Background of revision
The Wise Persons Group was asked for help by the European Commission after major changes, such as the abolition of the VAT exemption for low-value consignments and international developments in trade and e-commerce. The task was to think about the future of the customs union.
The debate about this future is not new. Customs tasks are dominated by a control function on thousands of laws in the field of taxes, environment, safety and so on. Changes in these different areas of legislation also lead to changes in customs formalities and customs tasks. From an IT point of view, the sum of these changes has led to an electronic working method based on paper procedures that do not provide sufficient instruments to fulfil customs tasks in a correct and feasible way. The European Commission was therefore looking for innovative ideas and new concepts to take the next step towards a future-proof customs union: the revised UCC.
Importer
The current customs legislation is dominated by the definition of 'declarant'. The declarant is the customs debtor and is responsible for a correct, timely and accurate customs declaration. In the proposal for a revised UCC, the European Commission introduces a more extensive role for the 'importer'. The definition of the importer is in line with non-fiscal legislation, such as environmental legislation. By applying the same definition, ambiguities can be removed and loopholes in the law can be prevented. What are the practical consequences for the various parties in the international trade chain? Although several can be mentioned, I will point out the two most striking ones below.
First of all, the change has direct consequences for the customs representative who acts as an indirect representative. Under current customs legislation, both the represented and the representative are jointly and severally liable for customs duties. Possible risks for the customs representative are therefore directed at the fiscal consequences of the customs declaration.
With thelegislative proposal, the indirect customs representative is both fiscally and non-fiscally liable. It is important to note that it is precisely in non-fiscal legislation that substantial changes will take place in the coming years. For example, the implementation of the Carbon Border Adjustment Mechanism (CBAM). The question is therefore how a service as a customs representative can be responsibly offered when the legislative proposals become definitive and coincide with the necessary non-fiscal changes. On this point, there will be discussions in Brussels in the coming period where the legislative proposals will be discussed with the feedback from businesses and customs authorities.
What is clear from the legislative proposals, however, is that agreements with the represented party remain essential. An agreement in the form of a contract is clearly preferred to a (vague) agreement by email. A contract better reflects the complexity of the legislation and the coherence between different areas. A clause with agreements on how to deal with future changes in legislation and additional responsibilities for the representative is also desirable.
The legislative proposals also include a variant of the 'importer', namely the 'deemed importer' in the context of e-commerce transactions. The 'deemed importer' is particularly relevant for online platforms and is in line with the earlier VAT changes for e-commerce shipments. The starting point is that the consumer pays VAT and any import duties at the time of purchase and is therefore not confronted with unexpected costs in the form of import VAT and import duties. The 'deemed importer' ensures payment to the customs authorities and can make use of facilities such as deferment of payment under certain conditions. It is less clear how the 'deemed importer' can give substance to the responsibility for non-fiscal rules at import, as laid down in CBAM and VGEM legislation. For example, how do you guarantee the exclusion of counterfeit goods in shipments, when you, as an online platform, never have the products in your hands yourself?
Exemptions within non-fiscal legislation are also an important point of attention. At present, the CBAM legislation has an exemption for shipments with an intrinsic value of up to EUR 150, but the legislative proposals include the abolition of the exemption from import duties for goods with an intrinsic value of less than EUR 150. Fiscal legislation and non-fiscal legislation are then no longer in sync.
Customs Debt
Customs debt is the total amount of import and anti-dumping duties payable on imports. The legislative proposals include an amendment and extension of the provisions on the time and place where a customs debt arises.
First, the new article of law on customs debt states that it arises at the time of the release of the goods. This is a change from the current provision in Article 77 of the UCC, where the customs debt arises at the time the customs declaration is accepted by the responsible customs authority. For e-commerce shipments, a separate provision is included in the legislative proposals. The customs debt arises at the time the consumer pays for the online order. The goods are then not yet physically in the EU and no customs declaration has been filed. The intention of this exception is to align with the (revised) VAT legislation for e-commerce shipments.
For the place where the customs debt arises, several options are applicable comparing to the current legislation. In the proposal, the place where the customs debt arises is the place where the importer (or exporter) is established. However, if this importer does not have a Trust and Check Trader (TCT) customs authorization, the place of origin of the customs debt changes to the place where the customs declaration is filed. The provision on place determination in case a customs debt arises because of irregularities – for example, with withdrawal from customs supervision or stolen goods – remains unchanged.
The feasibility of the aforementioned changes depends on the agreement between Member States to spread the control and collection of customs debt over the Member States.
AEO versus Trade and Check Trader (TCT)
The introduction of Trust and Check Trader (TCT) has a long history. It is publicly known that there was some dissatisfaction with the AEO customs authorization among businesses, the customs authorities in the Member States and the European Commission. This resulted in a comprehensive (external) study of the operation of AEO by the European Commission.
Striking conclusions from the various reports included:
- Lack of uniformity in monitoring and risk management between Member States
- Fraudsters switch to Member States with the most favourable approach
- Rules are open to interpretation
- Instruments (for enforcement) are lacking, and this is particularly true for the e-commerce stream
However, the AEO customs authorization will not disappear with the introduction of the revised UCC. TCT will stand alongside AEO – in the legislative proposals – and has its own facilities for the holder with regard to the release of goods, controls and simplifications in customs authorizations. The conditions for obtaining the TCT authorization are based on transparent cooperation with the customs authorities. For this purpose, the holder of the TCT customs authorization grants direct access to its systems to Customs. Furthermore, the current requirements for the AEO customs authorization must be met.
From a logistical perspective, the facilities for a self-release of the goods and the shifting of a physical control by the customs authorities to a location chosen by the holder seem most interesting.
E-commerce
Specifically for e-commerce shipments, multiple legislative proposals have been published, in the sense that the legislative proposal affects multiple regulations. [1] With the introduction of the 'deemed importer' and the incurrence of a customs debt at the time the consumer pays, practical solutions are needed to facilitate the new obligations.
One of these solutions is the introduction of a so-called bucket system for e-commerce shipments. In this system, there are five categories (buckets) into which a good can fall based on the classification of the goods. One import tariff applies to all goods within the same bucket. The purpose of the bucket system is to simplify things. It is therefore good to realize that applying this solution is not necessarily cheaper. After all, the import tariff based on the bucket may be higher than the import tariff based on the individual TARIC code. The primary aim of the amendment is to simplify the classification of e-commerce goods and to prevent often unnecessary discussions about classification.
Another solution concerns the determination of the customs value, the amount on which the import tariff is calculated. In contrast to the (current) standard provisions, in the proposed legislation, the 'deemed importer' does not correct the transport costs if the costs also include transport within the EU. The entire transport price per shipment is thus counted as the customs value. Here too, the proposal achieves simplification, but increases the amount of import duties.
Conclusion
Multiple changes in (customs) laws and regulations are scheduled for implementation between 2025 and approximately 2035. It is notable that the concurrence of changes in various laws and regulations necessitates considering the bigger picture when determining the impact on flows. On the positive side, new opportunities for simplifications and facilities to promote logistical flow are emerging. However, the exact conditions and implementation required to qualify for these simplifications and facilities remain unclear.
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[1] In addition to the provisions in the revised UCC, changes have also been proposed to the VAT Directive (Directive 2006/112/EC), the Regulation on customs exemptions (Regulation (EC) 1186/2009) and the TARIC Regulation (Regulation (EEC) 2658/87).