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

EMEA iOSS VAT & Fiscal Reporting
February 7, 2023
Understand the latest EU tax laws and changes

It can be difficult to know where you stand regarding EU VAT changes and European tax laws. There have been sweeping changes implemented in recent years. This blog breaks down the major updates, including the EU VAT reform, to help ensure your business is on the right path. Additionally, you can speak with our team […]

E-Invoicing Compliance Mexico
February 1, 2023
Mexico’s Resolution Miscellanea Fiscal 2023 and CFDI matters

What is CDFI? CFDI, which stands for Comprobante Fiscal Digital por Internet, is the electronic billing schema defined by the Mexican federal tax code. It has been mandatory for companies that do business in Mexico since 2011. CFDI aims to increase visibility into companies’ tax liabilities so the government can ensure it is receiving accurate […]

EMEA VAT & Fiscal Reporting
January 25, 2023
Understanding VAT Between European Countries

All European countries charge VAT on goods and services. VAT is a consumption tax added during each production stage of goods or services. Although VAT is near-universal according to the EU VAT Directive, VAT rates within the EU do differ. This is because the EU VAT Directive allows Member States to choose whether to implement […]

EMEA iOSS OSS VAT & Fiscal Reporting
January 18, 2023
What Non-EU countries need to know about IOSS & OSS

The EU VAT E-Commerce package has been in place since 1 July 2021. This applies to intra-EU B2C supplies of goods and imports of low value goods. Three schemes make up the package. These are based on the value of goods and the location of the sale of goods. All OSS schemes are currently optional. […]

EMEA VAT & Fiscal Reporting
January 10, 2023
An Introduction to EU VAT

Nearly every major economy has a form of VAT. That’s 165 countries, each with its own compliance and reporting rules. The main exception is the United States. VAT is by far the most significant indirect tax for nearly all the world’s countries. Globally VAT contributes more than 30% of all government revenue. Levying VAT is […]