The new European Union Customs Code has replaced the paper-based Community Customs Code, introducing considerable changes that impact on various aspects of customs law and practice. The scope of this note is to give a brief overview of the Union Customs Code and set out the most significant changes.
The UCC was enacted in order to modernise, streamline and update EU custom law that had become obsolete. It is clear that the customs code must adapt to the technological evolution of international trade. While in the 80’s – when the CCC was formulated – a single crane could unload 1,000 tons per hour, today a single crane can handle 3,500 tons per hour32. This means that a paper-based system such as that of CCC, has reached its limits. The international trade needs more efficient tools than the ones used in the past. For this reason it appeared necessary to introduce drastic changes for customs administrations and world trade.
The UCC also intends to harmonise and reduce the number of custom procedures across the Member States, organise them in a new structure and create an electronic system to accelerate entry and exportation procedures.
The companies involved in the import and/or export of goods33 into and within the EU will be affected by the UCC. As a consequence companies should be more compliant with the applicable laws also because, for instance, the UCC introduces more checks on the correct application of authorizations. As a matter of fact, one objective of the UCC is to avoid errors and to reduce the number of post release recoveries and repayments. In addition the operators will no longer need to provide information to multiple government agencies as the new “one-stop-shop” system will allow data to be disseminated automatically throughout the EU34. Moreover,in order to get more benefits from the new provisions of the UCC, the companies shall show a solid record of compliance, and in most cases, require an Authorised Economic Operator (the “AEO”) certificate.
At a glance, the key changes under the new Code will be:
- the abolition of the first sale rule for customs valuation and consequently the introduction of the last sale rule;
- the increase in dutiabilty of royalties and licence fees;
- the introduction of trademark royalties;
- all communications between customs authorities and economic operators must be electronic;
- goods removed from a customs warehouse and entered into free circulation in the EU, pursuant to sale to an EU customer, shall be valued based on the value of the transaction to the EU customer;
- introduction of mandatory guarantees for most special procedures;
- the potential need to have AEO status in order to benefit from certain customs simplifications and reliefs.
- centralised clearance and self assessment expected to be introduced in 2020 but will only be available for companies that have AEO status.
Abolition of the first sale rule
The first sale rule has been repealed and replaced by the last sale rule. Under the first sale rule companies could use the value of an earlier sale in the supply chain as the custom value, if it can be determined that the earlier sale took place for export to the EU. Under the old rules “the primary basis for the customs value of goods shall be the transaction value, that is the price actually paid or payable for the goods when sold for export to the customs territory, adjusted, where necessary”.35 The customs value of imported goods will be determined at 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”.36 The UCC has introduced the last sale rule replacing the first sale rule in order to avoid that the final price results like the amount of the sales from the manufacturer for export to the EU. On the assumption that this change will have a crucial impact on the companies that currently use the first sale rule, the UCC has provided a so-called sunset clause which allows the companies to keep on using the first sale rule until 31 December 2017.
Royalties, licence fees and trademark royalties
Under the UCC the royalties or licence fees are generally payable as a condition of sale, irrespective of the relationship between the manufacturer and third party licensor, and must be included in the customs value. According to UCC rules also the trademark royalties are dutiable without exemption and consequently the companies must pay trademark royalties in connection with imported goods into the EU pursuant the same rules as royalties and licence fees.
Benefits related to holding of AEO status
Customs Simplifications37 and Security and Safety38 are the only two types of authorization remaining in the Code. Under the current legislation, holding AEO status or meeting AEO status criteria has become mandatory in order to be admitted to several benefits such as Centralised Clearance39 and Self Assessment.40 There are even other facilities which do not require to have the AEO status. This means that the UCC strongly encourages companies to become AEO accredited in order to keep or maintain specific facilitations and simplified procedures. To become an AEO a trader must have:
- a solid record of compliance. The compliance track record requirement includes not only the compliance track record of import duties but also VAT, excise duties, corporate income tax and other taxes ;
- a satisfactory system to manage commercial and transport-related data;
- adequate and technologic record-keeping capabilities. AEO holders need to have employees that can either demonstrate practical competences or hold professional qualifications;
- business solvency;
- mantain high safety standards.
It should be noted that companies which have committed any serious infringement of customs lQ are not currently eligible for AEO.
Introduction of mandatory guarantee
Under the CCC the Customs Authorities had discretion to set and decide when a guarantee had to be released by the companies. The UCC has now introduced mandatory guaranteeS to be released by the companies in order to cover potential and actual debts.
The Code is fully in force now for less than one month; therefore a preliminary balance if its effects on the market can not be drawn yet. However, it is already working well and is a clear improvement on the past.
Some details on the legal provisions
On 1 May 2016 the Union Custom Code41 (the “UCC” or the “Code”) – as consequence of the entrance into force of the Delegating Acts (the “DA”) and Implementing Act (the “IA”) – has become applicable in full repealing the Community Customs Code42 (the “CCC”) and replacing significant aspects of the existing law.
The Delegated Act and Implementing Act together with the Transitional Delegated Act43 (the “TDA”) will operate until 2020 at the latest.
The DA was adopted on 28 July 2015 as Commission Delegated Regulation No 2015/2446 and then has been modified twice. The UCC Delegated Act supplements certain non-essential elements of the UCC.
The IA was adopted on 24 November 2015 as Commission Implementing Regulation No 2015/2447. The UCC Implementing Act intends to ensure the existence of uniform conditions for the implementation of the UCC and a harmonised application of procedures by all Member States.
The IA and the DA were published in the European Union’s Official Journal on December 29, 2015.
The TDA was adopted on 17 December 2015 as Commission Delegated Regulation No 2016/341. Annex 12 of the UCC Transitional Delegated Act has been corrected by a Commission Delegated Regulation was published in the Official Journal (L121) on 11 May 2016. The TDA addresses all the transitional phases up to full implementation in 2020.