The Union Customs Code (UCC) will be applied from 1 May 2016 and it carries some changes impacting not only EU, but also non-EU established operators. As discussions between the EU commission, businesses and public administrations shape up, it is becoming apparent that the changes will point to streamlining, rather than fundamentally amending EU customs rules.
A topic that received much attention recently relates to the definition of the exporter, the wording of which led to brainstorming with dubious outcomes.
So what is it all about?
Under the UCC, the definition of the exporter moved from a competency-based definition (i.e., the export declaration is to be lodged at the customs office where the exporter is established or where the goods are loaded for export) to a material definition (i.e., what the term ‘exporter’ means).
The new rules explicitly aim to align the rights and obligations of the exporter with the obligations deriving from the export control / dual-use regulations. This has already been the main reason for requiring an EU-established indirect customs representative in the past; nevertheless, it may not have been apparent from the wording of the legislation.
Customs administrations have however long been interpreting the requirements towards an exporter as twofold – namely the correct procedural handling/filing of documents and the responsibilities vested with an exporter in terms of securing and controlling its supply chain. The latter moreover in a way that allows EU authorities to take recourse against the exporter in the case of non-compliance. A non-EU established exporter is hard to catch nowadays.
These are the facts, but what is the myth?
On account of this change in the wording, discussions started to imply that non-EU established entities cannot export from the EU any more, despite having absolutely reasonable and legally stable supply chains.
Further suggestions pointed to a strategic long-term interlinking of the OECD BEPS movement and revision of the permanent establishment (PE) definition with the clear aim to create more/require PEs also for customs purposes. The alarm bells rang more and more loudly, from the lovely Swiss Alps all the way to Brussels.
Chain of thoughts and hypotheses
One inevitably starts asking the question whether it is absolutely necessary to create establishments in the EU (N.B. with all its tax and infrastructure implications!) just to be able to clear goods for customs purposes, an activity that is – though vital in terms of international trade – is inherently of administrative and not tax –driven nature. If we consider that the UCC will apply in app. 2 months’ time whereas OECD and BEPS discussions are still ongoing, let alone their implementation into national law of the member states, it is somewhat far-reaching to intercept an immediate link.
Let us imagine if a German supplier sells goods to an Australian buyer from its German factory EXW. The Australian buyer is not an EU-established entity and does not have a PE in the EU either. The Australian buyer will rely on assistance of an EU-established freight forwarder / carrier as it is common in similar supply chains to bring the goods from the EU into Australia.
The German entity cannot be the exporter as he does not have any control over the goods at the time of the exportation. The Australian buyer is not an EU-established entity despite having total control and responsibility over the flow; hence it is not an exporter. Does it mean that these goods cannot, must not be exported out of the EU? What about the freedom to and the rights / obligations arising from a contract? Does customs legislation now aim to create ‘artificial’ sales transactions whereby the Australian buyer ought not to purchase directly from the manufacturer, but is bound to go over an EU distributor that adds its margin, making costing and planning more challenging?
We all see that this cannot be the underlying aim of a set of customs regulations that are meant to govern and streamline the administration of supply chains, however not to shape them upfront. Note that the introductory provisions of the UCC do not explicitly refer to any such aim either.
The EU Commission is ‘surprised’ about the impact the wording triggered
The above issues having popped up, the EU Commission has also devoted more focus to the topic and discussed with various representatives of the trading community. Ultimately, the expected outcome of the – still ongoing – discussions appears to be that non-EU established entities will continue to be deemed as exporters in numerous scenarios. In such cases, an EU-established indirect customs representative acting as declarant will be mandatory (no difference from the current practice). In other cases, the consignor in the EU will appear on the documents; not the non-EU established exporter.
One can hence conclude that there is no definite intention to block/disallow shipments of non-EU owned goods solely on the basis of the UCC.
What to do now?
A takeaway from all the above is the following:
- It is not per se impossible to act for a non-EU established entity as exporter.
- If a non-EU entity acts as exporter, it will need an EU-established indirect customs representative.
- Having sufficient control/influence over the effective shipment for export is decisive over legal ownership.
We should acknowledge that the above hypothetical example with the EXW supply may be challenging, given the absence of control by the seller over the export flow. Nevertheless, let us not forget that supply chains relying on EXW conditions face various questions from a VAT and other organizational angle and should thus be monitored carefully even today. Hence, the UCC will not fundamentally reform or repress, but rather reinforce the volatility of such setups.