FD Intelligence

Four things you need to know about the Union Customs Code

On 1 May 2016 the Union Customs Code comes into force, replacing the Community Customs Code. This European-wide legislation will impact businesses involved in global trade in goods.

Businesses need to act now. Here are four significant changes that you should be aware of.

1. Financial guarantee required

Any UK company operating a customs-authorised duty relief or suspension regime (such as customs warehousing or inward processing), will need to provide a financial guarantee to cover the annual amount of potential duty that could be due.

This requirement does not exist in the UK today, so will introduce additional costs for the guarantee provision, as well as any potential restriction on working capital in providing security to the guarantor (typically a bank).

2. Guarantee waivers

Guarantee waivers will be introduced, but only for those businesses that fulfil the criteria for Authorised Economic Operator (AEO).  This is a supply chain security accreditation, approved by Customs for companies that demonstrate that their internal processes fully support customs compliance. 

It can take six months or more to obtain AEO authorisation, so this should be considered as soon as possible.

3. Customs valuation changes

The basis of customs valuation will also change, with the removal of the current provision that allows an importer to attest to the value of an earlier sale in a chain of sales leading to import. Instead, customs valuation will be based on the final sale before import.  This change could increase customs duty costs significantly.

4. Duty liability of royalty payments

Customs duty currently applies to royalty payments only  where they relate to imported goods, and are payable as a condition of sale of those goods. These restrictions will be removed, so that many more royalty payments will be subject to customs duty. 

Any agreements which give rise to the payment of a royalty should be reviewed to determine whether reconstruction might be necessary to avoid exposure to a future duty cost.