1. Customs and Tax do impact global supply chains
Opportunity or cost?
17 March 2016

2. Factsheet Post 2000 : Large corporations and SMEs “go global”
global procurement
export to emerging markets
This presents new challenges
Customs regulations impact goods flows and import taxes in emerging countries are usually very high
90% of international cargo
shipments are containers
Easy access to fraudulent
parties and terrorists

3. Factsheet
Businesses have an increasing dependency on their logistical partners (3PL/4PL)
For warehousing and transportation
For global representation to Customs
Information sharing
material master data – customs data
Commercial data – invoicing
Transport details
High liabilities : jointly and severally
For pricing purposes : landed cost determination
Large importers and exporters may locally in-source their customs compliance but in such case the operating model is often a hybrid one (partly in-sourcing and partly out-sourcing)
Large software providers have entered the space of customs management software

4. Global Trade Challenges
Unser Ansatz

5. Global Trade Challenges for our clients
Today´s supply chains are unpredictable
Unanticipated supply chain costs
Automation is a goal, not a reality
Continually evolving regulatory demands
Need for visibility and security
New e-filing requirements
Increasing Cost
and Risk
Technology as enabler
Individual Software Development
Example: Siemens DAMEX (export control system)
Standard Software:
Oracle GTM, SAP GTS, MIC CUST, Amber Road etc.
Oursourcing / Managed Services
3rd Party Logistic Providers or at least software as a service, hosted solutions, ASP models etc.

6. Trade Compliance and Customs Management
Global Trade Management: Opportunity Technology is the key enabler of any global trade management strategy
Data Exchange and Collaboration
Trade Compliance and Customs Management
Customers
Authorities
Individual Software Development
Example: Siemens DAMEX (export control system)
Standard Software:
Oracle GTM, SAP GTS, MIC CUST, Amber Road etc.
Oursourcing / Managed Services
3rd Party Logistic Providers or at least software as a service, hosted solutions, ASP models etc.
Sales
Suppliers
Materials Management
Production
Core Business Processes

7. Global Trade Department
Global Trade Management: Reality Resource Requirements
Global Trade Departments – if they exist at all – are often facing the challenge that there are many requirements from an internal, external and statutory perspective but only limited resources, trained staff or budget is available.
Internal
Boardroom Interest
Tax Risk Management
Business Globalization
KPI´s to fulfill
External
Investor Interest
Media Interest
Auditors
Benchmarking
Statutory
Financial Reporting
Authorities
SOX, AEO etc.
Resources
People
Training
Budget
Individual Software Development
Example: Siemens DAMEX (export control system)
Standard Software:
Oracle GTM, SAP GTS, MIC CUST, Amber Road etc.
Oursourcing / Managed Services
3rd Party Logistic Providers or at least software as a service, hosted solutions, ASP models etc.
Global Trade Department

8. Opportunities for duty reduction
27 September 2017
Opportunities for duty reduction
To determine the landed cost for products.
The classification of the product determines tax rate and other trade (restrictive) measures and compliance burden
Value of the product (Transfer Price) + freight and other costs like royalties and license fees determine the duties
Customs & Trade
Origin & Preference
Classification
Valuation
Special Procedures
Determine baseline duty / risk
Reduces / Remove Duty
To reduce the landed cost for products
Globally, over 400 Free Trade Agreements (FTA) between countries and trade blocks exist, reducing import taxes for originating goods.
Specials customs procedures can be applied to suspend or avoid payment of duty on specific trade lanes 8

9. General Introduction: Customs & UCC
Supply Chain Innovations 2016

10. Customs Movement of goods between customs territories
Uniform European Customs legislation, subject to major changes in 2016 : the Union Customs Code (UCC)
On 1 May 2016, UCC will become operational and will replace the current Community Customs Code (CCC). Implementation of the UCC will start gradually as from 1 May 2016 until 31 December 2020
To make the UCC work, Implementing Acts and Delegated Acts (IA / DA) are required
Published on 29 December 2015
Customs duties are a cost, focus therefore lies with :
duty planning (tax efficient supply chain)
optimisation through duty suspension regimes (customs procedures)
determination of three decisive elements of the taxable basis
Increased focus on Safety and Security in the international supply chain
Supply Chain Innovations 2016

11. Customs valuation
Supply Chain Innovations 2016

12. Customs value : background
The WTO Customs Valuation Agreement provides the international legal framework for determining the customs value
Customs value is generally based on the transaction value of goods: The price paid or payable when sold for export to the country of importation, subject to specific adjustments where necessary
There will be substantial changes in the field of customs valuation which can have a considerable financial impact on companies that import goods into the EU
Supply Chain Innovations 2016

13. First Sale for Export rule abandoned
The old legislation (CCC) allows the use of the “First Sale for Export”
The UCC changes this rule to refer to the “Last” Sale for Export: The transaction value must be based on the sale occurring immediately before the goods were brought into the customs territory of the EU
Manufacturer
China
US Co HQ US
Related
Distribution Co EU
€80
€100
Goods are shipped directly to EU
CCC: Customs duty calculated on €80 rather than €100 (subject to certain conditions being met).
UCC: Customs duty calculated on €100 rather than €80.
Example
Physical flow
Legal flow
Supply Chain Innovations 2016

14. Value of goods introduced in a bonded warehouse and subsequently sold and imported from the warehouse
Under the type D and E (D) customs warehousing procedures, it is currently allowed to import goods using the customs value at the moment the goods are entered into the warehouse
Article 128 §2 IA : where goods are sold for export into the EU, not before they were brought into that customs territory, but while in a customs warehouse, the transaction value has to be determined based on that sale
Supply Chain Innovations 2016

15. Value of goods introduced in a bonded warehouse and subsequently sold and imported from the warehouse
Manufacturer
China
Trade Co X
Trade Co Y
Example: Type D customs warehouse
CCC: Customs duty calculated on €80
UCC: Customs duty calculated on € 80 if transaction 1 qualifies as sale for export
UCC: Customs duty calculated on € 100 if transaction 1 does not qualify as sale for export
UCC: Customs duty calculated on € 120 if transaction 1 and transaction 2 do not qualify as sale for export ?
Physical flow
Legal flow
EU Retailer
Transaction 1
€80
Transaction 2
€100
Transaction 3
€120 EU
Type D or E (D) customs warehouse
Supply Chain Innovations 2016

16. Royalties and license fees (incl. trademarks)
Payments in respect of patents, designs, trademarks, copyrights etc. are added to the price paid or payable if
These elements are related to the goods being valued
The buyer must pay these elements, either directly or indirectly, as a condition of sale
Under the UCC, the “condition of sale” requirement is deemed to be met if
The seller or a person related to the seller requires the buyer to make this payment, or
The payment by the buyer is made to satisfy an obligation of the seller, in accordance with contractual obligations, or
The goods cannot be sold to, or purchased by the buyer without payment of the royalties or license fees to a licensor
Supply Chain Innovations 2016

17. Customs warehousing
Supply Chain Innovations 2016

18. Customs warehousing Type D warehouse Equivalence will be allowed
27 September 2017
Customs warehousing
Type D warehouse
Type D warehouse will cease to exist (including E-type with D-facilities)
Customs value determination at entry (CCC) versus at exit (UCC)
Where goods are sold for export to the customs territory of the Union while in temporary storage or while placed under a special procedure other than internal transit, end-use or outward processing, the transaction value shall be determined on the basis of that sale
Transitional measures: goods placed under D-type warehouses prior to entry into force of the IA, can still be discharged under the conditions set forth by the CCC, until 31 December 2018
Equivalence will be allowed
Supply Chain Innovations 2016

19. 27 September 2017
Customs warehousing
Customs warehouse may serve for retail sale, including
Remote retail sale, including sales via the Internet
Inviting customers into the warehouse for face-to-face retail sales will not be allowed
Retain with relief from import duty for members of international organisations
Usual forms of handling are the same as currently, except for
Denaturing, even if this results in a different eight-digit CN code
The provision regarding costs for storage or usual forms of handling is moved from Annex 72 to the UCC
Supply Chain Innovations 2016

20. Other open issues in the light of UCC
Supply Chain Innovations 2016

21. Exporter definition CCIP UCC DA
The exporter, within the meaning of Article 161 (5) of the Code, shall be considered to be the person on whose behalf the export declaration is made and who is the owner of the goods or has a similar right of disposal over them at the time when the declaration is accepted.
Where ownership or a similar right of disposal over the goods belongs to a person established outside the Community pursuant to the contract on which the export is based, the exporter shall be considered to be the contracting party established in the Community.
The person established in the customs territory of the Union who, at the time when the declaration is accepted, holds the contract with the consignee in the third country and has the power for determining that the goods are to be brought to a destination outside the customs territory of the Union,
The private individual carrying the goods to be exported where these goods are contained in the private individual’s personal baggage,
In other cases, the person established in the customs territory of the Union who has the power for determining that the goods are to be brought to a destination outside the customs territory of the Union.
Supply Chain Innovations 2016

22. Exporter definition (cont’d)
New wording does not allow non-established legal person to act as exporter of record
‘Person established in the customs territory of the Union’ means any person having its
Registered office
Central headquarter or
Permanent business establishment in the customs territory of the Union
‘Person’ means: a natural person, a legal person, and any association…
‘Permanent business establishment’ (for customs purposes) means
Fixed place of business
Where both the necessary human and technical resources are permanently present, and
Through which a person’s customs-related operations are wholly or partly carried out
Impact on VAT exemption for export
Supply Chain Innovations 2016

23. Exporter definition (cont’d)
EU Registered Office or
Central Headquarter
YES NO
Holds contract
YES
PBE for customs purposes
NO YES
Power for determining
YES
May act as EOR
Supply Chain Innovations 2016

24. Exporter definition – Scenario I
Physical flow
Invoice flow
Direct Shipment
Non-EU Customer
Comp A (BE)
Comp B (BE)
Established
Established
Holder of the contract
Power for determining
Supply Chain Innovations 2016
These slides are based on draft legislation and the current understanding thereof

25. Exporter definition – Scenario II
Physical flow
Invoice flow
Direct Shipment
Comp A (JP)
EU Stock
Non-EU Customer
Comp B (CH)
Quid EOR
Supply Chain Innovations 2016
These slides are based on draft legislation and the current understanding thereof

26. Exporter definition – Scenario III
Physical flow
Invoice flow
Direct Shipment
Comp A (JP)
EU Stock
Comp B’ (BE affiliate)
Non-EU Customer
Comp B (CH)
Established
Power of determining
Supply Chain Innovations 2016
These slides are based on draft legislation and the current understanding thereof

27. Exporter definition – Scenario IV
Physical flow
Invoice flow
3PL agreement
Direct Shipment
Comp A (JP)
EU Stock
Non-EU Customer
Comp B (CH)
3PL
Fixed place of business
Permanent human and technical resources
Through which a person (i.e. EU / non-EU) customs related operations are wholly or partly carried out.
Quid EOR
Supply Chain Innovations 2016
These slides are based on draft legislation and the current understanding thereof

28. Exporter definition : open issues
Redefined concept, heavily focusing on “being established in the customs territory of the EU” and “having the power to determine that the goods will be brought to a place outside the EU”
Interpretation of the term “permanent business establishment” as defined by the UCC is key e.g., for Swiss principals;
Interpretation of the term “having the power to determine …” is relevant where both Manufacturing Co. and Sales Co. are EU based;
European Commission is working on guidelines
Supply Chain Innovations 2016

29. Entry in the Declarant’s Records : open issues
Restrictions to Entry in the Declarant’s Records (EIR) :
EIR is permitted for all customs procedures, except Transit, Free Zones and certain (re-)imports and exports
EIR is not allowed for (re-) imports combined with (to be confirmed) :
Subsequent VAT-exempt IC supplies
Suspension of excise duties
What are the practical implications of these restrictions?
Supply Chain Innovations 2016

30. Contact Franky De Pril Partner Global Trade De Kleetlaan 2 1831 Diegem
Supply Chain Innovations 2016

31. Thank You !
Supply Chain Innovations 2016