What new changes are expected for the Customs Duty Code?

20 January 2016

Businesses that import goods into the EU typically have to pay customs duty which is a cost. The amount of duty is based on the Customs Code which applies across the whole of the European Union (EU). The current Customs Code is over 20 years old and a modernised code known as the Union Customs Code (UCC) is being introduced from 1 May 2016.

The UCC sets out the procedures and rules relating to importing, exporting, storing or processing of goods prior to payment of customs charges. It includes revised rules regarding the customs value, origin and trade guarantees for payment of charges, and how the Member States deal with applications.

Some of the key changes included in the UCC are as follows:

1. Increase in the financial guarantee required
Under the current legislation, a Member State has the discretion to decide when a guarantee is or is not required. It is practice of the UK authorities not to seek financial guarantees for goods held/entered to customs regimes. However, under the UCC there will be circumstances where the provision of a guarantee is compulsory, for example for regimes such as customs warehousing, inward processing and most other customs reliefs.

2. Relief from having to provide cover for the annual amount of duty
Guarantee waivers will be introduced, but only for those businesses that qualify and are approved for authorised economic operator (AEO) status. To qualify for AEO status, a business needs to be able to demonstrate that its processes are customs compliant. However, it can take months to attain AEO certification; therefore businesses looking to achieve AEO status before 1 May 2016 need to urgently consider their position.

3. Duty liability of royalty payments
Customs duty currently applies to royalty payments where the royalty:

a) relates to the imported goods; and
b) is paid as a condition of sale of those imported goods.

This limitation is to be removed and royalties/licence fees will generally be considered to be paid as a condition of the sale of goods and should therefore be included in the customs value. Agreements which give rise to the payment of a royalty in respect of goods should be reviewed to determine whether there are any mitigation opportunities to reduce the expected increase duty cost.

Whilst the UCC comes into force on 1 May 2016, there is still time for businesses to obtain authorisations on a transitional basis for customs reliefs under the existing rules, which can be more straightforward and less burdensome than the proposed new rules. Businesses wishing to do so, must make their applications to HMRC within certain deadlines in order to enable the authorisation to be considered before the legislation is revoked.

HMRC has stated that whilst it will seek to process such applications, given the potential volumes expected, it cannot guarantee to issue a decision by 1 May 2016 and where this is not possible the application will be processed under the terms of the UCC. All applications will be handled in the order in which they are received. Businesses should consider applying as soon as possible.

For further information please contact Ian Carpenter or your usual RSM adviser.