Indirect Tax News - January 2022

Practical impact of the new definition of “exporter” for customs purposes

In 2018, the European Commission published a regulation that amends the UCC Delegated Act by revising the definition of “exporter” for customs purposes in the EU. (The UCC, or Uniform Customs Code, sets out the legal framework for customs rules and procedures in the EU customs territory and is supplemented by the UCC Delegated Act.) Under the revised rules, a company must be established in the EU to qualify as an exporter of goods to outside the EU. Transitional rules gave EU member states time to implement the new requirements in their national legislation. The rules became effective in the Netherlands as from 1 January 2021.

Prior to the change, any company could be listed as the exporter in box 2 of the export declaration if certain requirements were met, regardless of where the company was established. However, under the revised rules, companies that are not established in the EU may not be designated or mentioned as “exporter” on the export declaration. In addition to being established in the EU, the exporter must have the authority to determine that the goods are to be removed from the EU customs territory.

Although the revised definition of exporter harmonizes the rules in the 27 EU member states, it has created issues for non-EU companies that intended to export goods out of the EU. To demonstrate the practical effects of the exporter definition, assume a Swiss company stores goods in the Netherlands and wants to send them to a buyer in the U.S. Previously, the Swiss company could be listed as the exporter and it could handle all customs formalities needed for the export by using a customs representative. Under the revised definition, the Swiss company cannot export the goods out of the EU, because it is not established in the EU. Supply chain disruption is a possibility where customs authorities refuse to release goods that are being exported by a non-EU company. Since most businesses are not willing to set up an entity in the EU for the sole purpose of exporting goods, this could create serious obstacles for non-EU companies.

There are some options to mitigate the effects of the revised definition of exporter for non-EU companies:

  • An EU company can be assigned to act as the exporter on behalf of the non-EU company by concluding an “empowerment agreement” with the non-EU company. Dutch Customs approves this method. If a customs agent is used to handle export formalities, the empowered party must have a direct contractual relationship with the agent. Usually, only affiliated parties are empowered. Third parties typically are unwilling to assume the high risk of liability that arises from empowerment. 

It should be noted that an empowerment agreement does not shift ownership to the empowered party so there are no VAT consequences. The empowering party continues to be the owner of the goods and will have to declare the export supply with a 0% VAT in its VAT declaration. As a result, the empowered party will need to be able to prove that the goods left the EU customs territory. It is, therefore, important that both parties agree on how the export documentation is retained and exchanged.

  • The non-EU company can set up a permanent business establishment in the EU, but this will require that the non-EU company has a fixed place of business where the necessary human and technical resources are permanently present and through which the company’s customs-related operations are wholly or partly carried out. It is important that the establishment have some substance, such as human labour and the required software to file customs declarations. However, the rules to qualify as a permanent business establishment can vary among the EU member states. In the Netherlands, it is unclear whether an establishment that has outsourced all of its customs formalities can still be classified as a fixed establishment.
  • A company can revise the trade conditions applied to sales (i.e., Incoterms) to provide that an EU-established seller of goods is responsible for exports. (This would not be the case if “Incoterm Ex Works” is used because in this case the buyer would pick up the goods from the seller’s premises, and if a non-EU buyer applies this Incoterm, it will not be able to export the goods out of the EU.) For this option to succeed, a trade condition must be selected that requires the seller to handle the export. The seller can then apply the 0% VAT rate and export the goods without creating problems for the non-EU buyer.

Abdel Tanouti

Tanja van de Klundert