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