The European Commission circulated a document for consultation to parties concerned in the context of a preparation of a possible legislative proposal on the simplification of VAT collection procedures in relation to centralized customs clearance. Bearing in mind the growing demand of companies to organize EU customs clearance cross-border, this is an important consultation. The current VAT rules do not provide clear and efficient solutions for centralized customs clearance. To facilitate the developments in the customs arena, it is crucial that the European Commission and the EU Member States implement a solution soon.  

What is the problem? The Modernized Customs Code allows the customs authorities to authorize importers to declare and pay customs duties to the customs office that is competent for such importer, independent from where the goods are physically imported and where they are transported to within the EU.  

An example: On behalf of a German company, Chinese goods enter the EU through the Barcelona harbor. The goods are to be sold to a Spanish customer. If the German importer obtained the appropriate license from German Customs, the German importer can declare and pay the customs duties to German Customs without physically transporting the goods to Germany. However, in this example, the German company will have to assess and pay the VAT in Spain, being the EU Member State of actual importation.  

In other words, the current VAT rules “destroy” the centralization and simplifications that are offered by the Modernized Customs Code, since the German importer will still have to deal with Spanish VAT compliance obligations and VAT payments. The conclusion is obvious: the VAT rules should be amended to ensure that companies can have the full benefit of the centralized customs clearance.  

The European Council, the European Commission and numerous experts acknowledged years ago that the VAT rules have to change. A number of possible solutions were developed, analyzed and discussed, but there is still no final decision and agreement. It is obvious that the centralized customs clearance options becomes much more interesting when a solution for the VAT compliance is in place. We therefore call on all parties involved to agree on real solution and to actually implement such a solution in the EU VAT legislation as soon as possible, instead of continuing discussions, as in many other VAT related cases, for many years.  

Based on the “Consultation paper” of the European Commission, it can be understood that the Commission considers two possible solutions:  

1) Centralization of import VAT obligations. In this scenario, importers will be allowed to declare both the customs and VAT to the authorities in the Member State in which the centralized authorization is obtained. It is considered that payment could be to the Member State of importation or through the Member State of authorization who on its turn will transfer the VAT to the Member State of importation.  

2) Changed timing of the VAT obligations. This scenario provides for an option to deal with all VAT related import obligations in a supplementary declaration or on a periodical basis. In the Consultation paper, it is left open whether the VAT declaration should be lodged in the Member State of authorization or in the Member State of importation.

We believe that the Consultation paper does not outline the best possible solution in which all — in some Member States already applied — VAT facilitations and simplifications are taken into account. It is clear that the Commission is respecting the current VAT regime in a number of EU Member States that still require businesses to declare and pay VAT on an import declaration basis. We trust that the Commission and the Member States will agree on a much better solution, namely a combination of both scenario that are mentioned in the Consultation paper. We believe that only a solution that allows businesses to declare and pay both the customs duties and VAT on a periodical basis to the Member State of authorization would be a true solution.  

If your company wants to contribute to the ongoing consultation of the European Commission, this needs to be done by 31 October 2010. Please feel free to contact us if you want to discuss more details.