On April 7th we informed you about the draft guidance published by the European Commission regarding the new customs valuation provisions under the UCC and its Implementing Regulation. That document implied that a ‘domestic sale’ should not be considered when establishing the customs value of the imported goods. However, this ‘domestic sale’ concept was neither defined nor explained. As expected the European Commission now has issued an updated version of its draft guidance whereby it clearly indicates that domestic sales within the EU do not qualify as sales for export to the EU and as such should not be taken into account for customs valuation purposes. The document further clarifies this concept as being a transaction between two parties within the European Union.
The guidance seems to deviate from settled European case law (C-11/89) in which the Court of Justice has ruled that the term 'sold for export' (Article 70 UCC) relates to the goods and not to the situation of the seller. According to the Court of Justice, there is nothing to prevent both parties to such a sale from being established in the European Union.
A similar approach was taken by the European Commission in Commentary 7 of the Customs Code Committee (TAXUD/800/2002-EN, September 2008) which clearly indicated that a transaction between two residents of the European Union could very well be taken into account as sold for export for customs valuation purposes.
The new and divergent view communicated by the European Commission in the updated draft guidelines, should however be considered to be very favorable to the industry and surely helps to mitigate to negative impact of the abolishment of the ‘First Sale for Export’ concept.
Economic operators should realize though that the guidance by the European Commission is not legally binding and only of explanatory nature. Its purpose is to ensure a common understanding for both customs authorities and economic operators and to provide a tool to facilitate the correct and harmonised application by the various Member States. In the past, local customs administrations have been known to disregard such guidance and take a much more aggressive approach. Although the European case law as the Commentaries of the European Commission are based on the current Community Customs Code or even its predecessor, the principles regarding the term ‘sold for export’ have not been changed. Therefore it remains to been seen whether the draft guidelines in this respect will overturn settled European case law. As such, importers should remain cautious and preferably discuss their individual supply chain with their local customs administration in order to ensure the correct and full application of the guidance provided.
With respect to the use of the transitional measures relating to the application of the First Sale concept, the guidelines currently indicate that so-called “framework contracts” may be covered by this provision, provided that these have been concluded prior to 18 January 2016. In this respect it is important to note that no specific conditions are set out in relation to the form or structure of such contract. This would imply that verbal contracts should also be eligible under the Sunset Clause.
Over the years Meijburg & Co’s trade and customs lawyers have gained extensive experience with EU customs valuation matters (both with restructurings and litigation with the national and EU courts). As such we are very well-positioned to assist your company in evaluating the impact of the new customs valuation provisions, with designing alternative supply chain structures mitigating the negative impact either partially or in full and if required, can represent your company before Dutch and EU courts of law.