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10-07-2020

Final call for non-European companies exporting goods from the European Union to revise their supply chain

As you may be aware, on 18 May 2019 the European Commission changed the definition of ‘exporter’ for European custom purposes in the Commission Delegated Act of the Union Customs Code (UCC) with effect in the Netherlands as of 1 December 2019 but was postponed till 1 April 2020. Due to the current COVID-19 pandemic the Dutch customs authorities have postponed once more the enforcement of this new definition up until the 15th day after the Dutch COVID-19 emergency measures will no longer apply. The Dutch emergency measures currently apply up till 1 October 2020.

If your company is a non-European Union (EU) established company exporting goods from the EU, and your company’s supply chain has not yet been revised in line with this new definition of exporter, please consider this alert as a final call to action.

The new definition of ‘exporter
According to the new definition in the UCC, a company that wishes to act as an exporter of goods from the EU should be a company established in the European Union (EU) customs territory, and either (1) have the power to determine that the goods are to be brought outside the EU customs territory, or (2) be a party to the contract under which goods are to be taken out of that EU customs territory.

In principle also under the “old” definition of exporter within the meaning of the UCC, a company should be an EU established company. However, certain European member states, including the Netherlands, applied an accommodating policy. Due to the change of the definition this accommodating policy can no longer be applied and the Dutch customs authorities have indicated to apply the new definition of exporter in a strict manner.

When is a company established in the EU?
According to the UCC a company is established within the EU customs territory provided that;

  1. It has a registered office (i.e. statutory seat) in the EU, or
  2. It has its central headquarters in the EU, or
  3. a permanent establishment; whereby (i) the necessary human and technical resources are permanently present, and (ii) through which company's customs related operations are wholly or partly carried out.

Please note that for UCC purposes a company is considered to be established in the EU (the Netherlands) on basis of the statutory seat, while for value added tax (VAT) and Dutch corporate income tax purposes (CIT) certain substance is required and the place of effective management should be carried out in that member state to be established in the EU (the Netherlands). It should therefore be carefully assessed whether the abovementioned criteria would also have an impact for other national taxations such as VAT and CIT. The Dutch tax authorities recently seems to apply a strict approach to determine if a company has its tax residence in the Netherlands.  

Who may act as exporter?
Following this new definition of exporter, parties involved in doing business may also designate another party who is not involved in the supply chain (by contractual arrangement) to act as exporter, provided that this person is established in the EU (e.g. a freight forwarder, carrier or other party).

Experience shows, however, that freight forwarders are not very willing to take on this role, because this also means that they will assume responsibilities from the parties involved toward the Dutch customs authorities (e.g. customs formalities, the fulfilment or the dual use and drugs regulations) and subsequently the financial risks involved thereto.  

The Dutch federation for freight forwarders (Fenex) has published new standard exporter agreements in order to fill the hole that has been punched by the new definition for non-EU established companies that want to export goods from the EU. In these agreements a freight forwarder may be nominated as exporter provided that certain responsibilities and financial risks are assigned to the supplier or purchaser.

If a non-EU established company has a fixed place of business or a subsidiary in the EU the contractual terms could also be adjusted to provide that this fixed establishment or company will act as exporter.

Export of goods from the EU where the purchaser has no fixed place of business or company in the EU or without a customs representative could also be achieved by applying different ICC incoterms e.g. Delivered At Place (DAP),Delivered Duty Paid (DDP) or Delivered at Place Unloaded (DPU) to the purchaser, wherein the supplier is fully liable to fulfil the export related customs obligations and duties. 

Brexit
On 1 February 2020, after lengthy discussions and debates the United Kingdom (UK) officially left the EU. In order to ensure an uncluttered exit of the UK from the EU, a transitional agreement was agreed wherein the UK will be treated as if it would (still) be an EU member state wherein all European laws do still apply to the UK up until 31 December 2020.

The new definition will also have an impact as of 31 December 2020 to companies that are established in the UK and do not have a fixed place of business or subsidiary in the EU and no external freight forwarder established in the EU willing to act as their nominated exporter. This would also be the case if for instance a company established in the United States or China import goods to Rotterdam (the Netherlands) and exports those goods after 31 December 2020 to the United Kingdom without a fixed place of business or subsidiary who has the power to determine to export the goods or an external freight forwarder in the EU.

Please note that the new definition does not apply to certain customs procedures e.g. the re-export of non-EU goods (these are goods that are included under a special customs procedure and are officially not brought in free circulation within the EU). 

Take away
If the necessary arrangements are not already implemented to your supply chain it could be considered to implement the following actions depending on the nature of your business;

  • review whether certain EU customs procedures would apply to your supply chain, if any;
  •  incorporation of a Dutch entity or establishment of a fixed place of business in the Netherlands that would act as exporter; or
  • review and/or change of the contractual conditions between the parties involved or with external parties (e.g. freight forwarder) or drafting of new contracts.

Should you have any questions in relation to the aforesaid, please do not hesitate one of our contact persons.

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