On May 17, 2023, the European Commission unveiled its most ambitious and comprehensive proposals to overhaul the EU Customs Union since its establishment in 1968. Triggered by a significant surge in trade volumes and a rapid increase in EU standards to be monitored at borders, these proposals seek to safeguard the EU market, ensure effective customs duty collection, and foster the seamless flow of legitimate trade.
The European Commission’s initiatives include the abolition of the customs duty exemption for low-value consignments and the introduction of a simplified tariff for consignments below €1,000 (the “bucketing system”). Furthermore, the proposals seek to hold e-commerce platforms accountable for ensuring that customs duties are paid at the time of purchase.
Platforms as deemed importers
The proposed changes introduce new customs compliance obligations for e-commerce platforms. Presently, customs clearance procedures for e-commerce packages are typically handled by couriers or consumers. However, starting March 1, 2028, this responsibility will transition to e-commerce platforms, designated as “deemed importers”, that are involved in business-to-consumer (B2C) sales of goods to be imported into the European Union. Platforms will assume the role of the importer, performing tasks such as calculating and remitting customs duties on all B2C sales of imported goods. The value of goods sold through an e-commerce platform will be irrelevant in determining whether the platform qualifies as a deemed importer.
If a consumer purchases goods from a deemed importer, a customs debt will be incurred upon payment acceptance, contingent on the goods physically arriving in the customs territory of the European Union for delivery to the customer. It’s essential to note that no customs debt can accrue for goods that do not reach the customs territory of the European Union.
New rules for customs duty calculation
If platform operators assume the role of deemed importers, they face the task of categorizing each product for customs purposes to ascertain the applicable duty rate. This proves challenging due to the vast array of diverse products sold on a platform.
To streamline customs compliance for low-value shipments, there currently exists a customs duty exemption for consignments valued below €150. However, the proposed amendments seek to abolish this exemption, citing concerns about incentivizing undervaluation of shipments. Consequently, even for modestly priced items, valued at a few euros, customs duties will become mandatory upon import into the European Union.
In response to the elimination of the customs duty exemption, the proposal introduces an alternative – the option to implement a simplified tariff treatment for consignments up to a value of €1,000. This approach, known as the “bucketing system”, allows importers to categorize goods into five distinct “buckets”, each with its respective duty rate: 0% (books, newspapers, and works of art), 5% (toys, games, and musical instruments), 8% (silk, cotton products, and plastic goods), 12% (clothing, leather articles and travel bags), and 17% (foodstuff, footwear and glassware). Items falling into these buckets are exempt from the necessity to classify using the eight-digit code of the Combined Nomenclature to determine the applicable duty rate.
The bucketing system is applicable to B2C sales qualifying as distance sales for value added tax (VAT) purposes. While designed to cover most shipments, it excludes goods subject to excise duties, anti-dumping measures, anti-subsidy measures, or safeguard measures. Additionally, the five simplified duty rates do not apply to goods in Chapters 73, 98, and 99 of the Combined Nomenclature, such as products of iron and steel.
Under the proposed bucketing rules, the customs value should be determined as the net purchase price, excluding VAT, but inclusive of total transport costs until the product reaches its final destination. It will no longer be possible to subtract transport costs incurred after entry into the EU customs territory from the transaction value used for customs valuation. As a result, the transaction value will mirror the price paid by the EU customer. The Commission asserts that this approach streamlines verification for customs authorities, as it aligns with information readily available in outgoing invoices or order confirmations.
The bucketing system applies uniform duty rates to all goods, regardless of their origin. Consequently, customs authorities will not require the importer (platform operator) to provide proof of the goods’ origin. However, should the goods be subject to a lower rate under a preferential agreement and the importer wishes to claim it, a standard customs declaration with proof of origin must be submitted.
Comments
The proposals present advantages for both national budgets and consumers. The elimination of the €150 threshold is anticipated to bolster customs duty revenue for the EU, mirroring the success of a similar VAT measure implemented in 2021. As reported by the Commission, the elimination of the VAT exemption for low-value imports enabled Member States to accumulate €1.9 billion in VAT within the initial six months of implementation. Additionally, these proposals seek to curtail incentives for parcel splitting aimed at evading customs duties. Estimates indicate that deliberately undervalued parcels, constituting 65% of entries into the European Union, exploit the customs duty exemption. Moreover, the proposals aim to enhance transparency for consumers, ensuring they are aware of the final price upfront, without encountering unforeseen paperwork and hidden costs.
For e-commerce platforms, the proposals offer a partial simplification. While the bucketing system eliminates the need for specifying the origin of goods and allows for a less detailed tariff classification, its effectiveness in simplifying customs duty calculation depends on the nature of the products involved. Questions arise regarding whether the relatively high duty rates provide sufficient incentives for businesses to adopt this system. For example, under Harmonized System (HS) heading 6406, “parts of footwear” currently incur a 3% duty rate but fall under a bucket subject to a 17% duty rate, potentially hindering widespread adoption.
Furthermore, the bucketing system has limited scope, leaving a substantial number of goods unaffected by its simplifying mechanism. Due to various import restrictions, certain products will require tariff classification beyond the predefined buckets. A challenge arises in how the online platform, acting as the importer, can discern eligible goods for the simplified tariff from those that aren’t. Non-compliance may lead to sanctions, especially when applying the bucketing system to goods requiring a standard customs declaration.
While the simplified tariff streamlines customs duty calculations, it does not eliminate the need for precise tariff classification for other purposes. For example, advanced cargo information submissions, including the six-digit HS code for each product, are mandatory for customs authorities’ risk analysis before goods reach the European Union. The expectation is that this requirement will persist, maintaining the obligation for detailed tariff classification.
Lastly, it is crucial to note that the simplified tariff exclusively applies to B2C e-commerce sales of goods, necessitating standard customs procedures for business-to-business transactions. This poses a challenge for small and medium-sized enterprises engaged in importing low-value goods for their business activities, as they will continue to grapple with a substantial administrative burden for relatively modest packages.
