What is Indirect Representation, and How Does it Affect UK Businesses?

Lorenza Barone
June 28, 2022

According to European Customs Law, non-EU established businesses must appoint a representative for customs purposes when importing goods into the EU. In particular, the Union Customs Code establishes that non-EU resident businesses must appoint an indirect representative.

At the end of the Brexit transitionary period, many UK businesses suddenly needed to appoint an indirect representative to clear goods into the EU. In this article, we will look in further detail at this requirement’s challenges.

Who can act as an indirect representative?

Indirect representation implies that agents are jointly and severally liable for any customs debt (import or export duties), which is why it’s harder for businesses to find freight companies and customs brokers willing to act on their behalf than for direct representation imports.

The conditions to be an indirect representative are that the customs agent must have a registered office or permanent establishment in the EU. An agent would require a Power of Attorney that enables them to act for the company. The main characteristic of indirect representation is that the agent will act in their own name but on behalf of the company that appointed them, essentially transferring the rights and obligations of customs procedures to the representative.

On the other hand, agents act in the name and on behalf of the company in direct representation.

Joint responsibility of the indirect representative

In addition to the customs implications, agents acting as the importer of record or declarant may also be considered liable for complying with regulatory requirements. For example, any error in the declarations (ex. Article 77 paragraph 3 Union Customs Code (UCC), if the agent was aware of incorrect information or if they “should have known better”).

The European Court of Justice recently expressed its opinion on this matter with the ruling on the case C-714/20, UI Srl. This ruling determined that the indirect representative is jointly and severally liable from a customs law perspective, but not for VAT (contrary to a previous interpretation of Article 77 (3) UCC). The court specified that it’s up to the Member States to expressly determine if other persons, such as indirect representatives, may be considered jointly and severally liable for VAT of their importer clients. However, according to the principle of legal certainty, this should be clearly expressed in the local legislation before courts can enforce said responsibility.

What are the options for UK businesses?

  • Making the final client importer of records using DAP Incoterms for sales rather than DDP (Delivered Duty Paid basis – where the seller is responsible for clearing the goods and payment of duties and taxes amongst other obligations). This will imply that the importing obligations are shifted to the buyer receiving the goods in the importing country. In practice, however, this may not be an option considering the additional administrative and economic burden this will impose on end customers.
  • To establish a presence in the EU. For example, setting up a subsidiary that can act as the importer of record, then find a customs agent that can act as a direct representative.
  • Appoint a representative in specific countries, such as the Netherlands, where the application for an Article 23 import license (which allows applying a reverse charge to the imports reported) may further diminish the representative’s liability. In conjunction with the recent decision of the European Court of Justice, this may make it easier for UK businesses to find an agent willing to represent them indirectly and limit fees and guarantees that they may be required to provide.

For these options, each alternative solution will have economic and administrative implications to be considered. It is recommended that businesses carefully review their overall strategy before deciding what can be adjusted to comply with customs formalities.

Take Action

Contact Sovos’ team of  VAT experts for help with meeting VAT compliance obligations.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Lorenza Barone

Lorenza is a senior consultant within Sovos’ Audit and VAT Recovery team. She studied Law in Italy before moving to the UK and has worked for Sovos since 2018.
Share This Post
Share on facebook
Share on twitter
Share on linkedin
Share on email

North America ShipCompliant
August 9, 2022
2022 Direct-to-Consumer Wine Shipping Mid-Year Report

A lot has changed in the direct-to-consumer (DtC) wine shipping channel since the January release of our Direct-to-Consumer Wine Shipping Report—changes in volume and value that have the market resembling pre-pandemic patterns. Note: The proprietary data featured in this mid-year report is compiled from an algorithm measuring total DtC shipments based on millions of anonymous […]

E-Invoicing Compliance EMEA Italy
August 9, 2022
Italian Import Documents Become Electronic

The Italian Customs Authorities recently updated their national import system by applying the new European Union Customs Data Model (EUCDM). These new changes came into effect on 9 June 2022. According to the new procedure, the old model of paper import declarations has been abolished. The import declarations are now transmitted to the Italian Customs […]

E-Invoicing Compliance EMEA India
August 4, 2022
India: B2C Invoicing QR Code Requirement

In India, the e-invoicing system has been live since 2020. Taxpayers in the scope of e-invoicing mandate must issue their invoices relating to B2B and B2G transactions through the e-invoicing system, which is a form of continuous transaction controls (CTC). However, B2C invoices are not issued through the CTC system, which means that B2C invoices […]

E-Invoicing Compliance EMEA India
August 2, 2022
India: New Taxpayers to Comply with E-invoicing Rules

As previously predicted by Sovos, the threshold for implementing mandatory e-invoicing has been lowered by the Indian authorities. According to the Central Board of Indirect Taxes and Customs Notification No. 17/2022 – Central Tax, from 1 October 2022 compliance with the e-invoicing rules will be mandatory for taxpayers with an annual threshold of 10 Cr. […]

Asia Pacific E-Invoicing Compliance EMEA
August 1, 2022
eGUI: Taiwan’s Approach to Electronic Invoicing

Since 1 January 2020 foreign electronic service providers must issue cloud invoices, a type of e-invoice, for sales of electronic services to individual buyers in Taiwan. Alongside this, Taiwan’s local tax authorities have been introducing incentives for domestic taxpayers to implement e-invoicing despite this not being a mandatory requirement. Before diving into the details of the […]