With the adoption of the Union Customs Code Implementing Act (UCC IA) by the Commission another milestone had been reached in the run-up to a drastic change in customs legislation. Official publication of the final draft of the UCC IA is expected late December 2015, ending a period of uncertainty.

As already discussed in previous editions of our International Trade & Customs Bulletin the changes could have significant implications for -among other- the determination of the customs value upon importation. 

Firstly, the so-called “first sale rule” will be abolished. Under the regime of the Community Customs Code and its Implementation regulation, an earlier sale can be taken as the basis for customs valuation, provided it took place with the intent to export to the territory of the Community. Given that customs value is the basis for calculating of customs duties, a saving of duties can be made using the “first sale rule”. As the “first sale rule” will be abolished on 1st May 2016, this will no longer be possible and operators might thus want to consider alternative methods to reduce their taxable base for customs valuation purposes.

Please note however that the UCC IA contains a so-called “Grandfathering Clause” that is in force until 2017, allowing the “first sale rule” to be applied on the condition that a binding contract was in force before May 2016.

In addition, changes regarding the taxability of royalty payments for customs purposes are anticipated. Under the proposed rules the conditions for inclusion of a royalty payment to the customs value are likely to be eased including royalties that are paid to a licensor as a condition of purchase by the importer (and thus no longer only royalties that are paid as a condition of sale). As customs duty is (in most cases) an ad valorem tax, this will lead to higher customs duties being levied.

The UCC and the supplemental Commission Regulations will apply as from 1st May 2016. Economic operators will, therefore, have four months within which to take precautions based on the final drafts. The precautions that should be taken vary from operator to operator, and will be depending on factors such as licenses required, the operating structure, the supply chain situation and, of course, applicable rules. It is expected that a wide range of legislative changes will follow, covering procedural law such as legislation concerning Customs Economic Procedures, Customs Simplified Procedures and Transit as well as substantive law such as Valuation, Origin and Tariffs.