UCC and VAT: Two different worlds?f.datasrvr.com/fr1/817/61034/Baker_McKenzie_VAT... · Method of calculation is generally not a factor. If the royalty is basede on the price of the

UCC and VAT: Two different worlds? Webinar

Nicole Looks | Frankfurt (Moderator) Ana Royuela | Barcelona Mariacristina Scarpa | Milan Eliska Kominkova | Prague

15 February 2017

Agenda

1 Introduction

Overview of main changes of UCC 3

2 Import VAT 6

2.1 Customs Value 7

2.2 Changes due to UCC 8

2.3 Recovery of import VAT 22

3 Impact of UCC on local VAT 31

3 What does the longer-range future hold? 1 Introduction

© 2017 Baker & McKenzie LLP

Introduction: Overview of main changes

4

UCC was adopted in 2013 – Regulation 952/2013

• Framework regulation for customs rules and procedures

• Entered into force on October 30, 2013 (but only to allow negotiations)

• Requires implementing legislation – Delegated Act (DA), Implementing Act (IA), Transitional measures

UCC along with DA and IA applies from May 1, 2016 – Changes will be phased in from May 1, 2016 to December 31, 2020

Since May 1, 2016, Community Customs Code and its implementing provisions are not applicable anymore


Valuation

Authorised Economic Operator (AEO)

Guarantees for special

procedures & temporary

storage (TS)

Customs procedures

Centralized Clearance

& Self-Assessment

Rulings

Overview of main changes

5

3 What does the longer-range future hold? 2 Import VAT


2.1 Customs value

Customs value = Basis for calculation of import VAT

Basic principle:

Customs Value

+ Customs Duties

+ Transportation costs EU border up to destination

Assessment basis for import VAT

Importance for import VAT

7


2.2 Changes due to UCC

8

Wider range of debtors

The debtor of customs duties is liable for import VAT

The UCC stipulates a wider range of customs debtors, e.g.:

Clearance for free circulation: When customs declaration is filed on

basis of information which lead to an underpayment of import duties, the

person who provided the information and who knew, or who ought

reasonably to have known, that information was false (e.g. value,

amount, origin)

Non-compliance with obligations from special procedures or temporary

storage: Any person who was aware (or should reasonably have been

aware) that an obligation under the customs legislation was not fulfilled

and who acted on behalf of the person who was obliged to fulfil the

obligation (e.g. freight agent, centralized customs department acting for

group company)



Previous legislation:

Both Sale 1 and Sale 2 could constitute a “sale for export”

Using Sale 1, the amount used for customs purposes is 25% lower (and excludes the parent’s costs and margin)

UCC:

Only Sale 2 constitutes a “sale for export”

OEM

(China)

Parent

(US)

EU

retailer

EU

distributor

Sale 1

75

Sale 2

100

Physical delivery

Importer (Declarant) Abolishment of “First Sale”

9



10

Royalties and licence fees are to be included in the value for customs duty where:

they are a condition of sale of the goods; and

are related to the imported goods

Royalties and license fees | Previous legislation



11

Royalties payable to a third party will be dutiable where the seller or person related to him requires the buyer to make the royalty payment (Article 160 IPCC)

Royalties and license fees | Previous legislation (2)

‘Related’ also includes ‘control’, Commentary 11 EU Customs Code

Committee



12

Royalties are deemed to be related to the goods when rights transferred are embodied in the goods

Method of calculation is generally not a factor. If the royalty is basede on the price of the imported goods, it can be asumed that it is related to the goods (same as previous legislation)

Condition of sale has been re-defined – broader (see next slide). Introduction of a catch-up all provision (condition (c) ) – more closely aligned with WCO Commentary 25.1)

Royalties and license fees | UCC (IA)



Licensor and Manufacturer are not related

Old regulations: royalties / license fees only to be added if Licensor had ‘control’ over Manufacturer

New regulations: always to be added (likely interpretation)

Chinese

Manufacturer U.S. Licensor

EU Importer Trademark rights

Royalty payments

Goods

Royalties and license fees | Case study

13



Under former legislation EU Member States had discretion to decide when a guarantee was or was not required, but under UCC this has changed:

Mandatory for authorisations to operate certain procedures

Required for potential and actual customs debts

Level of guarantee shall be based on a reference amount and must be

sufficient at all times

Guarantees (1)

14



Reduced Guarantees and Guarantee Waivers available only

Reduction or Waiver

for potential debts

Reduction for actual debts

e.g. deferment

Where AEOC status

is held or criteria met

Where AEOC is held

Guarantees (2)

15



Questions:

What is the basis for calculation of Guarantee?

More specific:

Are guarantees also required for import VAT… ?

… or only if import VAT is not recoverable?

Guarantees (3)

16



17

Under the previous legislation, a guarantee was required in case of deferred payment of import VAT (introduction of goods into a VAT bonded warehouse, import of goods in transit, import tof goods in IC transit, i.e. destined to another EU Member State, etc.). The Customs Authorities could exempt notoriously solvent company from the provision of the guarantee.

The Italian Customs Authorities have issued the form to request the autorization for the new global guarantee. No other official documentation/clarifications of the Customs Authorities have been issued on the guarantee and, in particular, on the amount to be guaranteed.

Guarantees (4) | Country specifics | Italy



18

According to the guidelines of the German customs authorities no guarantee is required for import VAT if the import VAT is recoverable

Otherwise import VAT it part of calculation basis for guarantee

Guarantees (5) | Country specifics | Germany



19

Since 01-01-2015, Spanish VAT regulations provides the option to apply VAT deferment upon importation when certain requirements are met:

Being a VAT taxpayer in Spain

Obliged to file monthly VAT assessments (i.e entities registered in

the Monthly Refund Scheme “REDEME “, or annual turnover over

6M €)

According to Spanish VAT Act guarantee is not required when the Importer had applied for VAT deferment option, but guarantee may be required by the tax authorities when arising circumstances recommends to do so.

Guarantees (6) | Country specifics | Spain



20

Czech Republic

In respect of the Czech Republic, I would highlight 3 aspects:

1. The option not to require the guarantee for the exports/imports not exceeding the of EUR 1,000 on duty given by Art. 89 (9) of UCC is accepted by the Czech authorities.

2. Art. 16 (2) of the Customs Act – “The guarantee provided according to Sec 1 should cover also other monetary compensations that are administrated together with the customs”

3. The guarantee can be provided in form of

(i) cash deposit;

(ii) undertaking of guarantor of financial guarantees; or

(iii) lien on real estate;

Country specifics | UK and Czech Republic



21

UK

1. Individual guarantees

when you apply to use a special procedure as a one-off on your customs declaration. Not possible to do this more than 3 times in a 12-month period.

to cover 100% of the Customs Duty. There are no reductions or waivers available for these types of guarantees, even for AEOC status.

You can give your guarantee using a:

one-off deed of guarantee

general guarantee account

duty deferment account

2. Customs Comprehensive Guarantee (CCG)

to apply for new customs authorisations or approvals that defer or suspend the payment of duty

if you have a duty deferment account relating to customs duties to defer or suspend the payment of duty

Country specifics | UK and Czech Republic


2.3 Recovery of import VAT

22

Introduction of new case law

1. C-187/14 Skatteministeriet v DSV Road A/S

“Can the first Member State into which the goods were imported refuse the

taxable person designated by the Member State a deduction of the import VAT

pursuant to Article 168(e) of the VAT Directive, where the import VAT is charged

to a carrier of the goods in question who is not the importer and owner of the

goods but has simply transported and been in charge of the customs dispatch of

the consignment as part of its freight forwarding operations, which are subject to

VAT?”

“Article 168(e) of the VAT Directive must be interpreted as not precluding

national legislation which excludes the deduction of VAT on import which the

carrier, who is neither the importer nor the owner of the goods in question and

has merely carried out the transport and customs formalities as part of its

activity as a transporter of freight subject to VAT, is required to pay.”



23

Impact of case law on wider range of debtors

Who can be liable under UCC?

The person or organisation who made the customs declaration relating to the goods being imported is liable for the customs debt

An agent in case of indirect representation;

An agent in case of direct representation in particular cases;

In case of non-compliance with the legislation:

any person who was required to fulfil the obligations;

any person who was aware or should reasonably have been aware that an obligation under the customs legislation was not fulfilled and who acted on behalf of the person who was obliged to fulfil the obligation, or who participated in the act which led to the non-fulfilment of the obligation;

any person who acquired or held the goods in question and who was aware or should reasonably have been aware at the time of acquiring or receiving the goods that an obligation under the customs legislation was not fulfilled.



24

Impact of case law on wider range of debtors

What does it mean in the light of the case law?

Increased risk for third parties



25

Import VAT recovery from the cash flow perspective

Cashflow

advantage

Sweden, Denmark, Czech

Republic, Netherlands, Belgium,

Luxembourg

Cashflow

disadvantage

Italy, Portugal, Germany, France,

Spain, Slovakia, UK



26

The proces of import VAT recovery is quite straightforward in the Czech Republic and there has been no changes in connection with the UCC.

The recovery is done

through the VAT return for the VAT registered entities;

Based on the 9th Directive for the EU entities not registered for VAT in

the Czech Republic;

Unrecovarable for non-EU entities not registered for VAT purposes in the

Czech Republic (exept Norway, Makedonia and Switzerland).

Country specifics | Czech Republic



27

In the UK, the import VAT is payable upon importation which might lead to cash flow disadvantage;

Possibility to ask for deferral.

Country specifics | UK



28

German tax authorities assume that only the party who has “power to dispose of the goods” (e.g. the owner) is entitled to deduct the import VAT.

Therefore, third party service provider are not entitled to deduct import VAT in Germany.

Country specifics | Germany



29

Import VAT shall be paid to the Customs upon importation thus generating a cahs flow.

Import VAT amount can then be offset against VAT liabilities as part of the periodical VAT liquidation and any resulting VAT credit can be reported on the annual VAT return to be carried forward or, under specific circumstances, requested for refund.

The VAT refund procedure might be burdersome and cost (guarantee) and time (one year or more) consuming.

The payment of import VAT can be avoided or minimized by so-called “usual exporters”

Country specifics | Italy



30

Customs&VAT JOINT Assessment. Customs and VAT refund and

appealing procedures may not be in line

Customs appeal and refund procedures are based in the UCC and

additional customs regulations (art. 116 UCC)

VAT appeal and refund procedures are based in the Spanish General Tax

Act.

Different procedures lead to different deadlines. Risk of filing appeals out of

legal terms

Country specifics | Spain

3 What does the longer-range future hold? 3 Impact of UCC on local VAT


Exporter of record under UCC

32

The “exporter” for customs purposes is in some Member States of relevance for VAT-exempt export supplies.

According to the UCC “exporter” is:

a person who is established in the EU, holds the contract with the consignee in the third country and has the power for determining that the goods are to be brought to a destination outside of the EU, or

in other cases, a person who is established in the EU who has the power for determining that the goods are to be brought to a destination outside of the EU.

Issue: In some scenarios the “exporter” can not be determined, e.g.

both contract parties are established in a third country or

seller is established in EU, however, person who has the power to determine transport to third country destination is not established in EU


Country specifics

33

Spain

Annex A Definition of “EXPORTER OF RECORD”; UCC Guidance document :

Export with Ex Works incoterm:

According to new EOR definition Seller cannot appear as the EOR in this case

Ex works transactions in Spain cannot benefit from VAT exemption on exportation any more

SELLER

(ESP)

BUYER

(NZ)


Country specifics

34

Spain

Annex A Definition of “EXPORTER”; UCC Guidance document:

Supply chain:

When non-EU Seller is not the EOR, it must appoint an indirect representative during the transitional period (Use Box 14)

Indirect Exports for VAT purposes (VAT Directive/112/CE. Art. 146.1.b., Art. 21.2 Spanish VAT Act)

Spanish Regulations on Indirect Exports may not be in line with new UCC Guidance.

SELLER

(ALG)

BUYER

(NZ)

Movements of goods

ESP

Invoice


Country specifics

35

Germany

Internal guidelines of the German customs authorities stipulate the following (contrary to UCC):

If both contract parties are established in a third country, “exporter” is the person who has the power to determine the transport to the third country destination even if established outside of the EU.

If the seller is established in the EU, however, the person who has the power to determine the transport to the third country destination is not established in EU, the seller shall still qualify as “exporter”.


Country specifics

36

Italy

The Italian VAT legislation provides for the so-called indirect exportation under which goods are exported by a supplier established outside Italy.

The new provisions of the UCC on exporter of records will indeed affect the indirect exportations as currently provided whereby the customer is not established in the EU and does not, therefore, have the EORI number to be mandatory reported on the export declaration.

In such a case, the Customs’ Authoritis acknowledged that the EORI number of the Italian supplier, which would appear as the “consignor” of the goods, shall be reported on the export declaration and that the customer shall appoint an indirect customs representative established in the EU who shall carry out the export formalties


Country specifics

37

UK and Czech Republic

There are no specific requirements in the Czech Republic that would differ from the UCC.

There were also no significant changes in the Czech VAT Act in connection with UCC.

In UK, the requirements for the exporter undr UCC applies.

Similarly, as in other countries, in order to be able to export goods, it is necessary to have:

i. EORI - Economic Operator Registration Identification number and

ii. registeration for electronic system – in UK: NES - National Export System for export declarations.

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UCC and VAT: Two different worlds?f.datasrvr.com/fr1/817/61034/Baker_McKenzie_VAT... · Method of calculation is generally not a factor. If the royalty is basede on the price of the