Regardless of whether a trader makes its own customs declarations, uses a customs agent or logistics provider, it must ascertain the correct custom classification in order to complete import customs declarations. Many customs agents and logistics providers will not take the risk of classifying the goods, given the potential complexity in some cases and the risks. It is desirable to obtain a very definitive tariff classification from trustworthy sources.
The classification can be undertaken with reference to the tariff, but it is easy to make mistakes. There are specialists who spend many years in training and practice in customs classification. In most cases, the position is clear or can by readily established. In other cases, considerable skill and understanding may be required. Sometimes the apparent classification will not be current, because there are other categories, which might not have been considered which are the correct ones. They may be described in different language or in some way that is not intuitive.
If a trader exceeds the turnover threshold for Intrastat returns, then customs codes would have been required for the classification of the goods for statistical purposes. The codes used are based on the customs classification system. Traders should not assume that their intrastat returns are correct and definitive, unless they have a high degree of confidence in the source from which is the original classification was obtained. Because Intrastat returns are not as critical, there have been many cases where it has been found that businesses have used a classification which was incorrect.
The proper classification of all products is vital. Improper classification is a notorious customs risk. If goods are wrongly classified so that a higher tariff is wrongly applied or where there should be no tariff, there are obvious business costs and losses. There are time limits and restrictions on reclaiming tax and duties wrongly overpaid to revenue authorities.
If goods are wrongly classified so that too little or no duty is paid when duty is in fact due, there is a risk of penalties and arrears in customs audit. In some cases, there are penal tariffs pursuant to sanctions, which can appear arbitrary and irrational.
Third parties undertaking customs controls may do so ass agents on behalf of the trader or may themselves hold the relevant customs procedure and have the requisite responsibilities. In the latter case they would require undertakings guarantees et cetera from the relevant traders.
Regardless of whether a trader undertakes customs returns itself or through a transport/logistics provider or customs brokers or agents, it retains responsibility for the accuracy of the information provided in the returns made. It will remain liable in a Revenue audit for under-declarations non-declarations and misreporting.
A major cause of delay and increased costs for customs compliance arises from failures to provide the requisite correct information. The onus will be on traders to ensure that they can categorise the goods for the purpose of the customs code and supply this with the other requisite information to the service supplies as part of the goods movement. This will require integration of the customs information into existing IT systems dealing with goods movements and inventory control.
Can be Very Complex in Some Cases
Customs classification can raise very complex issues of interpretation in some case. There are several principles of interpretation and principles which might apply.
Where products, even complex products are in any way standardised or have equivalents across industry, then an industry sources may be best. It may be possible to identify other who are already importing or exporting the same products into or out of the EU, who may thereby have the requisite codes. In the case of goods that have a single manufacturer, the original manufacturer or suppliers up the chain may be in a position to furnish a definitive customs classification.
It is essential to get EU- (or UK) based classifications from trusted sources, where possible, as they will be more likely to be accurate to 8 to 10 digits. Classifications from outside the EU based on the international harmonised system (HS) of classification would be accurate to 6 digits only.
Binding tariff information
The customs code allows for binding tariff ruling, which can apply throughout Europe. It is possible to get a binding tariff information (BTI) ruling from Revenue or HMRC. An application can be made to the Revenue Commissioners with detailed information. They may consult with other revenue authorities within Europe. There may be complex issues in particular borderline circumstances
The ruling is definitive and will protect the holder from liability for duties, interest and penalties, even if it is overturned at some time in the future. It usually holds for a three-year period. It may be that there is a binding tariff information ruling that exists within the trader’s industry for its exact products.
An application is made the customs authority in a particular country particular format. There is a Binding Tariff Information database of binding tariff rulings which can provide guidance and act as precedents.Ultimately binding tariff informations ares used to evolve the customs code.
When the single market was introduced in European Union in 1993 and customs declarations were finally phased out, the VIES and Intrastat returns were introduced to substitute for much of the statistical crosschecking and assurance data formerly provided by Customs declarations. The returns are required after the event and are nowhere near as detailed or onerous as customs declarations.
However reflecting the particular origin, much of the data which may be required for making customs declarations either directly or to be furnished to trader’s logistics provider or other person providing the service will be similar to that in trader’s existing returns. The VIES and Intrastat returns will no longer apply to trade with the United Kingdom after Brexit.
The extent to which the returns have to be prepared is based on turnover. Depending on the extent if any to which traders are obliged to make these returns already, they will serve as both a source of data and an indication of the scale of trader’s UK acquisitions and supplies, which would become imports and exports after Brexit. The codes they contain will either comprise the whole commodity code for customs purposes or the principal part of it.
VIES returns are required for all traders who supply zero-rated goods or services to a VAT registered trader in another EU state. It can be services or goods. The regularity of returns depends on turnover. The return may be annual but maybe monthly where supplies exceed €50,000 per month for goods. Service suppliers may file quarterly.
VIES refers to the VAT information exchange system and is operated by the EU. It is part of the system of controls to ensure that the zero rating of cross-border supplies is not abused and to allow for checking and audit of VAT generally.
VIES return requires the VAT registration number including the code for the country for each customer in other EU states to whom a zero rated intra-community supply of goods or services has been made. It also includes the total aggregate value of supplies made to each customer during the period. It also includes particulars of triangulation transactions by goods in a transaction between country A and B are moved from country C.
Intrastat returns are primarily statistical. They apply where dispatches to other EU states exceed €625,000 annually are arrivals exceed €500,000 annually. A detailed Intrastat declaration is generally required monthly for larger traders. The submission is through ROS.
Intrastat returns also include sales to and from private individuals in other EU states. This is so even if domestic VAT in either state is charged. It also includes distance sales where the supplier is registered in the host member state.
The Intrastat return is made to ROS but does not require customs software. The Intrastat returns require particulars of the commodity code using the eight-digit classification code also used in customs.
UK Tariff Issues
The customs classification under the UK version of the tariff is almost identical to that under the EU tariff. Sometimes there are additional digits in the UK (or other local version of the EU) tariff code which may which apply to handle specific local issues. The lower digits may refer to particular treatments in particular countries. Where there are no lower digits the default position is that 00 et cetera is used.
The current UK version of the tariff and the new post Brexit version of the tariff is available at the HMRC website.
The UK has passed legislation replicating the EU tariff in full. There may be some differentiation in lower digits based on special treatment. The UK has published a special no-deal Brexit temporary version of its tariff in which is available on the HMRC website. Many goods up to 87% of all tariff lines are reduced to zero.
It was said to apply to a no-deal Brexit only for a period of up to 12 months at which point it would have been reviewed. It would be harder for the UK to negotiate trade deals with third countries if it had already removed its tariff barriers. Once the UK cuts tariffs to a very low level, even on a temporary basis, it would be hard to put them back again.