Customs and tax cooperation in the EU
Prof. Walter de Wit Erasmus University Rotterdam, partner EY (Ernst & Young) Global
Trade
27 September 2017
1
Program
• Areas of cooperation;
• Customs and VAT, introduction;
• Procedure 42, enhanced cooperation between
customs and VAT authorities;
• E-commerce, challenges for VAT and customs;
• Cooperation between customs and tax
authorities: transfer pricing and customs
Overview
Three areas where cooperation can be
enhanced:
- Legislation;
- Exchange of information;
- Data sharing;
Introduction to the EU customs and
VAT system
• Customs duties, uniform base (Union Customs
Code), but national customs authorities;
• EU is a customs union (revenue flows to EU);
• VAT is harmonised within the EU, but VAT
remains a national tax;
• Revenue is for EU Member states;
• No borders between Member states;
Customs and VAT in the EU
• Customs duties and VAT collected
simultaneously;
• Customs authorities responsible for collection
of VAT on import;
• VAT on import suspended while goods still
under customs suspension;
• As soon as suspension end, customs duties
and VAT on import become due.
Customs and VAT in the EU
• VAT is levied at import according to
customs rules, so far so good…
• However, mismatches occur: Procedure
42, exemption of VAT on import if products
are intra-community supplied to another
Member-state than the Member-state of
import.
Customs and VAT in the EU (II)
• Procedure 42:
• Not always exchange of information
between customs and VAT authorities;
• No firm legal obligation to cooperate;
Customs and VAT: e-commerce
• Currently low value consignments (below 22
Euro) exempted from VAT;
• Consignments below 150 Euro exempted from
customs duties;
• Abuse of 22 Euro threshold (under valuation
etc);
• Distortion of competition with EU businesses
EU Commission proposal:
One Stop Shop
• Removal of VAT exemption (22 Euro
threshold);
• Introduction of so called One stop Shop
(OSS), also for non EU businesses;
• Filing VAT returns in one Member State
for all Member States where goods are
sold to private individuals (e-commerce)
EU Commission proposal:
One Stop Shop
• Imports of low-value goods covered:
goods of a value below EUR 150;
• Businesses not established in the EU
must appoint an intermediary/agent, – (unless authorized by MS of identification or established in country with
mutual assistance agreement (see next slide))
EU Commission proposal:
One Stop Shop
• Businesses using OSS: – Exemption from import VAT, pay VAT of MS of
destination (where customer is establised) via OSS
– Platforms and marketplaces made responsible for
VAT remittance of traders using the platform or
marketplace?
• Non identified non-EU vendors: – VAT on import via postal and courier companies
against the standard rate
Consequences for customs
2021, Entry Summary Declaration (advance
declaration) for safety and security
purposes will become fully applicable to:
express consignments (includes low
value, below 22 Euro currently
exempted) and
postal consignments (also currently
exempted).
Consequences for customs
• Removal of 22 Euro threshold of VAT;
• Biggest problem with non identified non-
EU established vendors (substantial rise
in number of imports to be checked);
• How to determine that the correct value
will be reported?
• Need for data sharing and exchange of
information.
Consequences for customs
• Security & safety checks need to be
carried out;
• Make use of information available on or
made available by platforms and
marketplaces to cross check data, such as
value (price actually paid);
Customs & Transfer Pricing
• Customs value based on transaction value
method is preferred method;
• When transaction takes place between two
related parties, relationship may not influence
the transaction value (transaction value must
be at arms’ length);
• If not, alternative valuation method;
Customs valuation versus transfer
pricing methods
Different starting points / different fundament:
• Customs Valuation:
– Customs valuation on a transaction by transaction basis
– Six strict methods, with obligatory sequence
– Main elements relevant for Customs Valuation:
• Costs of individual goods plus profit
• Add on costs: Royalty – R&D – Assists
– Test values for verifying “arm’s length nature” related party
transactions
Customs valuation versus transfer
pricing methods
Different starting points / different fundament
• Transfer Pricing:
– Transfer Pricing governed by economic principles
– Transfer Pricing models focus on Value Chain, wide variety of methods which are relatively freely applicable
– Transfer Pricing models look at periods
– Elements relevant for Transfer Pricing:
• Nett profit
• Application of Capital / Costs factors
• Product price is less important, is more an instrument for allocation, overall product cost
Valuation methods
Customs valuation to TP methods:
Transaction value -No similar method
Transaction value (identical goods) -> CUP
Transactions value (similar goods) -> CUP
Deductive method -> Resale price method
Computed method -> Cost plus
Reasonable means (fall-back method) No similar
method
No similar method
No similar method
Transactional Profit methods
TNMM
Profit split method
WCO Guide on transfer pricing and
customs
Pragmatic approach to utilizing transfer pricing
documentation to support customs value
A list of ”good practices” for customs
administrations, including the encouragement to
customs administrations to consider information
derived from transfer pricing studies when
examining related party transactions
WCO Guide on transfer pricing and
customs
A list of ”good practices” for international business,
including:
• Coordination among tax and customs departments and advisors on
transfer prices
• Consider the needs of customs authorities when preparing transfer
pricing documentation or developing Advance Pricing Agreements
• With appropriate consideration of local requirements, provide customs
administrations with advance notification that post importation
adjustments may occur
• Work with customs authorities to provide interpretation into a customs
framework of transfer pricing analyses and data
Customs and Transfer pricing in the EU
• No legislative basis in Union Customs Code
to make use of transfer pricing as the basis
for the customs value (= transaction value);
• Acceptance may differ from Member state to
Member state;
• If accepted, often consultation between tax
and customs authorities.
Customs and Transfer pricing in the EU:
transfer pricing adjustments
Simplified declaration:
• Art. 166 UCC
• Three years time limit to complete declaration
Revision of import declaration
• Art 173 UCC (request for refund in case of downward
adjustments?)
• Unclear, pending case before EU Court of Justice:
Hamamatsu Photonics
Customs and Transfer pricing in the EU:
conclusions
• No firm legal embedding of transfer
pricing within customs legislation;
• Cooperation between customs and tax
authorities needed to better understand
both sides
Overall conclusions
• Cooperation between customs, VAT and tax
authorities is necessary more than ever;
• Legislative measures are lacking;
• Data and information exchange is crucial,
legislative measures can help to enforce this, but
a substantial part of these information flows
should be taking place between authorities.
Thank you for your attention!