For those businesses that have started to plan, the main areas for concern are the additional costs and administration of having to complete customs declarations, potential delays to movements of goods and World Trade Organisation (WTO) tariffs cutting into the margin for those trying to remain competitive in the UK market.
The UK represents the largest trader partner for businesses across most key sectors of the Irish economy. As the uncertainty continues, many businesses may have to navigate customs rules and procedures for the first time in an area that can be complex and confusing. This guide aims to give an overview of customs processes and procedures and identify steps that businesses can take in order to develop a Brexit impact plan.
First Brexit planning steps
When planning for Brexit, the business should first take the following steps:
1 Review supply chain movements to determine which flows of goods are affected. It can be useful to look at Intrastat returns (if completed) to identify which products are sourced or supplied to the UK.
2 Complete a product classification exercise on the relevant products. Classification of products can be time-consuming and complex yet it is important it is correct as it affects the percentage of duty paid on the goods.
3 Once the product classification has been obtained, complete a duty analysis on these products to quantify the risk to the business. It is prudent to base these on WTO rates to show the maximum impact.
4 When the business is aware of the cost impact of Brexit, they can then identify if there are any potential steps they can take to mitigate the effects of Brexit such as applying for a bonded warehouse or a processing authorisation. Traders should be planning now as completion of a Brexit impact assessment and applying for customs authorisations can be a timely process.
Economic Operator Registration and ID
In order to be able to import and/or export goods, a trader is required to hold an Economic Operator Registration and Identification (EORI) number issued by EU customs authorities.
An EORI number issued in any Member State is valid throughout the EU and can be used in interactions with other customs authorities.
The format of the EORI number consists of the country code (IE) and a unique code/number. In Ireland, it generally takes the format of IE followed by the trader’s VAT number.
If a trader does not hold an EORI number, this can be applied for using the ROS (Revenue online) system. The following are required:
ROS login details and valid ROS digital cert;
A registration for customs/excise in ROS.
A request for an EORI number can either be made using MyEnquiries in myAccount or by using ROS online.
Detailed instructions on how to apply for an EORI number are shown on the Revenue webpage.
It is critical that an EORI number is obtained before importing or exporting to avoid delays.
SAD documents for exports/imports
The main customs document is the C88 or SAD (Simplified Administrative Document) and this is required for both imports and exports outside the EU. It is completed electronically on the Automated Entry Processing (AEP) system.
The SAD is generally completed by a customs broker although companies do have the option to complete this themselves.
It is worth noting here that a custom broker will generally act as a direct representative in the principal’s (importer’s) name. This means that the principal is solely liable for the customs debt.
The onus also lies with the trader to make sure that the details on the import or export SAD are correct even if completed by a broker on their behalf. Some key fields of a declaration are shown below:
Consignee EORI, name and address;
Declarant EORI name and address;
Country of origin;
Currency and value;
Preference document number (if trader is claiming duty reduction or waiver under a free trade agreement);
Customs procedure code (lets the authorities know if the trader is entering goods to a special procedure such as a warehousing or processing regime).
Once the import declaration is complete, it is sent electronically to AEP for checking. The system will automatically check the details on the declaration against risk parameters and will flag the declaration for further checking if it is deemed to be a high-risk shipment.
The declaration will then be routed as follows:
Green routing – The declaration is cleared on the basis of the declaration with no further customs checks;
Orange routing – The goods have been selected for documentary examination;
Red routing – Goods have been selected for documentary and physical examination.
Orange and red routing of declarations can lead to delays for traders as they require further checks on the documents and/or goods.
Deferred payment of duty and VAT
Under the EU Customs Legislation, the Union Customs Code (UCC), the customs debt (duty and Vat) shall be incurred at the time of acceptance of the customs declaration (ie when the goods are released into free circulation in the territory of the EU). There are two options for paying these charges, either by cash or a deferred payment facility.
If paying cash, this must be made by Electronic Fund Transfer (EFT) before the import declaration is made.
If a trader is going to be importing goods in large quantities, they may want to consider applying for a deferred payment account with Revenue. This allows the trader to import goods ‘on account’ and pay the charges due by direct debit the following month.
Businesses who wish to avail of deferred payment must be approved for a comprehensive guarantee
Once the comprehensive guarantee authorisation number is obtained, an application can be made for a customs deferred payment authorisation on the Customs Decisions System (CDS).
In order to access CDS, the trader should:
Have a valid ROS certificate;
Be registered for customs and excise in ROS;
Hold a valid EORI number.
Maximum change – WTO tariffs, classification and rules of origin
A tariff is a tax applied on the importation of goods, which in the EU is applied across its external borders. The rate of duty can vary depending on the type of product and country of origin.
WTO tariffs apply to trade between countries that have not negotiated a preferential trading arrangement. Maximum tariff rates have been set by the WTO, and in the absence of an agreement being reached between the UK and EU, it is envisaged that these rates will apply.
In addition to tariffs, there will be a requirement to comply with EU customs formalities and complete import and export declarations.
For anyone who has tried to navigate the EU TARIC, it can be a time-consuming and frustrating process. In-depth knowledge of the product is essential and, even then, the language can be obscure and it is constantly having to be updated to include new technology. Yet ensuring that the correct tariff code is used is critical as the percentage of duty payable is based on the tariff code. It also determines whether regulatory requirements are applicable such as goods licencing and tariff quota arrangements.
Tariffs within the EU remain relatively low with average tariffs of around 2.3pc for non-agricultural products yet this will offer little comfort to businesses who trade in products such as cars (10pc tariff), clothing and footwear (12pc-16pc tariff) and food products (40pc to 60pc-plus tariffs).
If a free trade agreement (FTA) is reached between the UK and EU, it is hoped that tariffs will be eliminated and goods will be able to move across borders without the payment of duty.
However, this will only apply to those goods which are sourced within the EU and qualify under the rules of origin.
To receive preferential treatment under an FTA, the goods must:
1) Be made in the FTA territory (Ireland);
2) Must meet the appropriate Rules of Origin applicable to the product (certain percentage must be EU origin);
3) Must be documented as originating by means of a Certificate of Origin document.
Each FTA has its own Rules of Origin which differ between products and these must be followed carefully.
Companies should consider the origin of all of their raw materials and obtain Suppliers Declarations from EU suppliers to ensure that, where possible, products qualify as originating in the EU.
AEO: What is it, and should I apply?
Authorised Economic Operator (AEO) is an accreditation by the customs authorities that the business is a ‘trusted trader’ and that its supply chain is secure.
In order to apply for AEO, the business should be able to demonstrate that their internal processes are robust and that they have adequate control over the storage and security of goods movements.
Niall Cody, the chairman of Revenue, noted in a statement that 82pc of all non-EU imports and 89pc of non-EU exports are by AEO traders and advised: “It will be very important that the bulk of trade continues to be through AEOs after Brexit.”
Types of authorisation
There are two types of authorisation, AEOC (Customs simplifications) and AEOS (Security simplifications). Traders may apply for one or both types of authorisation.
AEOC benefits – Up to 70pc reduction in customs duty guarantee, notification waiver for EIDR (Entry in Declarants Records), self-assessment and centralised clearance (when implemented).
AEOS benefits – Faster clearance at the border, priority treatment, mutual recognition by other countries such as the US and Japan.
A trader should consider which benefits are the priority when deciding which type of authorisation to apply for.
The application process involves completion of a detailed self-assessment questionnaire around the procedures the trader has in place for all areas of the business relating to customs matters.
In order to meet the conditions for application, traders must fulfil these criteria:
Compliance with customs and tax requirements for the past three years with no significant irregularities;
Financial solvency for the past three years;
Appropriate standards of record-keeping including internal controls and written procedures relating to the movement of goods in the supply chain;
Evidence of practical standards of competence in relation to customs matters for the past three years (AEOC only);
Safety and security standards (AEOS only).
Benefits and cost
The AEO guidelines issued by the European Commission state that AEO accreditation provides many benefits to businesses such as:
Easier admittance to customs simplifications;
Fewer physical and document-based controls;
related to security and safety and related to other customs legislation;
Prior notification in case of selection for physical control (related to safety and security).
Prior notification in case of selection for customs control (related to other customs legislation);
Priority treatment if selected for control;
Possibility to request a specific place for customs controls.
Indirect benefits can include recognition as a secure and safe business partner, improved relations with Customs and other government authorities, reduced theft and losses, fewer delayed shipments, improved planning, customer service and customer loyalty and lower inspection costs of suppliers and increased co-operation, etc.
The EU has concluded Mutual Recognition Agreements with third countries who operate a similar scheme, such as Norway, Switzerland, Japan, Andorra, the US (Customs-Trade Partnership Against Terrorism C-TPAT) and China.
AEO application and process
The AEO application and accreditation process is likely to take between six and 12 months depending on what internal procedures are already in place.
Once the application has been accepted, the authorities have 120 days to audit the trader and this will involve review of the customs processes and systems as well as security of premises and cargo handling.
When making the decision to apply, the trader should consider the time and cost of resource required to complete written procedures and ensuring that the business is compliant with customs processes.
Next to the accreditation from customs, obtaining the AEO status is also proof that the internal organisation is, from a risk perspective, at the appropriate level, so obtaining the status is also important for good company management.
How can I mitigate the costs of Brexit?
Brexit will represent a hard cost to businesses either in relation to duty/Vat payments or additional administrative costs for customs documents.
The business should try to mitigate these costs as far as possible by using the customs simplifications that are available such as:
Processing (inward and outward);
Customs bonded warehousing is a special procedure under which goods from outside the EU can be stored in a customs warehouse without payment of import duty or Vat. The customs warehouse can be part of an existing warehouse at the trader’s premises provided the boundaries are clearly marked. Customs warehousing can be used by businesses that import materials in bulk or hold goods for a period of time before either re-exporting the goods or releasing the goods for free circulation. The benefits of operating a customs warehouse include the following:
Duty and Vat payments are suspended until the products are removed from the warehouse;
No duty or Vat is payable on goods exported outside the EU;
No Vat is payable on goods dispatched to another EU country;
To operate a customs warehouse, the business must apply to the Irish Revenue for an authorisation. To apply, the business must be:
Established in the EU;
Have verifiable stock control systems in place;
Submit maps of the premises;
Demonstrate the premises are secure.
Processing (inward and outward)
Inward Processing is a term used to describe a duty relief procedure, under which goods can be imported into the EU for processing, with a suspension of import duties and Vat; the products resulting from the processing are either re-exported or released to free circulation within the EU, with duty and Vat paid on the originally imported raw materials or on the processed products. Processing is broadly defined for this purpose.
For example, assume a manufacturer based in Ireland imports raw materials from non-EU countries for processing. A certain quantity of the finished product is re-exported to non-EU customers, and the remainder is released for consumption within the EU.
If the manufacturer applies for an inward processing authorisation (a requirement to import or receive inward processing goods), the manufacturer pays duty and Vat only on the goods that are released for consumption within the EU. In addition, if the manufacturer produces goods on which a 0pc duty rate applies, the duty owed can be based on the end product rather than on the imported goods, which means that no duty would be payable.
Outward Processing occurs when a business sends goods out of the EU for processing and then re-imports the processed goods. This is beneficial for businesses in that the duty and Vat is only payable on the value added cost (ie the cost of labour outside the EU and the inbound freight costs). This could represent a substantial saving for businesses who process goods outside the EU.
It is worth noting that use of the above customs procedures requires a comprehensive guarantee and compliance with the conditions of the authorisation which would include stringent stock controls and use of correct information on import and export declarations.
Common Transit Convention (customs transit)
Customs transit is described in EU guidance as “a customs procedure used to facilitate the movement of goods between two points of a customs territory via another customs territory or between two or more different customs territories”.
What this actually means in practice is that goods can be moved with temporary suspension of customs checks and duty payments until the goods reach the destination country.
Its signatories include the EU member states, the European Economic Area (EEA) states, as well as Macedonia, Serbia and Turkey.
There are two main types of transit movement:
1) Goods imported from non-EU countries can be moved under transit from the point of entry into the EU to their final destination without payment of duties. Take for example, an importer in Ireland who brings goods in by road from Belarus. The goods cross the EU border in Poland. Usually the goods would have to go through the import process in Poland but use of the transit procedure allows the movement of the goods across all the European countries en route (Poland-Germany-Netherlands- UK) to Ireland. Use of this procedure means that all customs formalities are suspended until the goods reach their final destination.
2) EU goods can be moved under transit to another EU Member State via a non-EU country without undergoing customs import and export formalities.
Post Brexit, it is expected that goods which use the land-bridge route to Europe may have to use the Transit procedure to cross the UK. A transit accompanying document (TAD) will be issued in the country of origin (Ireland) showing a consignee in another Member State such as France.
This means that when the goods enter the UK, they do not have to be ‘imported’ and when they leave, an export document is not required.
The haulier will be asked to present the transit documents at each border crossing to confirm that these are EU origin goods.
The UK has successfully negotiated membership of the Common Transit Convention in its own name which could offer the UK and Ireland some alleviation of pressures at the borders.
Under the Union Customs Code (UCC), all Special Customs Procedures require that a financial guarantee is in place before the authorisation can be issued.
This is in the form of a comprehensive guarantee which must be applied for and be received before the authorisation is used. In order to be approved for a comprehensive guarantee in Ireland, there are a number of criteria which must be satisfied.
Be established in Ireland;
Have had no serious or repeated infringements of customs or tax rules; and
Have no record of serious criminal offences related to your business activities.
With regards to the latter two criteria, the authorities will look at these over the past three years as part of their assessment. The level of the guarantee required relates to the ‘potential debt’ which may be incurred on goods held under a special procedure such as Inward Processing or customs warehousing.
To calculate the potential debt element, the volume of goods under the special procedure over the period of a year is calculated, and the highest duty rate applicable is applied to that volume to give the reference amount.
It is worth mentioning that businesses who hold an Authorised Economic Operator (AEO) accreditation or meet AEO criteria can apply for a reduction or waiver of the guarantee amount.
There are many different areas to consider when developing a Brexit strategy and customs is just one of these areas. Yet it is possibly the area in which a lot of businesses have the least knowledge and exposure.
Businesses should treat Brexit like any other business risk and plan for change accordingly.
By looking at the current trading landscape in detail, it may allow businesses to identify opportunities and research new markets.
Businesses in Ireland are renowned for their adaptability and resilience and Brexit could well represent the most significant challenge for businesses in Ireland in many years.
Sunday Indo Business