International e-commerce: understanding the tax and duty implications of selling goods across borders. Gain insights about trade compliance tasks in e-commerce, even if a customs broker takes care. Slides prepared for UN/ITC Ecomconnect initiative (4 June 2020). https://ecomconnect.org/

1. ecomConnect Day
E-commerce & Economic Recovery
Name of Panelist: Famke Schaap
International e-commerce: understanding the tax and
duty implications of selling goods across bordersn
Thursday June 4th

2. Meet the speaker
Famke Schaap
Independent expert on trade &
customs in an e-commerce context

3. Agenda
International e-commerce: understanding the tax and duty implications
of selling goods across borders
1. Trade compliance basics for e-commerce sellers
2. Roles and responsibilities of e-commerce sellers
3. E-commerce delivery models and customs and VAT implications
4. Payment of customs duties
5. Dealing with indirect taxes (VAT/Sales taxes) in target markets
6. What are low value good exemptions and de-minimis thresholds in e-
commerce?
7. ITC’s roadmap to dealing with customs and indirect taxes for e-
commerce success
8. Practical recommendations

4. 1. Trade compliance basics for e-commerce sellers
• Why do customs and taxes matter in e-commerce?
• Understanding the role of Customs;
1
Source of
revenue
2Protect
domestic
industries.
Protect
citizens and
environment.
3
Control
specific
goods and
services
 Government (customs / tax administration)
perspective on e-commerce:
o Opportunity vs challenge: trade volumes,
security & safety, ‘unknown traders’, budgeta
implications (undervaluation, de minimis)
o Focus on controls and enforcement +
adjustment of e-commerce policies
o Business implications: unpredictability and policy
uncertainty + focus on trade compliance

5. Definition of trade compliance
Trade
Compliance
Business risks
Business
opportunities
Trade compliance can be understood as a broad
term that encompasses those business efforts to
deal with customs, VAT (and other trade related
procedures including non-tariff measures and
regulations), whether in the departure or arrival
country.
• What does non-compliance entail when talking
about customs and indirect taxes?
• Risks vs opportunities in trade management
• Ingredients of trade compliance; know-how,
systems, processes

6. Taking a market perspective for trade compliance
Key to dealing with changing policy frameworks in e-commerce
 E-commerce trade compliance: basic trade policy frameworks + e-commerce
specifics
 Basic trade compliance: customs process, import and export measures (tariffs,
standards and certificates), (indirect / consumption) taxes
 E-commerce specifics: low value goods exemptions, customs documentation
simplifications
 Key issues e-commerce sellers need to know about:
• What to pay? Where and how to pay? -> market specifics, payments vs
documentation
• Who pays? -> roles and responsibilities, Incoterms
• How much to pay? -> ‘landed cost’ estimates, calculations, reductions and
exemptions, returns

7. Market perspective: European Union (EU) E-commerce policy
frameworks
 EU Customs Union vs 28 member states
 Division of powers related to customs and indirect tax legislation
 2015: EU Digital Single Market Strategy
 Projects realized:
New VAT rules for online sales of goods and
services (2021) -> registration in VAT MOSS
system, online marketplace responsibility for
VAT collection, elimination of VAT LVG de-
minimis
Revised consumer protection rules (2020)
Revised Payment Services Directive

8. Market perspective: US E-commerce policy framework
 March 2018: US Customs and Border
Protection (CBP) new e-commerce strategy
 Goal: to be able to secure safety and security
whilst facilitating trade in the new e-commerce
environment
Did you know? Since 2000, the number of
Americans shopping online has increased from 22
percent to 79 percent. The increase in volume is
mostly comprised of shipments valued under 2.500
USD.

9. 2. Roles and responsibilities: Understanding the customs process (EU)
Trade compliance starts with understanding customs processes
0. Shipment of
goods out of
Country X
•Doc: Commercial Invoice (+
origin certificate as per need)
•Who: Seller
1. Arrival at the
border (entry)
•Doc: Entry Summary
Declaration (ENS)
•Who: Transporter
2. Presentation
of goods to
Customs
•Doc: Import Declaration
prepared by Customs
Representative (3PL) to be
lodged in the EU Import
Control System + EUR1 and
certificates
•Who: Customs Representative
(3PL)
3. Customs
carries out risk
management
•Doc: in case of risk, customs
may request additional
documents for verification
•Who: Customs Representative
(3PL)
4. Declarant
completes
payments and
forms
•Doc: Invoice for duties and
VAT charges sent by 3PL to
receiver (or sender)
•Who: Customs Representative
(3PL) pays to customs once
receiver (or sender) has paid
all charges.
5. Release of
the goods into
Country Y
•Who: Customs Representative
(3PL)

10. Roles and responsibilities: Incoterms
The importance of clarity on payment responsibilities in e-commerce: Incoterms
 Incoterms:
 Set by International Chamber of Commerce (ICC)
 Standardized terms about the responsibility of each party (seller and buyer) for the delivery of
goods under sales contracts
 Default Incoterm when selling with a Logistic provider: DAP (Delivery at Place) Incoterm
Figures: Incoterms 2010 Delivery Duty Paid (DDP) and Delivery At Place (DAP). Source: Incoterms

11. Role of the customs broker
• Key role of customs brokers: intermediary role between traders and customs in
the clearance process
• 25% of WCO members have mandatory use of customs brokerage services
for some or all clearance transactions
• Example: Definitions in the EU Union Customs Code (UCC)
• Economic operator: person or trader covered by customs legislation
• Customs representative: a broker appointed to carry out the acts and
formalities required under the customs legislation
• Important: what happens in the event of non-compliance?
-> Contractual arrangement stipulates responsibilities and liability arrangements
between economic operator and customs representative
Optional / Mandatory use of
customs brokers (WCO data,
2016)
Optional use of customs broker
Mandatory use of customs broker
Rest

12. Terms and conditions of customs brokerage services
Did you ever check the trade compliance related articles of the ‘Terms and Conditions’
of the customs brokerage services? Example: DHL Import Guidelines.
What role can DHL
take up on behalf of
the seller and the
buyer in the area of
customs clearance?
Can DHL be held accountable in the
event the package was damaged after
customs inspection?

13. 3. E-commerce delivery models: implications for customs duties and
indirect taxes In-house trade
compliance (A)
Outsourced trade
compliance (B)
Selling and shipping
from own stock (1), no
local presence in target
market
Cost efficient. Some non-
compliance risk. Less optimal
returns process.
Medium cost efficient. Limited
to no non-compliance risk.
Optimal delivery (and possibly
returns) processes.
Using a customs
warehouse in/close to
target market (2), no
local presence in target
market
Challenging; requiring solid in-
house customs and VAT/sales
tax know-how. Possibly
combine with specialist tax
advisor in target markets for
specific issues.
Limited noncompliance risk.
Optimal storage, fulfilment and
delivery (and possibly returns)
processes. Additional costs.
Local presence in target
market (out of scope)
(3)
Out of scope Out of scope
• Location of goods: own
stock vs distant selling (ex.
warehouse close to target
market) vs local presence
• Trade compliance: in-house
vs third-party logistic
provider (or: 3PL)

14. 4. Payment of customs duties: key steps
Step 3: calculate the
correct customs
value of the goods
Step 1: the
classification and
description of the
goods
Step 2: determine the
applicable tariff for the
product and target market,
including possible
exemptions and
reductions
(Optional) Step 4: For
use of a preferential
tariff (FTA), check
origin conditions
CUSTOMS
DUTY
AMOUNT
TO BE PAID

15. Commercial invoice
• Description of goods
• Country of origin
• Harmonised code (HS-code)
• Shipment term: DDU / DDP
• Unit value / total value (vs
customs value)

16. • Why? Your commercial invoice always needs an
accurate description and classification code for the
product to be sent. The classification code is the
basis for customs value.
• How?
• Use of Harmonised System (HS) to select
product-code in 6-digit
• Use of National Tariff lines (NTL) for 2 or 4
additional codes
• Example:
• EU: Combined Nomenclature and Integrated
Tariff (TARIC)
• US: Harmonized Tariff Schedule (HTS)
• Note: classification is not as straight-forward as it
seems. When in doubt, seek advise from your
customs broker!
Customs classification are a basis for customs duty rates and other measures
Step: the classification and description of the goods

17. • ITC’s MacMap (www.macmap.org)
• Always verify the product code on the national
website tools for the correct NTL
• EU: TARIC Consultation database
• US: https://hts.usitc.gov/
From international standard (HS) to national tariff (NTL)
Finding your product code with target market national tariff tools
-> US ITC website to search NTL-> EU TARIC website to search NTL

18. Benefiting from reduced customs duties through Free Trade
Agreements (FTA’s)
About Free Trade Agreements:
• Trend: +290 FTA’s are in force globally
(WTO data)
• Tool: Check in the WTO RTA Database
(http://rtais.wto.org
• How?
• Explore different options for
preferential tariffs under FTA’s
• Ensure that conditions (for origin) can
be met to benefit from the FTA
Determine the applicable customs duty rate:
• Applied MFN rates ; standard customs duty for a given
market
• Preferential rates (FTA, GSP); lower, depends on
bilateral/regional arrangement, but conditions apply

19. About preferential origin conditions to take advantage of
FTA benefits
• Preferential origin rules determine whether you can import under an FTA or using an MFN
tariff
• Complex and diverse origin rules; FTA specific and product specific rules
• Tool: Origin Facilitator (ITC/WTO/WCO) : https://findrulesoforigin.org
• Documentation: EUR1 certificate

20. Exercise: If a customer wishes to receive an estimate of the
indirect taxes to be paid…
How to calculate customs duties when selling a leather bag from Guatemala to a
customer in the EU
Components of customs duties
and VAT calculation
Euros amount
Customs value 700 EUR
Customs duty based on
applicable tariff rate xx %
(applied MFN or applied tariff)
x customs value
3% (MFN rate)
Total costs including customs
duties (excluding VAT and
customs broker administrative
charges)
• Based in Guatemala, you are selling leather
handbags through your own website.
• A customer from Germany has ordered 3 bags at a
total value of 650 Euros. The products are sold
under DAP Incoterm (Duties and Taxes Unpaid). The
bags were partly produced in Guatemala, with
most of the leather coming from outside the
country.
• The customer asked about an estimate of the
customs duties to be paid upon importation, and you
want to make your own calculation.
• Question: What are the key steps towards
calculating the customs duties due upon import? For
your company, what would be the the advantage of
exporting under an FTA? What the challenge?
• Based on the MFN rate, calculate the customs duty
to be communicated to the client.

21. 5. Dealing with consumption taxes: different markets,
different systems
What are consumption taxes?
1) Value-added taxes are consumption taxes charged on:
• taxable sales
• by all sellers
• in each stage of the supply chain
2) Customs duties vs Value-added taxes (VAT)
• Border tax vs (end) consumer tax
3) Different systems of indirect taxes exist around the world
• VAT (EU): staged approach, charged at each purchase in the supply chain
• Sales tax (US): charged only once on products at last point of sale to
end user
• Key similarity: registration thresholds
Retailer
Sells product
to consumer
Transport
to overseas
consumer
Producer
Sells materials to manufacturer
Government
Collects revenue
Manufacturer:
Sells product
to retailer

22. Determining the amount of VAT (or Sales taxes) to be paid: key steps
Step 3: calculate the
correct VAT or
Sales tax amount
Step 1: Understand the
VAT / Sales tax
system and
processes (liability
for import VAT,
registration,
collection etc)
Step 2: determine the rate for
the product and target
market, including possible
exemptions and
reductions
(Optional) Step 4: For
use of a preferential
tariff (FTA), check
origin conditions
VAT or Sales
Tax
AMOUNT
TO BE PAID

23. VAT and sales taxes: different (standard) rates
Trend: VAT is increasingly used for generating Government revenues
Figure: Selected VAT rates in selected OECD Countries (2018) . Source: OECD
Consumption Tax Trends 2018
• How do Governments increase revenues
from VAT?
o Increase VAT rates
o Limit VAT exemptions
o Combat VAT fraud and non-
compliance (enforcement of rules)
• Business implication: Changes in
VAT/Sales tax rates can change
purchase decisions, and impact
competiteveness.
• Variety in VAT rates across the globe
• EU: Eur Com (minimum rate) vs Member
States
• 17 - 27% (Hungary), 7.7% (Switzerland)

24. Snap-shot: EU VAT rules
Casus: EU rules for Import VAT liability and VAT registration
Payment of
import VAT to
Government in
EU country X
Broker: Request
for import VAT
payment to buyer
in EU country X
Seller
outside EU
Delivery of
package to
buyer in EU
country X
• As a business established outside the EU, do I need to pay import VAT
in the EU?
• YES - business established outside the EU (in principle) always
need to pay import VAT
• Some exemptions: low value goods (until Jan 2021!)
• Moment of payment: upon release of package into free
circulation into the EU
• Where to pay VAT: in the Member State of importation (not the
country of arrival!)
• Does my business need to register to pay VAT in the EU?
• NO – (until july 2021) in principle, non-EU businesses selling to
local consumers do not need to register to pay VAT in the EU
• YES – (after july 2021) in principle, all non-EU businesses will
need to register for VAT purposes in the EU -> VAT Mini One stop
shop
• Note: VAT Liability of e-commerce marketplaces as per July 2021!.

25. 6. Exemptions on payment of customs duties and taxes for low value
goodsResearching de-minimis thresholds for VAT and customs duty payment
Source: WCO report on ‘Cross-border e-commerce’ (March 2017)
• WCO (Revised Kyoto Convention) on low
value good exemptions: Governments
shall specify a minimum value or
minimum amount of duties and taxes
below which no duties and taxes will be
collected
• Varying de-minimis ‘thresholds’
• Which VAT / Sales tax exemptions are
available in the EU and US?
• EU: a low value goods exemption for goods
imported from third countries, exists if:
• VAT: Between 10-22 Eur (usually 22 EUR)
-> until July 2021! / Customs duties: 150
Eur
• US: a low value goods exemption for goods
imported from third countries, exists if:
• Customs duties: 800 USD Trend: eliminating or lowering
the de-minimis exemptions!
Country Customs Duty
de minimis
Taxes (VAT) de
minimis
Netherlands
(EU)
150 EUR / 45
EUR
Above 22 EUR
(N/A after 1
January 2021!)
United States De minimis $800
(set in the U.S.
Trade
Enforcement and
Trade Facilitation
Act of 2015)
N/A
Source: Global Express Association
(GEA): www.global-express.org

26. Step 1-
basics
Step 2 –
customs
duties
Step 3 –
indirect
taxes
Step 4
communicate
• Research the correct
product classification
and description .
• Understand different
types of customs tariffs
and rates
• Calculate the customs
value
Ensure that VAT / Sales
taxes are dealt with
• Research the correct
rate of VAT / Sales taxes
• Identify possible
reductions and
exemptions for VAT /
Sales taxes payments
Communicate the total
costs for customs duties
and VAT/Sales taxes to the
customer , and/or respond
to questions from Govt /
broker / customers.
• Understand the
importance of customs
and indirect taxes for
e-commerce business
success
• Research key customs
and indirect tax
requirements, risks
and opportunities, for
priority selected target
markets
Ensure that customs
duties and processes are
dealt with.
7. ITC’s roadmap to dealing with customs and indirect taxes for e-
commerce success
• Select your e-
commerce business
model(s) per target
market.
• Be clear on roles and
tasks of your customs
broker in relation to
trade compliance
• Identify possible
exemptions (product codes,
low value goods) and
reductions (FTA’s), and
their conditions.
• Understand differences
between indirect tax
systems (sales taxes /
VAT)
• Calculate duty and VAT
amounts to be included in
the invoice and declaration.
• Calculate duty and VAT
amounts to be included in the
invoice and declaration
Ensure a solid returns policy, which deals with
refunds of paid customs duties and VAT/Sales
taxes as and when necessary.

27. 8. Practical recommendations around trade compliance for
e-commerce sellers
In-house vs outsourced Trade
compliance processes
• Research market conditions
for key products
• Implications of delivery
models
Understanding;
• key aspects of customs
process, duties and taxes
• Collective training through
Trade associations / TSI’s
Review trade compliance
performance of logistic partners
and customs brokers (regular)
Keep a solid record of all
trade transactions and proof
of evidence
Consider
automating parts of
your trade
compliance

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