The new EU customs regulation (UCC)—effective 1 May 2016—includes a change to customs valuation rules, and specifically a change to the “first sale for export” concept. Up until 30 April 2016, EU importers can use the “first sale for export” concept if certain conditions are satisfied. However, if an EU importer fulfills a strict set of conditions, it may invoke the “sunset clause” until 31 December 2017.
The new provisions governing EU customs valuation not only repeal the regular “first sale” concept but may also result in the taxation of intra-EU or domestic transactions. This is because the language of the new regulations stipulates that the customs value of imported goods is to be based on the sale occurring immediately before the goods were brought into the EU customs territory. A literal application of this wording would mean that EU importers are to use their resell price for customs valuation purposes when goods have been “pre-sold” prior to their physical entry into the EU customs territory.
Pre-selling goods happens quite regularly in the footwear and apparel sector, the automotive industry, and other industries that use a “back-to-back” ordering process (often also referred to as pre-order or made-to-order models). In this respect, note that the term “sale” is a concept of EU law and must be interpreted in light of the purpose of the rules in question and the context of those provisions.
The Court of Justice of the European Union (CJEU) concluded that for purposes of customs valuation, priority is to be given to the transaction value—assumed to be the most appropriate and the most frequently used valuation method. In order to maintain that priority, it is necessary to interpret the term “sale” broadly.
Based on the guidelines from the CJEU, it seems that the authorities would consider any obligation to supply and/or purchase goods for/against a consideration to constitute a “sale” within the meaning of both the current customs regulation as well as the UCC and its implementing regulation. Consequently, the customs authorities would likely argue that when a purchase order is placed and accepted by parties, this triggers a “sale” within the meaning of current and future customs legislation.
Until recently, most EU importers considered it unlikely that the EU customs authorities would apply such a literal interpretation of the new customs valuation provisions. However, the Dutch customs authorities have indicated in recent meetings that they (depending on the exact facts and circumstances) would apply a literal interpretation of the respective provisions and, as such, would take the position that intra-EU or domestic transactions will have to be taken into account when establishing the customs value of the imported goods. It is understood that the UK authorities are taking a similar approach.
A second question arises at an EU administrative law level—can an implementing act be used to repeal the “first sale” concept when the current legislation and UCC itself support it?
Under EU case law, the European Commission is authorized to adopt all measures necessary or appropriate for the implementation of basic legislation (such as the current Community Customs Code and the future UCC), provided they are not contrary to the legislation. Both the UCC’s customs valuation definition and the Community Customs Code provide for the customs value to be based on the price actually paid or payable for the goods when sold for export to the customs territory of the EU. As such, the process for determining value remains fixed.
Therefore, to implement the legislation, the European Commission would have to reconcile the language affirming the first sale for export (‘‘price paid or payable for the goods when sold for export to the customs territory of the EU’’) and the language repealing the “first sale” concept.
To repeal the “first sale” concept, the European Commission would need to argue successfully that the first sale structures, declared over the last 35 years, in which there has been a common customs union, conflict with the Community Customs Code customs valuation definition. Observers believe this will be a difficult position to support because the policy has been applied consistently across EU Member States. As such, importers may have a solid argument against the proposed legislation that can be presented to the Court of Justice of the European Union.
Read a February 2016 report prepared by the KPMG member firm in the Netherlands: Abolishment of EU First Sale Has Far-Reaching Negative Consequences
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