Customs Insight

What is a Fiscal Representative,and do I need one? As the UK relinquishes its status as an EU member state and effectively becomes a third country, this presents a potential challenge for UK businesses providing goods and services in European countries and vice versa. There has been speculation around whether a UK business needs to set up a trading presence in the EU or whether there is a need to move their UK operations to an EU country in order to preserve their existing intra-EU supply chain. But is this really the only and most efficient option? A Fiscal Representative (FR) may be a viable option to consider. The role of a Fiscal Representative is to represent a foreign company - in this scenario a UK based business - seeking to import goods into the EU by acting as their local agent for tax and customs purposes. More than half of EU member states oblige non-EU based companies to appoint a Fiscal Representative if they are providing taxable services within their borders.

The Fiscal Representative would take responsibility for the filing obligations of the UK company when dealing with the relevant tax authorities, which can include customs duties and VAT.

The UK and EU customs and trade landscapes are evolving at pace with changes expected as a result of the UK’s withdrawal from the EU. These changes will place additional obligations on businesses to consider how they flex their customs operations to respond positively to the changes.

‘Customs Insight’ is a quarterly update which will cover some key topics, pose relevant questions and timely responses to assist businesses to move forward and build future resilience.

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When you choose to engage a Fiscal Representative the key to a smooth relationship is understanding the type of representation being provided to the UK business from the outset.

The engagement will be under ‘Indirect Representation’ - where the FR acts on behalf of the UK business but acts in their own name. In this case the FR may be jointly and severally liable for customs liabilities arising from customs related transactions.

When we consider the INCOTERMS (shipping terms) used by a UK business (the seller) exporting goods from the UK to the EU. If you provide goods to an EU customer (the buyer) on a DDP basis (delivered duty paid) you would not only be responsible for the export declaration in the UK but the import entry, duty and VAT in the country of destination as well. The same is true in reverse for an EU seller and a UK buyer.

How you choose to set up your supply chain will impact where your risk and liability rests but there are straight forward and relatively inexpensive options available beyond the perceived extremes of relocating your entire UK operations to an EU base.

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Which Free Trade Agreement modelshould the UK strive for with the EU?

A Free Trade Agreement (FTA) seeks a position between two or more parties to reduce barriers to imports and exports, which allows goods and services to be bought and sold across borders with significantly reduced or zero tariffs, quotas, subsidies, or prohibitions to inhibit these transactions.

The Prime Minister has said when it comes to trade with the EU after Brexit: “We want a comprehensive free trade agreement, similar to Canada’s” as a potential first choice.

Whilst the Canadian Comprehensive Economic and Trade Agreement (CETA) removes most tariffs, certain goods are still protected and tariffs still apply on meat, eggs and poultry. CETA was achieved after seven years of negotiation and by Canada agreeing to align many of its domestic rules with EU regulations.

CETA increases the quotas on the number of products which can be exported without incurring additional charges in the form of duties. However, it does not streamline all areas of trade, most notably around the financial services sector.

CETA (nor any FTA) doesn’t entirely remove the need for border checks and so goods may need to be examined to ensure that they meet regulatory requirements, which includes a documentary obliga-tion and burden. So those expecting a ‘Single Market Light’ may be disappointed.

The UK’s reported second choice for a FTA is the ‘Australia Model’ which is an odd choice as this deal has yet to be agreed between Australia and the EU. The UK and EU are beginning their negotiations from a position of the ultimate FTA. In theory, this should mean that coming to a quick and common-sense deal can be more readily achieved. It is highly likely a deal will be achieved in December – in principle – but the devil in the detail will be in the non-tariff barriers and alignment issues that may hamper the negotiations into 2021 and beyond.

Q&ALucy Sutcliffe spoke with Baldwins National head of TaxPraveen Gupta on the subject of ‘Freeports’.

Praveen; The government has talked recently about a Freeports initiative with up to 10 Freeports potentially being introduced into the UK. Could you explain what a Freeport is and how this initiative is supposed to work for businesses?

Lucy; Of course. Freeports are designated customs-controlled areas, usually located at or close to ports or established frontier posts, where businesses can import (and temporarily house) goods within that country's border, without having to pay the associated import duties and with limited customs paperwork having to be presented.

This allows raw materials and goods to be imported, manufactured (and processed) and then exported without being subject to any local import duties. If the manufactured product or goods were subsequently sold into the local market, import duties would become due to the local tax authority.

Freeports have been in existence for some time and have operated successfully in countries around the world including Singapore and India.

There is an associated hope and expectation that businesses operating in Freeports will attract further business, boost investment, manufacturing and trade and employment within the regions where they are established.

Praveen; It appears that this initiative could benefit certain business sectors, particularly if the government were to offer additional concessions to businesses who use Freeports. Do you see any stumbling blocks to this initiative from a customs perspective?

Lucy; In principle the idea behind the initiative is efficient and sound but this type of model is usually found in countries where tariffs are particularly high or where it is harder to ‘do business’ and navigate the local customs obligations. If the UK wants a zero-tariff trade policy with the EU and other countries across the globe and streamlined documentary processes, then this particular aspect may have a minimal impact.

The direct benefits will depend to some extent on the envisaged aims of the government by introducing Freeports to the UK and what additional allowances they may grant to Freeport users. For example, do they want to encourage regional regeneration by placing Freeports in remoter and economically struggling areas, or areas with a recognised industry to boost that particular sector.

There would clearly be a cost to businesses who decided to set up or move their existing operations so they could make use of a Freeport. A cost versus direct benefit analysis would need to be carefully considered by any business considering this as a supply chain option.

A lead-in time would also need to be considered; how long would it take for the Freeports to be set up, what infrastructure would be put in place and how long would it take for businesses to be authorised to use the facilities.

Praveen; In principle the initiative could work well and be successful, but would this be the only option for businesses?

Lucy; Not at all. There are several existing customs special procedures that provide exactly the same benefits as a Freeport, without the need to relocate your operations to a new geographical location and which could be done in the ‘comfort' of your own premises.

For example, Inward Processing allows businesses to import goods for processing, manufacture and repair and then re-export without paying any UK import duties. Businesses can also apply for a multi-state application which permits processing in more than one EU country. A business would need to be pre-authorised by HMRC, but they could then conduct their manufacturing in-land at their existing business premises.

Customs warehousing – also known as bonded warehousing - is another procedure which allows goods to be imported, held in a controlled customs area without import duties becoming liable for the duration they remain in the customs warehouse.End-Use relief is a further customs procedure which can provide a reduced rate of import duty or none at all, for goods put to a particular use.

There are existing customs procedures which can and should be considered by businesses to provide effective solutions to some supply chain challenges. Which customs procedure a business can use may depend on their end-to-end supply chain model.

Praveen; The government has talked recently about a Freeports initiative with up to 10 Freeports potentially being introduced into the UK. Could you explain what a Freeport is and how this initiative is supposed to work for businesses?

Lucy; Of course. Freeports are designated customs-controlled areas, usually located at or close to ports or established frontier posts, where businesses can import (and temporarily house) goods within that country's border, without having to pay the associated import duties and with limited customs paperwork having to be presented.

This allows raw materials and goods to be imported, manufactured (and processed) and then exported without being subject to any local import duties. If the manufactured product or goods were subsequently sold into the local market, import duties would become due to the local tax authority.

Freeports have been in existence for some time and have operated successfully in countries around the world including Singapore and India.

There is an associated hope and expectation that businesses operating in Freeports will attract further business, boost investment, manufacturing and trade and employment within the regions where they are established.

Praveen; It appears that this initiative could benefit certain business sectors, particularly if the government were to offer additional concessions to businesses who use Freeports. Do you see any stumbling blocks to this initiative from a customs perspective?

Lucy; In principle the idea behind the initiative is efficient and sound but this type of model is usually found in countries where tariffs are particularly high or where it is harder to ‘do business’ and navigate the local customs obligations. If the UK wants a zero-tariff trade policy with the EU and other countries across the globe and streamlined documentary processes, then this particular aspect may have a minimal impact.

The direct benefits will depend to some extent on the envisaged aims of the government by introducing Freeports to the UK and what additional allowances they may grant to Freeport users. For example, do they want to encourage regional regeneration by placing Freeports in remoter and economically struggling areas, or areas with a recognised industry to boost that particular sector.

There would clearly be a cost to businesses who decided to set up or move their existing operations so they could make use of a Freeport. A cost versus direct benefit analysis would need to be carefully considered by any business considering this as a supply chain option.

A lead-in time would also need to be considered; how long would it take for the Freeports to be set up, what infrastructure would be put in place and how long would it take for businesses to be authorised to use the facilities.

Praveen; In principle the initiative could work well and be successful, but would this be the only option for businesses?

Lucy; Not at all. There are several existing customs special procedures that provide exactly the same benefits as a Freeport, without the need to relocate your operations to a new geographical location and which could be done in the ‘comfort' of your own premises.

For example, Inward Processing allows businesses to import goods for processing, manufacture and repair and then re-export without paying any UK import duties. Businesses can also apply for a multi-state application which permits processing in more than one EU country. A business would need to be pre-authorised by HMRC, but they could then conduct their manufacturing in-land at their existing business premises.

Customs warehousing – also known as bonded warehousing - is another procedure which allows goods to be imported, held in a controlled customs area without import duties becoming liable for the duration they remain in the customs warehouse.

End-Use relief is a further customs procedure which can provide a reduced rate of import duty or none at all, for goods put to a particular use.

There are existing customs procedures which can and should be considered by businesses to provide effective solutions to some supply chain challenges. Which customs procedure a business can use may depend on their end-to-end supply chain model.

baldwinsgroup.com

Lucy SutcliffeDirector of National Customs DutyT: 01733 865265M: 07961 736088E: lucy.sutcliffe@baldwinsgroup.com

To discuss any of the topics raised, or if you would like assistance to consider your wider customs and trade planning, please contact Lucy Sutcliffe, National Customs Duty Director.

What should businesses consider next?The shape of our future customs trade landscape with the EU has not yet been established, but to relieve the uncertainty there are steps businesses can take. There are key customs areas which businesses will need to consider as part of their wider Brexit planning.

Commodity CodesAll goods moved internationally will need to be classified using accurate commodity codes and corresponding descriptions to ensure that businesses do not pay too much customs duty but also remain compliant.

Customs ValuationNot only is the application of the correct customs valuation method important for businesses who are or have European subsidiaries (pricing between related entities). It is vital that the appropriate valuation method for customs purposes is used to avoid future inflated costs.

Incoterms The Incoterms (shipping terms) applied between the buyer and seller determines the responsibilities of both parties for the delivery of goods but also the related risk. These are particularly important when considering where the potential liability for any customs import duties may rest.

Customs Special ProceduresExplore, consider and use existing customs regimes which will benefit both cash flow and end-to-end supply chain movements. These could include Inward Processing, Outward Processing, Customs Warehousing, Duty Deferment Accounts.

Supply Chain Continuity Regulatory alignment and origin will be one of the most contentious areas to be negotiated with the EU. Businesses will need to be confident in the origin of their goods (and any raw materials, if engaged in processing or manufacturing) and be alive to the implications of any potential regulatory alignment changes they may face.

Customs Documentation Be as informed as your customs agent, understand the information entered on your behalf on customs import and export declarations and what other supporting documents may be needed.

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