International Customs: Fiona Miles

International Supply Chain: Customs and VAT Risks & Opportunities23 May 2012International Customs– Fiona MilesInternational/UK VAT- Aidan LyonsIrish VAT for Importers/Exporters – Eamonn Murphy

International Customs: Fiona Miles

Introduction • Import Procedures • Import Charges • Classification • Valuation • Origin • Duty Saving Regimes • Export Procedures • Reviews by Customs vs Grant Thornton

Import Procedures - Declarations • EORI number necessary to make commercial imports into the EU • Import declaration made to Customs on SAD- usually electronically • Most importers have freight agent or courier do declaration • Supporting documents may have to be provided to Customs before goods are cleared

Import Procedures - Payment • Import charges are paid by freight agent/courier or declared against importer's TAN (deferred payment) account • Couriers will present a bill for any charges paid on importer's behalf • Some couriers let you use their deferred payment account - for a fee!

Import Procedures - Payment continued • Deferred payment - application needed • Defer customs duties, excise duty and import VAT to the month following import • Guarantee required to defer payment - twice monthly deferred amounts • Charges may be suspended if a duty regime is used • Customs Procedure Code on SAD

Import Charges - Customs Duty • Customs Duty • rates set by EU • commodity code & country of import determines rate • TARIC website gives commodity codes • generally 0% - 20% of value

Import Charges - Excise Duty • Excise Duty • on alcohol, tobacco and fuel/oils • rates set by individual countries • often suspended as purchasers operate 'bonded warehouses'

Import Charges - Import VAT • Import VAT • rates set by individual countries but controlled by EU • same rate as if buying products in domestic market • calculated on the duty inclusive price

Import Charges - Anti Dumping Duty • Anti Dumping Duty • additional, high rate of duty on products which have been 'dumped' in EU market • below usual value, high quantities • usually imports from China/Far East • can be backdated in some scenarios

Import Charges - Common Agricultural Policy • CAP charges • additional duty on agricultural products • additional digits on commodity codes • rate can be based on weight of product, sugar content, flour content etc • ingredients analysis required on processed foods

Classification • Commodity codes determine description of product • Ultimately they determine the duty rate • TARIC lists all commodity codes • Generally look for: • exact match • similar match • components/ingredients match

Classification continued • Thousands of commodity codes, some very similar with different duty rates • Eg bulk rum vs bottled rum • bulk rum generally no duty • bottled rum can have positive duty rate • Other codes are very vague!

Classification continued • TARIC example - how to classify a laptop? • "Portable automatic data-processing machines, weighing not more than 10 kg, consisting of at least a central processing unit, a keyboard and a display" !!

Classification • If unsure of classification, or potentially various classifications, apply for a Binding Tariff Information (BTI) • Binding ruling from Customs on commodity code

Origin • The origin of a product also determines the duty rate • There are preferential duty rates for imports from certain countries • Generally countries we like to trade with e.g. Norway, Switzerland or developing countries • Preferential rate often 0% • Origin certificates/proof of origin necessary

Valuation • The value declared for Customs purposes should be a CIF value • Deductions or additions may be necessary - e.g. add freight and insurance to an ex-works purchase • Royalties & licence fees often have to be added to import value • Value for import VAT should be DDP- add inland freight? • 'VAT value adjust' on import declaration

Valuation continued • If no purchase price, how do you determine value? • Same product imported before? • Similar product imported before? • EU selling price? (Some deductions can be made) • Cost of production? (Some additions must be made) • Almost everything must have a value for Customs - usually not necessary for samples

Samples • Items can only be classed as samples at import if they: • can only be used as samples; • are of negligible value; and • are intended to obtain order for the type of goods they represent • Usually require some sort of marking/control to ensure can only be used as samples

Inward Processing Relief • Duty regime designed for products which will be imported, processed and re-exported from the EU • Pre-approval required from Customs • Entered to regime using a CPC • IPR Suspension & IPR Drawback • Stock control imperative • Re-export not required in some circumstances (aircraftparts, destruction)

Inward Processing Relief continued • IPR Suspension: no duty/VAT paid at import • Neither become due if goods are re-exported. • IPR Suspension returns submitted • Compensatory interest due if products not re-exported • IPR Drawback: duty & VAT paid at import • Duty reclaimed when products re-exported

Outward Processing Relief • Send goods outside EU for processing or repair • Use OPR to ensure no/reduced duty & VAT paid on re-importation to EU • Duty & VAT may be due on any increase in value • Pre-approval required

Customs Warehouse • Approved actual or virtual warehouse where duty suspended stock can be stored • Pre-approval required and strict criteria - must be a commercial benefit • High amount of duty suspended? • Stock turnover makes it worthwhile? • Stock control essential - usually use specific duty software • Duty becomes due if released into EU market

Returned Goods Relief • Customer outside EU sends goods back because faulty • RGR allows re-import to be free of import duties • Re-import must be within 3 years of export • Audit trail to original export essential

Processing Under Customs Control • Duty relief for materials which are imported and processed into products with a lower duty rate • Duty suspended on import, generally becomes due at lower rate when finished product is sold in EU • Strict controls needed • Pre-approval required

Export Customs Procedures • Correct declarations required: valuation, classification, origin etc • Valuation for export should be FOB • Origin important as could be used for import declaration at other end • To declare EU origin, must be wholly produced or have undergone 'sufficient transformation' • EUR1 origin certificates • Approved exporters - invoice declarations

Reviews by Customs Authorities • In depth reviews of supporting documentation • Can you support values, classification, origin? • Supporting documentation for freight & insurance charges? • Trace import declarations to purchase invoices? • Customs often review imports with CPCs or preference • If an agent has made an error you are still liable!!

Customs Penalties • Penalties between €100- 2000 per contravention • Generally no penalty on first mistake unless high value • Penalties for errors even where no VAT/duty loss • Penalties for deficiencies in systems, records, security of premises • Mitigation available where co-operation, good compliance, good due care and attention • No penalty when voluntary disclosure submitted!!

Grant Thornton Reviews • International Supply Chain Risk Analysis (ISCRA) • ISCRA reviews all indirect tax implications of international supply chain • Identifies risks and opportunities • 'Traffic Light' feedback • Lists and prioritises action points • Report on record can show due care and attention

International/UK VAT: Aidan Lyons

VAT - Place of supply of goodsGeneral Provisions • Place of supply determines place where VAT is due • If goods do not leave a EU country, VAT is due in that country • If the goods are exported/dispatched: • place of supply is country where goods are sent; • no requirement for supplier to charge local VAT

VAT - Place of supply of goodsGeneral Provisions • If goods are imported/acquired: • VAT is due in country where goods arrive; • importer of goods will pay import VAT/acquisition VAT • Therefore, check terms of trade to confirm who is importer/acquirer as could create VAT liability in another country

VAT - Place of supply of goodsExceptions • Installed or assembled goods: • place of supply is where goods are installed or assembled • will create liability to register in that country • concession for one off supplies

VAT - Place of supply of goodsExceptions • B2C intra EU Sales or "Distance Sales": • place of supply is where supplier of goods of established and local VAT is due; • subject to country threshold, (€35/70k), requirement to register in country where customer located • could result in multiple VAT registrations

VAT - Place of supply of servicesGeneral Provisions • Place of supply determines where VAT is due • General rule for B2B services is place of supply is where customer is established • Domestic supplies - local VAT is charged • Supplies to EU customers - no VAT charged by supplier and customer accounts for local VAT under the reverse charge • Supplies to non-EU customers - no VAT charged by the supplier

VAT - Place of supply of servicesExceptions B2B services • Land - related services - place where land is situated • Admissions to cultural, artistic, sporting, scientific, educational and entertainment events - place where event takes place • Restaurant and catering - place where services physically carried out • Transport of goods - place where transport takes place

VAT - Place of supply of servicesReceipt of services • Where services are received from an EU/non-EU supplier, the recipient must apply the reverse charge procedure • Account for VAT in its country at relevant local rate • This VAT is recoverable in line with usual VAT recovery rate • Level playing field between domestic and overseas suppliers

VAT - Place of supply of servicesGeneral Provisions B2C services • General rule for B2C services is place of supply is where supplier is established • Domestic supplies - local VAT is charged • Supplies to EU customers - local VAT charged by supplier • Supplies to non-EU customers - no VAT charged by the supplier

VAT - Place of supply of servicesBusiness/fixed establishment • Becomes an issue where a supplier/customer has more than one establishment • Need to determine which establishment is most directly connected with making/receiving the services • Establishment must have necessary human and technical resources

VAT - Place of supply of servicesBusiness/fixed establishment • For suppliers - establishment where services are provided from • For recipients - establishment where services are consumed, effectively used or enjoyed • Consider which establishment appears on contracts etc, where directors are based and where decisions are taken and controls exercised • Will determine whether VAT charged by supplier or accounted for by recipient

VAT - are the numerous obligations being met? • Import and/or export of goods increases compliance requirements • Different requirements for import and export • Failure to meet the requirements can lead to: • irrecoverable input tax on imports; or • UK VAT due on exports • If a relief is being used how does that impact on VAT obligations?

VAT - Imports/exports • Imports require HMRC document to evidence recovery of VAT • Exports require documents to evidence the goods have left the UK and meet conditions for zero rating

VAT - Imports • VAT payable on import • Based on UK VAT liability of product • Is a reduced rate of VAT available? • Can apply to works of art, antiques, collectors items, items of historical significance, printed matter, samples • Use of a deferment account will delay payment • Impact of Customs suspensive arrangements

VAT - Imports • Goods declared to Customs using C88 (Single Administrative Document) • Require C79 as evidence to recover import VAT

VAT - Exports • Exports subject to VAT at the zero rate • Number of conditions must be met • Goods must leave the UK within 3 months • Valid commercial and/or official evidence must be retained • Supplementary evidence should also be retained

VAT - EU acquisitions/dispatches • Acquisitions - account for & recover UK VAT via UK VAT return • Dispatches require documents to evidence the goods have the UK and meet conditions for zero rating • Intratsat forms, EC Sales List • Do other supply chains apply and how does that impact, e.g. triangulation, movement of own goods, supply and installation?

VAT - Simplified Import VAT Accounting (SIVA) • Allows an importer to reduce the level of financial guarantee on deferment account • Removes the requirement to guarantee import VAT • Significant benefit as VAT is 20% and can be up to 3 times duty rate • Importer must meet certain criteria, e.g. UK VAT registered for three years or more, good compliance history

Irish VAT for Importers and Exporters:Eamonn Murphy

Shannon Free Zone • zero rated on import into Customs Free Airport • trade within the free zone Vs beyond the free zone • watch non-deductibles • normal VAT compliance obligations (fixed penalties)

Outside the Shannon Free Zone • VAT 13B – zero rating for those outside zone (s56) • 75% of turnover (Intra-Comm, or "exports") • canteens, self-supply & usual non-deductibles • "imports" for onward EU supply • deferred payment of VAT on import • VAT on value of goods inclusive of duty & transport • VAT treatment can follow customs treatment

International Customs: Fiona Miles