Customs Compliance & Risk Management
Case law
A storm in a tea kettle
A few days ago, an Israeli court accepted a claim by an importer of electric kettles against the customs authority, regarding the classification of the products for customs purposes. The court adopted the importer's position that the kettles should be classified in subheading 851610 of the HS as "immersion heaters" and rejected the customs position to classify them in subheading 851670 as "other electro-thermal devices". This ruling is an example of the court's creative interpretation of old terms, considering the advancement of technology.
Fraudsters in the supply chain: Who pays taxes as a result of fraudulently completed formalities?
Presumption of guilt - you'll say it doesn't work that way. Unfortunately, in tax law, the taxpayer is presumed to be guilty of breaching the tax law unless he proves otherwise. The only question is whether, even if proven not guilty, the taxpayer will not have to pay the tax. In a recent judgment, the Court of Justice of the European Union (CJEU) clarified whether the owner of an excise warehouse (whose guilt has not been proven) will have to pay the suspended taxes (in this case almost €3 million) in a case where the evidence of the completion of the formalities has been falsified and where the goods have been transported to an unknown destination. The clarifications are important not only for the owners of excise warehouses, but also for all users of suspended tax regimes - transit, customs warehousing, temporary admission for processing and others - in order to better understand, assess and manage the risks involved. The CJEU has also clarified when goods are considered "lost" and no tax is due.
Overviews and comments
Chat GPT and Google Bard: How customs brokers can use these AI tools
Artificial Intelligence (AI) - a topic that was barely heard of last year, it now seems to be a topic that appears at almost every conference and can be applied in every field. When we heard about artificial intelligence and its availability on the market, it seemed so distant and unheard of, and when the first reports appeared in the press, we certainly did not think that we, as customs brokers, would be able to apply it to our own operations. I will not hide the fact that the first people to try out the CHAT GPT tool in our company were our colleagues who are the most interested in information technology and innovations in the market.
Customs HI&AI: new crisis or new opportunities?
'It is December 2039, and various newsbots push the following content to their subscribers: ... Customs is being abolished next January (2040) when the EU's new customs system [Artificial Customs Intelligence Depository, ACID] comes into operation ... The new system means that most of the approximately 5,500 Customs employees will lose their jobs.' This is how the introduction to the book "Customs Inside Anywhere, Insights Everywhere" by Frank Heijmann and John Peters begins [1].
The developments of mega-free trade agreements
The development of free trade areas around the world, with most attention paid to the Asia-Pacific region and the Americas, is a major theme of the article. It also raises the question of the role of the EU in this development. The article is based on the presentation at the European Customs Practitioners' Conference held in Vilnius, Lithuania on 25-26 May and online.
Can Brussels save the worlds rainforests?
The link between climate change and biodiversity loss is by now well established. As part of its “Green Deal”, the European Union Deforestation Regulation has been published in the Official Journal. This Regulation seeks to protect the worlds forests by banning certain products from being placed on the EU market. This will create an extra layer of bureaucracy for operators in the EU.
Who is responsible for CBAM in the company?
If you import aluminium, steel and iron products, cement, fertilisers, hydrogen or electricity, you should already have answered the question of who in your company speaks the language of the Carbon Border Adjustment Mechanism (CBAM), i.e. is knowledgeable in this area and responsible for compliance. And not just you, but also your suppliers from outside the EU, as they will provide you with information on the carbon emissions generated in the production of goods. So who in your supplier company speaks the CBAM language? In this article we look at the links between CBAM and customs, as well as other areas, to help you answer the question of whether the primary responsibility for CBAM compliance should lie with the person responsible for customs matters.
Country update
Who is a purchaser in Canada and why does it matter for customs valuation?
Can a small difference between Canadian customs legislation and the WTO Customs Valuation Agreement really affect the customs valuation process and its outcome? The following article attempts to answer this question.
Three questions about customs value of goods in transactions between the related parties in Ukraine
The issue of customs valuation is extremely important for Ukraine. The author has written about it in previous issues of the journal. A special case of customs valuation is no exception - when the seller and the buyer are related parties. The concept of "related parties" in Ukrainian legislation is fully compatible with the GATT, as the Customs Code of Ukraine refers directly to Article 15 of the WTO Customs Valuation Agreement rather than defining this concept. It would seem that if there is nothing wrong with the legislation and if it is in line with accepted standards and principles, there should be no problems with its application. However, this is not the case.
Input tax credits on imported goods in Canada
The person entitled to claim an input tax credit for GST payable on imported goods in Canada is not always the person who pays the tax. This counter-intuitive situation generally occurs when the importer of record is a non-resident. It arises because more than one person may accept liability for duties, taxes and other customs obligations.
News update
EU law news August/September 2023
News in week 39: Prohibition to import iron and steel product processed in a third country that incorporate iron and steel products originating in Russia enters into force on 30 September - see Irish Customs notification and explanations; on 1 October, the Carbon Border Adjustment Mechanism (CBAM) enters into application; provisional list of CBAM National Competent Authorities; regulations related to entry of goods into Northern Ireland; the UK inform about world’s first fully digitalised goods shipment; and more updates.
Ukraine customs and trade news August/September 2023
News at a glance: Three EU nations ban Ukraine’s grain export; reinstating smuggling as a criminal offense; updated free trade agreements between Ukraine and Canada, and Ukraine and North Macedonia; anti-dumping measures.
Topic spotlight
CBAM transitional period: roles and responsibilities
EU’s Carbon Border Adjustment Mechanism (CBAM) regulation entered its transitional phase on 1st October, 2023. From that day on, importers have to collect and report data on greenhouse gases emitted during the production of CBAM goods. Since the data must be collected from the manufacturers in non-EU countries, a process must be established for the corresponding communication. Given the complexity of supply chains, this process may involve multiple actors between the importer and third country facilities. In addition, several EU and national authorities are involved. Who is/can be who? Who does what? What are the responsibilities?
Perspective
The risk challenge of indirect tax - customs (Part I)
Indirect tax - customs duty, excise duty and VAT - while it must be paid correctly, also offers various cash enhancement opportunities, which is crucial for all organisations seeking to continuously improve their internal indirect tax function. However, the prerequisite is due diligence. In this article, we overview the host of indirect taxes and indirect tax compliance obligations and focus on the “prerequisite” by discussing risk analysis in customs control based on the rules of HRMC (the UK Customs) and highlighting the importance to achieve “low-risk” status. We also overview customs duty. In the following articles, we will discuss VAT and excise more in detail.
The risk challenge of indirect tax - VAT (Part II)
Editors' note: In this article, Mr Rowbotham, author of numerous books on trade and logistics topics, shares some parts of the book he is currently working on. Topics covered: Introduction to VAT and the challenges it poses for businesses, types of VAT fraud, EU triangulation (How do we prove VAT zero-rating?), call off and consignment stock VAT, postponed VAT accounting. This is the continuation of the article "The risk challenge of indirect tax - customs (Part I)”.
The risk challenge of indirect tax - excise (Part III)
Editors' note: In this article, Mr Rowbotham, author of numerous books on trade and logistics topics, shares some parts of the book he is currently working on. Topics covered: Introduction to domestic duties, excise duty and the UK due diligence requirements, for both domestic and import purposes. This is the continuation of the articles "The risk challenge of indirect tax - customs (Part I)” and "The risk challenge of indirect tax - VAT (Part II)".
Management of customs procedure code 42 in Austria and Germany – pitfalls and opportunities
Instead of declaring non-Union goods for release for free circulation under code 40 (in which case import VAT will also become due), an importer established in another Member State (MS) than that in which such goods will be released for the procedure (and will thus become Union goods) has – often using the services of a representative who is either a freight forwarder or a customs broker – the option of declaring code 42, thus avoiding the obligation to pay the import VAT and regular VAT in the import clearance MS, with the consequence that (only) the regular VAT is to be paid in the MS of destination (where the importer or consignee is established) on an intra-EU acquisition (and the importer can thus avoid a VAT registration in the MS of import clearance). This is already my summary of the opportunities. The remaining part of this article will deal with the pitfalls experienced by customs practitioners in Austria (AT) and Germany (DE). At the end, I will also try to give an outlook into the future.
Transport services VAT exempt because already in import tax base? You will need to prove it!
The Romanian company provides transportation services. It transported goods from the port of Rotterdam (the Netherlands) to Cluj-Napoca (Romania) under transit procedure. Goods were released into free circulation in Romania. It treated transportation service as VAT exempt because it assumed that transportation cost was included into the import VAT taxable base. Tax authorities claimed otherwise: the taxpayer failed to provide documents confirming that the transportation cost was included into the import VAT taxable base. Consequently, they denied the exemption. The dispute between the company and the tax authorities reached as far as the Court of Justice of the EU (CJEU), which recently issued clarifications on the application of the provisions of the VAT Directive in this case.
Management of import taxes other than duties
What are the pitfalls and opportunities of 42 import procedure? What about post-Brexit VAT? What do you need to know about import GST (VAT) in Canada? Do traders and brokers understand excise risk? What about "domestic" import taxation in Latvia? The CBAM – what does the future hold? These were the main questions discussed during the 17th Authors' Meeting on 24 August. We invite you to read the key points from this meeting in the article below.
Explainer
Triangulation - what is it?
The EU-UK Trade and Co-operation Agreement signed at the end of 2020 made very little mention of the impact of VAT on UK businesses trading within the EU. Zero Tariffs and Zero Quotas were the most pressing concerns for companies looking to see minimal disruption to their trading activities. However, the complexities of VAT legislation and application for businesses are a stark reminder that difficulties remain when trading both out of and with the UK. One of these difficulties relates to the VAT Triangulation concept, essentially a transaction and supply of goods where there are three or more EU member states involved and the supply chain is not as simple as 1, 2, 3. Most importantly, however, is that the UK is no longer able to benefit from the VAT Triangulation simplification offered by the EU, which will therefore result in the need for UK businesses to have to register for VAT purposes when making sales into the EU.