With the new customs legislation, Union Customs Code (“UCC”), expected to enter into force as of May 2016, significant changes in the current customs valuation rules will rapidly be put into place.
‘First Sale for Export’ for Customs Value
The amount of customs duties owed is generally based on the customs value of the products concerned. Under the Community Customs Code, which is currently in force, the transaction value of any sale in the supply chain may be chosen for determining the customs value, provided that the goods are destined to be imported into the EU at that moment.
Based on the current proposed provision, it is likely that the transaction value of the goods to be determined based on the sale occurring immediately before the goods are entered into the EU. As the last sale usually has the highest transaction value, this will have a negative consequence for businesses that profit from the lower ‘First Sale’ transaction value.
To limit the financial impact the new legislation will include a transitional measure which will allow companies to still use the ‘First Sale’ rule under the condition that there are contracts in place concluded prior to the UCC. This exception is only applicable until 31st December 2017.
Treatment of Royalties
Royalties are payments made for the use of rights related to know-how, trademarks, copyrights, patents, designs, etc. Current legislation states that Royalty payments should be added to the customs value in the event the buyer of the goods has to pay the Royalties as a condition of sale of the products.
Under the proposed legislation, it is likely that Royalties will be included in the customs value, as the UCC included an additional condition that they not only be a condition for sale, but also a condition for purchase.
What does it mean for you?
When your supply chain involves a chain of transactions, or when there is a separate payment of Royalties that is related to the imported product, the profitability of your products may be impacted significantly with the introduction of the UCC in 2016.
What do we advise?
If the abovementioned is applicable in your practice, we recommend you to analyse your supply chain in order to find an optimal set-up in order to minimalize the impact of the upcoming changes.