even if this is the case, the operator may be exempted from liability if certain conditions are fulfilled. It is for the operator to prove that the conditions are met.
If VAT is charged on imported oil because the oil has not been handled correctly, it should also be examined if the VAT can be eliminated under the rules of the Danish VAT Act. This is relevant because there is no deductibility for VAT which is payable by e.g. a forwarding agent because the agent is liable for the VAT. This applies whether the VAT liability results from freight forwarding, transport or other activities that attract VAT.
Considering the risk of incurring significant claims as a result of even small irregularities, a task force with representatives from the oil industry and SKAT has been set up to assist businesses that handle and warehouse oil in transit. The task force was to identify the problems encountered by the oil industry, including businesses that handle and warehouse oil in transit, and to come up with practical solutions within the framework of EU law.
According to the task force, there is a need for further guidance on the rules, but so far the work has not resulted in any changes of rules or practice. Therefore, agreements already entered into should not be changed. Instead, charts were drawn up in 2015 to show the declaration process when oil is imported and exported by ship, specifying the rules. Last year, a meeting was also held for the whole industry.
SKAT's charts of the declaration process and the presentation shown at the meeting are available (in Danish) on request from Tobias Triton Frost, Kromann Reumert.
New regulation on mutual exchange of customs information
In September 2015, a new EU regulation on mutual exchange of customs information was adopted (Regulation 2015/1525). The Regulation gives customs authorities access to information about the origin of the goods and their way into the EU.
Carriers and forwarding agents often have easy access to so-called Container Status Messages (CSM) which are electronic information on the movement of containers.
Under the Regulation, some carriers which store information on the movement and status of containers or have such data stored on their behalf must report CSMs to the customs authorities when containers are brought into the EU from a third country and when certain types of goods are shipped to a third country. In both situations, exemptions may be granted, however.
The database is administered by the EU Commission. The tax authorities will use data from the database to combat customs fraud.
Kromann Reumert’s assistance
Kromann Reumert's tax law group offers general advice on customs issues, including in relation to:
- Correct tariff classification of goods
- Procedural rules in connection with imports into the EU
- Existence of customs liability
- Liability issues
- The rules on temporary storage and customs procedure
- The possibility of escaping customs liability when it can be demonstrated that a breach in connection with temporary storage or customs procedures has not had any actual consequences for the process, etc.
We represent clients in customs disputes before the courts and before the Danish National Tax Tribunal and have experience in making preliminary references to the European Court of Justice. Where relevant, we consider the possibility of obtaining an opinion from the EU's Customs Code Committee or from a court appointed independent expert and, if applicable, we engage in a dialogue with the Commission’s customs experts.
We also offer advice on customs compliance and requests for binding tariff information (BTIs) and generally represent clients in their negotiations with the authorities.