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UK and EU transactions – can customs duties be avoided?

At the end of 2020, the United Kingdom (hereinafter: UK) entered into an agreement with the European Union (hereinafter: EU) that raised numerous hopes for the introduction of new additional preferences for business trading between EU countries and the UK. As European Commission President Ursula von der Leyen additionally mentioned: “It has been a long and winding road, but we have finally found an agreement. It is fair, balanced goods and responsible for both sides”. The entry into force of this agreement is intended, above all, to simplify the complicated process of trade change and, importantly, it also provides preferences for business which will have to adapt to completely new trading conditions.

At the outset, it is important to note that, the current treatment of VAT, which should be considered in a similar way to that for third countries, will change. Importantly, the UK-EU Free Trade Agreement provides for the possibility of benefiting from a zero rate of duty, of course only in very specific cases. Such a possibility, while rather impressive, does not, however, negate the fundamental consequence of Brexit: the conversion of intra-Community acquisition and supply of goods into import and export for goods. Moreover, traders in the UK-EU relationship will have to complete basic customs formalities including, inter alia, registering in the e-Klient system to properly obtain an EORI number, filing a declaration, customs declaration or appropriate payment of duties and taxes, where required.

Focusing instead on the possibility of applying a zero rate of duty, certain conditions are indicated here, in particular – proper documentation. But what is meant by this?

Correct documentation and the use of preferences

The correctness of documenting that a product is one that has been manufactured one of the EU or UK countries is one of the key conditions to prove the genuineness of its origin. Such proof can be, for example, the submission of a statement of origin, a model of which is presented in Annex ORIG-4 of the UK-EU agreement and is to be submitted by the exporter. This entity will be obliged to describe detailed information on the product in question, indicating its exact description so that its origin can be verified.

An additional option has also been introduced, namely, the possibility for the importer to prove the true origin of the goods if he, in fact, has detailed information on the product in question, its origin and the contractual requirement. However, this must be supported by documents or other evidence that will prove the validity of the origin of the goods. It is worth adding, however, that such a possibility is acceptable only if the exporter is not in a position to make such a declaration. In practice, however, the first option is suggested due to the possibility of unnecessary exposure to customs control, which may later require the presentation of evidence that was confirmed by the importer. So, whichever option is used, having proof of origin is essential in every possible scenario. Otherwise, inadequate documentation and the inability to prove origin will result in a refusal to apply the zero duty rate, which will consequently create the need to charge customs duties at the appropriate rate.

In addition, it is worth mentioning that according to the UK-EU agreement, imported products are exempt from customs duties if they are fully manufactured in the territory of one of the parties – the EU or the UK. Such facilities also apply to entities meeting the conditions referred to above.

What about some ingredients from non-EU countries?

A problematic issue here could be, for example, the origin of several ingredients from non-EU countries or outside the UK. However, such a possibility is provided for in the Brexit agreement in the chapter on ‘Tolerance’. This is a special provision which indicates that if a product does not meet the requirements due to the use of non-originating in its manufacture, this product shall nevertheless be regarded as originating in a Party, provided that the total weight of non-originating materials used in the manufacture of product other than processed fishery products does not exceed 15% of the weight of the product or the total value of the non-originating materials for all other products, except for products classified in chapters 50 to 63 of the Harmonized Systems, does not exceed 10% of the ex-works price of the product. In view of the above, when dealing with ingredients of non-EU or non-UK origin, it will be necessary to refer to the weight of the given ingredient, material or product. It is therefore necessary to be consistent with regard to proper analysis of the origin of products, which way protect the entrepreneur from additional charges, and to properly document this fact. It should be remembered that in the past there were disputes between taxpayers and our tax authorities (and UCS are a part of KAS) regarding the composition of bread, for example.