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Union Customs CodeAre you ready for 1 May 2016?
Europe
Union Customs Code (January 2016) | 2
Overview
EU customs legislation will be undergoing a complete overhaul with the implementation on 1 May 2016 of the Union Customs Code (“UCC”), which will replace significant aspects of the existing legislation.
Key changes at a glance• Removalof‘earliersale’(alsocalled‘firstsale’principle)forcustoms
valuation
• Significantincreaseindutiabilityofroyaltiesandlicencefees(andnolonger an exemption for trademark royalties)1
• Introductionofcompulsoryguaranteesforoperatingcustomsprocedures (reduction or waiver available for companies that meet certain of the AEOC criteria or have AEOC status)
• NewcriteriaforAEOCandAEOSstatus
• Centralisedclearanceandself-assessmentexpectedtobeintroducedin 2020 but will only be available for companies that have AEOC status
TheUCC’simplementingprovisionswillbecontainedinaDelegatedAct(“DA”),anImplementingAct(“IA”),whichwilloperateuntil2020atthelatest.TheDAwasadoptedon 20October2015bytheEuropeanParliamentandtheEuropeanCouncil.TheIAwasadoptedbytheEUCustomsCodeCommitteeon24 November2015.TheIAandtheDAwerepublishedintheOfficialJournal(“OJ”)on29December2015.2
The UCC, along with its implementing provisions, will apply from 1 May 2016,butsomechangeswillbephasedinupto31December2020.Until1 May 2016 the Community Customs Code and its implementing provisions will continue to apply.
1 For further information, see our alert on this topic, available at http://bakerxchange.com/rv/ff0024c74ede45d8949fcf8b3c499e7d91a6b207
2 ThesewillbecontainedinaDelegatedAct(CommissionDelegatedRegulation(EU)2015/2446)(“DA”),anImplementingAct(CommissionImplementingRegulation(EU)2015/2447)(“IA”)andtransitionallegislation.BoththeDAandtheIAhavebeenadoptedandwerepublishedintheOfficialJournalon29December2015.
Union Customs Code (January 2016) | 3
SignificantChangestoCustomsValuationRulesA number of significant changes to the customs valuation rules will be introduced by the UCC. The changes will result in an increase in the customs value of the imported goods, and therefore of the customs duty payable.
1.Removalof‘earliersales’ruleThe earlier sales rule will be withdrawn under the UCC and replaced by a ‘lastsale’rule.Thecustomsvalueofimportedgoodswillbedeterminedat the time of acceptance “of the customs declaration on the basis of the sale occurring immediately before the goods are brought into the customs territory”.3 This change will have a significant impact on businesses that currently use the earlier sales rule, as it will result in a higher customs value.
TheUCC,doeshowever,provideforaso-called‘sunsetclause’,whichallowsbusinessestousetheearliersalesprincipleuntil31December2017. The essential requirement is that the “person on whose behalf the declaration is lodged” is bound by a contract concluded prior to the entry intoforceoftheIA(i.e.,18January2016).4 A contract may, for example, be anopen-endedpurchaseorder.Businessesthatbenefitfromtheearliersales rule should therefore ensure that the necessary contracts are in place as soon as possible.
Althoughthe‘earliersales’rulehasnowbeenreplacedbythe‘lastsales’rule,thelatterruleseemsnotyetfirmlyembeddedinthecustomsvaluation methodology of the UCC. An example of this can be found in the appraisal of transactions between related parties (e.g. intercompany transactions). The price agreed in such transaction can be considered influencedbythefactthatpartiesarerelated,unlessthisprice‘verycloselyresembles’thepricecalculatedonthebasisofthe‘computedvaluemethod’forthemanufacturingoftheimportedgoodsbythemanufacturer in the country of exportation.5Ifthepricethuscalculateddoesnot‘verycloselyresemble’thepriceofthe‘lastsale’,thenthecustoms authorities may decide that the value of the goods cannot be determined on the basis of the transaction value method.6 This means that in that case also, the prices of earlier sales transactions can no longer be used as the basis for the customs value. As a consequence,
3 Art.128(1)IA.4 Art.347(1)IA.5 Art.134(2)IA.6 Art.140(2)IA.
What’s New Under the UCC?
Union Customs Code (January 2016) | 4
the goods imported will have to be appraised on the basis of alternative valuation methods.7 Under certain conditions, this can be the computed value method,8resultinginapricewhichwill‘verycloselyresemble’an‘earliersale’(i.e.,thesalefromthemanufacturerforexporttotheEU).This is, however, exactly what the UCC aimed to avoid with the removal of the‘earliersales’rule.
2. IncreaseindutiabilityofroyaltiesandlicencefeesPresently, for a royalty or licence fee to be liable for import duty it must: (i) relate to the imported goods; and (ii) be paid as a condition of sale of those imported goods. The same basic rule will apply under the UCC. However, undertheUCC,theconceptof‘conditionofsale’isbeingsignificantlybroadened.
Currently, a royalty or licence fee paid to a third party licensor will only be dutiable if the seller or a person related to the seller requires the buyer to make that payment. Under the UCC, a royalty or licence fee paid to a third party licensor will be dutiable if goods cannot be purchased by the buyer without payment of royalties or licence fees. Goods cannot be purchased by the buyer without payment of royalties or licence fees if the applicable intellectual property regulations stipulate the obligation to pay royalties or licence fees.
Inaddition,trademarkroyaltieswillbetreatedinthesamewayasotherroyalties and licence fees.
For further information on this significant change, please see our client alert on this topic available here.
3. Valuation of goods removed from customs warehouse and entered into free circulation
TypeDandEcustomswarehousesallowfortheimportationofgoodsusing the customs value as at the time the goods enter a bonded warehouse. We understand that under the UCC, where goods are removed from a customs warehouse and entered into free circulation as a result of a sale to an EU customer, the customs value will be based on the sale to the EU customer. This change will reduce some of the appeal of using customs warehouses, as the final dutiable amount is likely to be higher under the new arrangements. The potential cash flow advantage of using a customs warehouse must be set off against the costs of the guarantee that must be put up as a requirement for the use of the bonded warehousing procedure (see further below).
7 Art. 74(1) UCC.8 Art.74(2)dUCCandArt.143IA.
Union Customs Code (January 2016) |5
IntroductionofBenefitsforHoldersof AEOC status
To date the Authorised Economic Operator status (“AEO”) status has had limited uptake in the EU due to the perceived lack of benefits afforded by the status, coupled with the costs of applying. The EU has sought to change this under the new legislation by aligning more benefits to those whoholdtheAEOCustomsSimplifications(“AEOC”)status(orthosewhohavethecombinedAEOCandAEOSecurityandSafety(“AEOS”)statusi.e.AEOF).
While the UCC does not make holding AEO status obligatory, AEO standards are linked throughout the UCC with:
• situationswhereAEOCstatusismandatorye.g.,tobenefitfromthepossibility to lodge customs declarations by entry in the records including a waiver to present the goods; Centralised Clearance9; SelfAssessment10; a reduction in the level of the deferment account guarantee; and
• situationswherecompanieseitherneedAEOCstatusor,failingthis,will need to demonstrate that they meet certain of the AEOC criteria e.g. applying for a customs procedure, a simplification or to use the SimplifiedDeclarationProcedure.
The UCC also introduces the following changes to the criteria which AEO holders must meet:
• AEOCholderswillneedtohaveemployeeswhocaneitherdemonstratea certain level of practical competence (around three years of customs experience), or who hold professional qualifications. This can also be demonstrated through the completion of training carried out byaMemberStatecustomsauthority,orarecognisededucationalestablishment.
• ThecompliancetrackrecordrequirementintroducedundertheCCCis enhanced in the sense that not only the compliance track record of import duties must be taken into consideration, but also of other taxes, such as VAT, excise duties and corporate income tax.
9 This procedure would allow authorised operators to declare goods electronically and pay customs duties at the place where they are established, irrespective of where the goods actually entered or exited the EU.
10 This procedure would be a simplified regime allowing authorised operators to make import/ export entries in their records as opposed to submitting full import/ export declarations (similar to what is currentlyavailableinrespectofshipmentstotheUKContinentalShelf).
Union Customs Code (January 2016) | 6
• CompaniesarenotcurrentlyeligibleforAEOCorAEOFiftheyhavecommitted any serious infringements of customs legislation. This requirementhasbeenexpandedtocoverall‘taxationrules’,meaningthat the customs authorities will consider the whole taxation activity of the applicant in determining whether the company is eligible for AEO status.
Companies wanting to obtain AEO status before 1 May 2016 will need to apply by the start of 2016 since customs authorities have 120 days to review an AEO application. A new application form taking account of the new AEO criteria is expected to be issued by the European Commission at thestartof2016.CompaniesthathaveAEOstatuscurrentlywillbere-assessed for compliance with the new criteria by 30 April 2019.
IntroductionofCompulsoryGuaranteesCustoms authorities currently have discretion to decide when a guarantee is, or is not required, for certain duty relief or suspension schemes. This will change under the UCC with the introduction of compulsory guarantees, covering:
• potentialdebtsi.e.dutythatthatmaybecomedueatalaterdate,e.g.,goodsstoredinwarehouses,orgoodsimportedunderInwardProcessing; and
• actualdebtsi.e.,dutypayableatthetimeofentryintofreecirculationwhere payment is delayed through the use of a duty deferment account.
The introduction of compulsory guarantees will result in additional costs for businesses with respect to providing the guarantee, as well as impacting on working capital. Businesses that are established in the EU and fulfil the AEO compliance criteria will, however, be able to apply for a comprehensive guarantee, which will cover the customs duties and other charges for certain customs procedures and declarations.
StreamliningCustomsProceduresCustomsProcedureswillnowbereferredtoasSpecialProcedures.In addition,thenamesofeachofthecustomsprocedureswillbechangedas follows:
UCC
Pre-UCC
Union Customs Code (January 2016) | 7
TheUCCintroducessignificantchangestoanumberofSpecialProcedures, in particular in relation to:
• Storage:CustomswarehousetypesA,C,D,Earetobereplacedbytwotypes-‘Private’or‘Public’.Inaddition,businessesmayapplyforan authorisation to make remote retail sales in a customs warehouse. This will require full authorisation, including the appropriate guarantee being in place.
• Processing: Processing under Customs Control (“PCC”) will be merged withtheinwardprocessing(“IP”)suspensionprocedure.Aspartofthis,businessesholdingaPCCauthorisationwillbeissuedwithanIPauthorisation, which will be effective from 1 May 2016 but will retain the validity date of the original PCC authorisation.
• IPDrawback:AllIPDrawbackauthorisationswillceasetobevalidon30April2016.Instead,businesseswillberequiredtoapplyforanIP(Suspension)authorisationpriorto1May2016.
• SpecificUse:BusinesseswillberequiredtosubmitaBillofDischargeforend-userelief.
Current Authorisations for Customs ProceduresAuthorisations that have a limited period of validity, e.g., authorisations for inward processing, will remain valid until the end of that period or 1 May 2019, whichever is earlier (unless the trader makes an application for a significant change in its authorisation, which will result in the trader needing to apply for a UCC authorisation). Authorisations that do not have a limited period of validity will remain valid until the authorisation isreassessedbytherelevantMemberStatecustomsauthority.Thisreassessment must be completed prior to 1 May 2019. Guarantees will only be required for the operation of the customs procedures once the trader holds a UCC authorisation.
BindingTariffInformation(“BTI”)rulingsto be binding on holders and customs authoritiesBTIrulingsaretobecomebindingonbusinesses,aswellasoncustomsauthorities.CurrentlyBTIrulingsareonlybindingoncustomsauthorities.As of 1 May 2016 businesses can therefore no longer choose to disregard anunfavourableBTI,andmustinsteadapplyituponimport.WenotethatthisdoesnotonlyapplyfornewBTIrulingsbutforexistingBTIrulingsaswell.Inaddition,allBTIrulingsissuedonorafter1May2016willhave a validity period of three years, as opposed to six under the current legislation.However,anyBTIsissuedbefore1May2016willcontinuetobevalid for six years.
Union Customs Code (January 2016) |8
Non-preferentialOriginFornon-preferentialorigin,goodsarecurrentlydeemedtooriginateinthecountry‘wheretheyunderwenttheirlast,substantial,economicallyjustifiedprocessingorworking’.Duetothehistoricuncertaintythatthisrulehascreated,theUCCincorporatesanumberoftheWTO’sListRulessoastoassistindeterminingthenon-preferentialoriginofanumberofgoods.
Preferential OriginForpreferentialorigin,theCouncilRegulationonsupplier’sdeclarations(No.1207/2001)willbeincorporatedintheIA.Long-termsupplier’sdeclarations issued as of 1 May 2016 will be valid for two years. Existing long-termsupplier’sdeclarationswillhoweverremainvalidforoneyearonly.
Additionally,undertheUCC,GSPcertificateswillbereplacedbyoriginstatements made out by approved exporters (similar to what is currently innplacefortheEU/SouthKoreaFreeTradeAgreement).ExportersmustregisterwiththeRegisteredExportersSystem(“REX”).RegistrationforexportersunderREXwillbeginon1January2017.Implementationistobe completed by 30 June 2020.
How should companies importing into the EU prepare for the UCC?
A WhatSpecialProceduresdoyouintendtousefrom1May 2016?
B Will your business require a guarantee and, if so, what will be the cost of this?
CWillyourbusinessbenefitfromapplyingforAEOC?Ifso, have you considered a timeframe for an application in order for it to be in place by 1 May 2016?
D How will the changes to customs valuations impact your business?
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The foregoing is intended only to provide an overview of changes due to be implementedundertheUCC.Ifyouhaveanyquestionsorifyourequireadvice on any specific transactions or plans, please contact one of the membersofBaker&McKenzie’sEUCustomsGroup.
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Union Customs Code (January 2016) | 9
UCCWebinar: For further information on the changes taking place under the UCC, please attend our free webinar on19January2016at07:00SanFrancisco/09:00Chicago/10:00WashingtonDC,NewYork,Toronto/11:00Brasilia/15:00London/16:00WesternEurope/17:00Istanbul,Moscow/22:00Singapore.Forthoseofyouwhoresideinadifferenttimezoneandwishtoverifyyourtime-pleaseclickonthefollowinglink.Tosubscribetothiswebinar, please click on the following link
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CustomsSeminar:Wearehostingatwoday“Anti-Bribery,Customs,ExportControlsandTradeSanctionsComplianceSeminar”on3-4February2016atBaker&McKenzie’sofficeinLondon.Aspartofthisseminar,therewillbeahalfdaysessiononIntroductiontoCustomsLawandOverviewoftheUnionCustomsCodeontheafternoonof3February2016.Ifyouwouldliketoattendthisseminar,pleaseclickonthefollowinglink
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