EU Court Clarifies How VAT Applies to Customs Agents

The indirect tax case C-714/20 (U.I. Srl v Agenzia delle Dogane e dei monopoli—Ufficio delle dogane di Venezia) of May 12, 2022 is of particular interest to forwarding agents acting as indirect customs representatives and their (non-EU) clients.

This article looks the decision of the Court of Justice of the European Union (CJEU) in this case, in light of the previous CJEU case law on similar value-added tax and customs matters. It also considers the deductibility of the import VAT by forwarders and carriers, and finally, looks at the practical implications of this case for EU member states such as the Netherlands.

Background

In order to file an import declaration in the EU, the declarant must be established within the EU. Therefore, to import goods in the EU, a non-EU business has an option to appoint an indirect customs representative established in the EU who would import those goods on behalf of the non-EU business. The indirect customs representative, compared to a direct customs representative, acts in its own name, and if the indirect customs representative is established in the EU, is able to import the goods in the EU on behalf of the non-EU company.

Acting in an indirect capacity means that the forwarding agent together with the non-EU business is held jointly liable for the import duties which become due when importing goods in the EU. This liability is based on the Union Customs Code (UCC), that provides that the customs declarant shall be liable to pay duties due on import. In the event of indirect representation, the person on whose behalf the customs declaration is made (i.e., the importer) is also liable. Article 84 of the UCC provides that the indirect customs representative is, together with the importer, jointly and severally liable for payment of customs duties when importing goods into the EU.

Import VAT is payable by any person or persons designated as liable by the EU member state of importation, according to Article 201 of the EU VAT Directive 2006/112/EC. The indirect representative is generally a payer of import duties to customs and charges those duties from the business it is representing: However, the problem arises if its principal goes bankrupt, disappears, or refuses to pay the import taxes payable.

Customs can in its control activities go back several years and request the payment of import taxes many years after the goods have been released into free circulation in the EU. Acting as an indirect customs representative consequently can involve major risks; therefore, representatives are not easy to find or only come at very high cost.

Facts of the Case

U.I. Srl (U.I.) acted as an indirect customs representative and filed import declarations in its own name and on behalf of the importer. In 2017 and 2018, the Italian tax administration demanded import VAT from the indirect customs representative because an importer was bankrupt. According to the Italian tax administration, U.I. was jointly and severally liable for the payment of the import VAT. U.I. disagreed and argued that there was no provision in the Italian law for joint and several liability of the indirect customs representative for the payment of import VAT.

CJEU—No Joint Liability for Import VAT Under EU Law

According to paragraphs 48–52 of the CJEU judgment, the joint and several liability of Article 84 of the UCC does not apply to import VAT. The CJEU ruled that the UCC must be interpreted as meaning that the indirect representative is only jointly liable for the customs duties and not also for the import VAT. Consequently, the indirect customs representative cannot become jointly liable for the payment of import VAT only on the basis of the UCC.

The CJEU found that the EU VAT Directive does not provide for joint and several liability of the forwarder either. Article 201 of the EU VAT Directive must be interpreted as meaning that the liability of the indirect representative for the payment of import VAT cannot be recognized jointly and severally with the importer in the absence of national provisions which explicitly and unambiguously designate or recognize it as being liable for this import VAT.

Consequently, the forwarding agent is not jointly liable for the import VAT if there are no national provisions which explicitly state the liability of the forwarder.

Comments from VAT Perspective

The CJEU has previously ruled that the VAT is not always due when the customs debt arises. In its judgment of June 2, 2016, in joined cases C-226/14 (Eurogate Distribution) and C-228/14 (DHL Hub Leipzig), the CJEU stated that although customs duties became payable since the goods concerned were unlawfully removed from customs procedure (customs warehousing and external transit, respectively), no import VAT was payable because those goods did not enter the economic network of the EU.

Consequently, importation for VAT purposes does not always coincide with importation for customs purposes, and the import VAT is not always due when the customs duties become payable.

• Import VAT cannot be deducted by the forwarding agent acting on behalf of the importer

The import VAT paid by a forwarding agent on behalf of the importer cannot generally be deducted by this forwarder. According to the EU VAT Directive and the CJEU case law, the import VAT can only be deducted by the importer of the goods who is an owner of the goods at the moment of importation and/or uses the goods for its taxable economic activities.

For example, in its judgment of June 25, 2015, in case C-187/14 (DSV Road A/S), the CJEU stated that in respect of import VAT, “a right to deduct exists only in so far as the goods imported are used for the purposes of the taxed transactions of a taxable person.” Since the value of the goods transported did not form part of the costs making up the prices invoiced by a transporter whose activity was limited to transporting those goods for consideration, the conditions for input VAT deduction were not satisfied, according to the CJEU.

The CJEU decided that it is in line with the VAT Directive to refuse the deduction of import VAT which the carrier, who is neither the importer nor the owner of the goods in question, and has merely carried out the customs formalities as part of its activity as a forwarding agent, is required to pay. In the light of other judgments of the CJEU, such as in Joined Cases C-226/14 and C-228/14, and the recent case C-714/20, it is questionable whether the import VAT would become payable in the first place.

In its judgment of Oct. 8, 2020, in case C-621/19 (Weindel Logistik Service), the CJEU again noted that a taxable person may deduct from the amount of VAT it is liable to pay the tax due on imported goods where those goods are used for the purposes of that person’s taxable transactions.

Consequently, if the forwarder becomes liable for payment of import VAT which it cannot reclaim for the above reasons, the import VAT becomes a non-recoverable cost for the forwarder unless it can re-charge this import VAT from its principal/the importer of the goods. Therefore, it would be welcome news for forwarders that they may not always become (jointly) liable for import VAT when they are (jointly) liable for the customs duties.

Consequences for Practice

It follows from this decision that in order to make an indirect customs representative jointly and severally liable for the payment of import VAT, national legislation is required which explicitly and unambiguously provides for this liability.

The legislation of each member state should consequently be analyzed in light of the CJEU judgment to evaluate whether its legislation provides sufficiently clear provisions for joint liability of the indirect customs representative for the payment of import VAT. If the provisions do not sufficiently clearly establish the liability of the indirect customs representative for the import VAT, the customs cannot charge this tax to the forwarding agent.

Practical Implications

This CJEU decision could potentially have a major effect on forwarders, since they may (depending on the national legislation in place) not become liable for import VAT, which usually involves a major share of the payable import taxes. This means that a forwarder’s risks will be reduced, and subsequently also the fees and bank guarantees that the forwarder requires from their customers could be adjusted downwards—which would make indirect representation less costly for non-EU importers.

Consequences in EU Member States

The Dutch legislation does not seem to contain any provisions which explicitly state the liability of the forwarder, because the Dutch VAT legislation does not contain provisions which explicitly and unambiguously designate or recognize the indirect customs representative as being liable for import VAT.

The Italian Supreme Court ruled in its Judgment no. 23526 of July 27, 2022 that, based on CJEU case C-714/20, import VAT is not part of the customs debt and therefore only the importer, and not its indirect representative, is liable for non-payment.

Experts from some other member states (e.g., Poland and Spain) have commented that the national legislation of their countries explicitly and unambiguously provides for joint and several liability of the indirect customs representative for import VAT.

Conclusion

In the U.I. case, the CJEU ruled that under EU law an indirect customs representative is liable jointly and severally with the importer only for customs duties and not for import VAT. In order to make an indirect customs representative jointly and severally liable for import VAT payment, the legislation of the EU member state should explicitly provide for such liability.

Consequently, according to the CJEU, customs is not allowed to request the indirect customs representative to pay import VAT unless the local laws of the country explicitly provide for such liability.

The CJEU decision could potentially diminish the liability of an indirect customs representative by limiting the liability to the customs duties and not to the import VAT if the national legislation does not explicitly provide that the indirect customs representative becomes jointly liable for the import VAT. This is good news for forwarders since they are not able to deduct this import VAT if payable because they do not use the imported goods for their taxable output transactions.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Aiki Kuldkepp is Senior Manager, Tax, with Grant Thornton Netherlands.

The author may be contacted at: aiki.kuldkepp@nl.gt.com