The Modernized Customs Code of the EU provides importers the option to be authorized to declare and pay customs duties to local customs authorities in the country in which they are established, irrespective of where the goods enter the EU and their final destination within the EU. This regime is referred to as “Centralized Customs Clearance.” The related customs formalities and implications are well described, and the EU customs authorities are increasingly familiar with this important development.
However, when exploring options to implement the Centralized Customs Clearance options, importers are confronted with the fact that the VAT legislation is not in line with this centralized customs regime. From a VAT point of view, importers must still think “Member State by Member State” rather than cross-border and centralized. The European Commission is studying which options are available to overcome this VAT problem, which is why it consulted with EU businesses to learn more about the options and preferences. The outcome of this consultation process was recently published.
The consultation focused on two questions:
- Should VAT obligations be centralized? If centralized, the importer will have to declare the VAT at import to the EU Member State that issued the centralized customs license. Decentralized would mean that the VAT related data should be submitted to the EU Member State where the goods are imported.
- Would it be better to declare the VAT through the customs declaration or in a separate VAT declaration?
Based on the received replies, the Commission reports the following outcome of the consultation. The vast majority of the respondents is of the opinion that the VAT collection rules must be amended. Without amendments that facilitate the Centralized Customs Clearance, the centralized clearance is unattractive. It is concluded that, without improved options to centralize the VAT compliance, the centralized customs options brings no significant advantage.
Within the framework of the existing VAT legislation, most respondents believe that the VAT at import compliance should be centralized, meaning that the reporting should be done in the EU Member State that issued the cross-border customs license. Advantages of this option are inter alia a reduction of administrative costs, easier to harmonize the VAT with the customs arrangements, and easier to control and to communicate.
Most of the respondents also reported to the Commission that they are in favor of a combined centralized customs and VAT declaration instead of separate declarations. Such a combined declaration is expected to make things simpler, easier to control and more transparent.
It is important to note that the Commission received feedback stressing that the VAT legislation requires more radical changes to ensure the best possible implementation of centralized compliance regimes, e.g., instead of arranging centralized VAT compliance implementing alternative models for determining the place of importation for VAT purposes or a full VAT at import exemption for taxable persons who can fully deduct the VAT at import.
We are very much in favor of this kind of “out of the box thinking.” We believe that radical changes are indeed required to really facilitate businesses and to get to the next level of cross-border solutions. The problem is, however, that radical changes in the VAT legislation normally take a long time while businesses and the customs and VAT authorities do not have much time. Therefore, we call on the Commission and the EU Member States to facilitate the centralized VAT at import compliance as soon as possible. If no radical changes are possible now, let’s go for the next best alternative since a standstill would be the worst of all options.