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On 13 January 2014 the European Commission issued a proposal[1] that would, as part of the changes which will be rolled out through the implementation of the Union Customs Code (“UCC”), remove the facility for the use of ‘first sale’ for export in European Union (“EU”).
What is First Sale For Export?
In international trade, there are often a number of successive sales before the goods’ clearance through Customs. For example, goods imported into the EU may have been purchased from a middleman (e.g. in the US) that will have sourced these products from the manufacturer (e.g. in Asia).
For the vast majority of products, the customs duty payable on import into the EU is calculated as a percentage of the customs value of that product. The customs value is, in most cases, based on the invoice price relating to the last sale in the commercial chain prior to import into the EU (which in our example, would be the price paid by the EU importing entity to the US middleman).
However, under current EU legislation[2], an importer may use an earlier sale in the supply chain as a basis for the customs value, provided that it can show that this sale was for export to the EU (e.g. the goods were manufactured to EU specifications, produced specifically for an EU buyer, shipped directly from the manufacturer to the EU etc.) (so-called ‘first sale’ principle).
Using the ‘first sale’ excludes the middleman’s mark-up, thereby lowering the customs value of the goods and the amount of duties payable. ‘First sale’ is widely used by EU importers as a way of reducing duty liability, although it is most commonly used in the case of imports from related parties (as it would be difficult for the importer to obtain the necessary information and supporting documentation from an unrelated middleman).
Recent Developments
This proposal is part of wider changes to EU customs legislation which are to be implemented, following the recent adoption of the Union Customs Code (“UCC”). These changes will come into force between 1 May 2016 and 31 December 2020, and are potentially far reaching (for further information see our previous customs alert on this topic). However, much of the detail is yet to be agreed and will be the subject of negotiations between the European Commission and the EU Member States over the next 18 months. The first draft of the UCC implementing provisions (the Implemented and Delegated Acts) was published on 13 January 2014.
What Does This Mean For You?
For any company relying on first sale for imports into the EU, this change, if implemented, could mean an increase in customs duties payable.
This could also lead to an increase in the dutiability of royalties/license fees. Where royalties/ license fees paid by the EU importer have not previously been subject to customs duties where ‘first sale’ was used (as they may not have been considered to be a “condition of sale” of the ‘first sale’), this may no longer be the case if the customs value is based on the sale price to the EU importer.
Recommended Actions
The proposal is currently only part of draft legislation and there will still be further opportunities for traders who will be negatively impacted by this proposal to lobby through their national customs authorities, trade associations and the European Commission for ‘first sale’ to be maintained.
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If you would like to hear more about the European Commission’s proposed changes through the UCC, including the proposal as regards ‘first sale’, please join our Webinar on Thursday 27 February 2014 at 16.00 (GMT) on the topic of:
“Union Customs Code: What to expect from the draft Implementing Provisions and how to take part in the negotiations”.
We are delighted that Jim Repper, HM Revenue & Customs Policy Advisor working within the UCC Negotiations Team, will be joining us for this very topical session.
Companies will be provided with a unique insight into the expected changes to the customs rules through the implementation of the UCC and into how they can participate in the current legislative negotiation process. To register for this seminar, please follow the link.
[1] The draft wording of the draft Implementing Act Article IA-II-3-02 states: “For the purposes of Article 70(1) of the Code, the value of the goods shall be determined at the time of acceptance of the customs declaration on the basis of the transaction occurring immediately before the goods are declared for free circulation.” There is no provision for the use of first sale for export.
[2] Article 147(1) of EC Regulation 2454/93 (the Implementing Provisions to the Customs Code). |
