EU Customs valuation and classification - June 2014 (webinar)

EU Anti-Bribery, Trade and Customs
Webinar Series 2014
How to classify and value your products
Sophie Clocheret, Of Counsel, Brussels
Jennifer Revis, Of Counsel, London
Bettina Mertgen, Associate, Frankfurt
Vanessa Dersch , Associate, Frankfurt
26 June 2014
Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology
used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an
office of any such law firm.
© 2014 Baker & McKenzie LLP

Moderator
Speakers
Jennifer is Of Counsel in the EU, Competition and Trade Practice of Baker & McKenzie's London Office. She
specialises in customs, trade sanctions and anti-bribery and corruption matters. Jennifer has extensive
experience in advising clients on compliance issues (including third party due diligence and in M&A
transactions). Jennifer routinely undertakes compliance audits for clients and advises on preparation of
voluntary disclosures to government authorities. Jennifer has been on secondment to the UK customs
authorities (Her Majesty's Revenue and Customs) in their Tax and Excise Litigation department and to the
firm's European Law Centre in Brussels. Jennifer is a member of the London office Anti-Bribery and
Corruption Unit. Jennifer is frequently invited to speak at external conferences on trade matters and regularly
3
Jennifer Revis contributes articles to tax journals.
London
Tel: +44 20 7919 1381
jennifer.revis@bakermckenzie.com
Sophie is a counsel in the Tax Practice Group of our Brussels office. She advises both multinational clients
and Belgian companies on a broad range of VAT-related issues, including general VAT planning and advice,
restructurings, mergers and acquisitions, due diligence, post-acquisition integration, supply chain
management, review of VAT processes and systems, VAT compliance, VAT audits, etc. Sophie also deals
with various Customs and Excise Duty issues.
Sophie Clocheret
Brussels
Tel: +32 2 639 36 11
sophie.clocheret@bakermckenzie.com

Speakers
Vanessas practice focuses on the advice of national and international companies with regard to the
optimization of inbound transactions under the provisions of customs law, and providing support during tax
audits. She mainly deals with customs valuation matters and the implementation of customs procedures with
economic impact. Furthermore, she also handles the preparation of claims, appeals and applications for
binding tariff rulings and AEO licenses. She has special knowledge with the customs clearance system of the
German Customs Administration ATLAS.
4
Vanessa Dersch
Frankfurt
Tel: +49 (0) 69 29 908 376
vanessa.dersch@bakermckenzie.com
Bettina advises national and international companies with respect to all value added tax and customs related
matters. Her practice focuses on advising national and international clients in all VAT and customs matters
with a special emphasis on representing clients before tax and customs authorities. Her work comprises
representation in opposition proceedings and litigation, review of companies' customs compliance as well as
advice in general customs matters.
Bettina Mertgen
Frankfurt
Tel: +44 20 7919 1381
bettina.mertgen@bakermckenzie.com

Agenda
5
• Customs Valuation
• Basics and Valuation Methods
• First Sale, Assists, Royalties and Licence Fees, Related
Party Transaction
• Case Study
• Tariff Classification
• Overview
• Recent Cases
• Parts and Accessories
• Compliance

Basic Rule
“The customs value of imported goods shall be the transaction
value, that is, the price actually paid or payable for the goods
when sold for export to the customs territory of the Community,
adjusted, where necessary, in accordance with Articles 32 and 33”
Art. 29(1) CC
• Transaction value preferred to other methods of valuation
where there is a sale and certain requirements are met,
including:
“buyer and seller are not related and, if they are, the transaction
value is still acceptable”
8

Where do the rules originate from?
• Based on WTO Valuation Agreement
• WCO Technical Committee publishes WCO Valuation
Compendium
• Where can I find the rules?
• EC Customs Code (CC) (Reg 2913/92, Article 28-36)
• Implementing Provisions to Customs Code (IPCC) (Reg 2454/93,
Article 141-181a and Annexes 23-29)
• EC Compendium of Customs Valuation
• National Guidance e.g. HMRC Notice 252, Belgium Instruction on
Valuation DI 620
9

What items should be added?
• Additions to the “price actually paid or payable” (where not
already included in the price): (Article 32 CC)
i. commissions and brokerage (exc. buying comm.)
ii. cost of containers / packing
iii. materials, components, tools, dies, engineering,
development, plans, sketches etc (“assists”) - supplied by
buyer to seller free of charge or at a reduced cost
iv. royalties and licence fees - condition of sale
v. proceeds of subsequent sale accruing to seller
vi. delivery costs i.e. transport/insurance/loading and handling
charges to the place of introduction into the EU
10

What items can be left out?
• Not added to “price actually paid or payable” where shown
separately on invoice: (Article 33 CC)
i. transport after arrival at place of introduction in EU
ii. charge for construction, maintenance etc. after importation
iii. interests under financing arrangement
iv. charges for right to reproduce in EU
v. buying commission
vi. import duties
• Retrospective repayment claims possible
11

Buying commission
• Fees paid by importer to agent for services representing him in
purchase of imported goods (e.g. find suppliers, inspect goods,
arrange insurance/transportation etc.)
• Can be left out of customs value so long as it is shown
separately from price (note, must be included in VAT value)
• Customs office may ask for evidence of buying agency
arrangement (e.g. contract, invoice) to ensure that it is a
genuine agency agreement
• Overland Footwear judgment (C-468/03)
12

Apportioning transport costs
• Can deduct EU transport costs where they are included in total
freight charge if freight is charged separately and is
distinguished → APPORTION value after EU border
• Sea: can use rate in books or rates advertised by shipping line/
carrier
• Rail/ road: use reasonable means e.g. distance
• Air: % of air transport costs on airway bill to be included in
customs value is set out in Annex 25 of IPCC (e.g. New York
70%; Switzerland 5%; Tunisia 33%); e.g. UK CHIEF
automatically apportions this if air freight costs are entered into
correct box on entry declaration
13

Value for VAT purposes
• Customs value +
• Customs duty payable on importation +
• Excise duty or other duties payable on importation +
• Incidental expenses up to first destination in the EU (transport /
packing / insurance / commission)
14

Example
Facts
• Goods purchased on ex-works terms
• Freight from seller’s factory in Hong Kong to port in Hong Kong
– USD 50
• Freight from Hong Kong to Birmingham – USD 700
• Freight charge from Southampton to Birmingham – USD 60
• Invoice to be paid in £; transport company & buyer have agreed
fixed rate of exchange
15

Valuation methods
• 6 methods:
• Method 1: transaction value
• Method 2: value of identical goods
• Method 3: value of similar goods
• Method 4: equivalent selling price in EU
• Method 5: (interchangeable with method 4) cost of
production of goods
• Method 6: fallback
17

Method 1 (transaction value)
18
• Applies to over 90% of imports
• Price actually paid or payable for goods when sold for export to
the customs territory of the EU (with possible adjustments) =
total payment made or to be made by buyer to seller
• Price review after import/ retrospective price adjustments mean
invoice price is provisional – 2 OPTIONS:
• Place duty on deposit/ goods released under “security
arrangements”; or
• Formal agreement with customs for periodic review/
reconciliation

Method 2 (identical goods)
• Based on customs value of identical goods exported to EU at or
about same time as goods to be valued
• “Identical” = goods produced in same country as those being
valued; same in all respects except for minor differences in
appearance (physical characteristics, quality & reputation)
• May use sales at different commercial level and different
quantities but adjust accordingly if this affects price (e.g.
quantity/wholesale discounts)
• Evidence (e.g. invoice)
19

Method 3 (similar goods)
• “Similar” = differ in some respects to goods being valued but (i)
are produced in same country; (ii) can carry out same tasks; &
(iii) are commercially interchangeable
• Same conditions apply as for Method 2
20

Method 4 (equivalent selling price in EU)
• Also referred to as “deductive” method; does not have to be used
before Method 5
• Based on unit price at which the imported / identical / similar goods
are sold in EU, in the condition as imported, to customers unrelated to
seller at or about time of importation of goods to be valued (Method
4(a))
• Based on unit price of actual sales of imported goods that take place
up to 90 days after importation (Method 4(b))
• Unit price must relate to greatest aggregate quantity at time of entry
• Deductions (profit, general expenses, transport/insurance within EU,
EU customs duties/ taxes)
• Need evidence e.g. sales invoice, price list and details of deductions
based on trader’s accounts
21

Method 5 (cost of production of goods)
• Based on cost of production of goods
• Difficult method so rarely used in practice
• Usually can only be used where the importer and supplier are
related
• Customs value is a built up value based on
i. cost or value of materials / processing
ii. amount for producer’s profit & general expense; plus
iii. cost of transport, insurance and loading or handling to
order of EU
• Need evidence based on producers’ accounts
22

Method 6 (fallback)
• Adapt Methods 1 to 5 to fit unusual circumstances
• e.g. Methods 2 or 3 – transaction value for goods produced in country
other than country of export
• Method 4(b) – extend 90 days limit
• Free of charge goods: if you can’t use methods 1 to 5, could base
customs value on price would have paid if you had bought goods (e.g.
supplier’s export price list)
• Used goods: if you can’t use methods 1 to 5, value of goods when
acquired less loss of value for usage
• Rented/ leased goods: cash price is often artificially high. If you can’t
use methods 1 to 5, multiply annual rental/ leasing cost by expected
economic life of goods. Where costs includes interest, formula given
by Customs.
23

Example
Facts
• Company A established in a 3rd country has a branch B in EU through
which it sells IT accessories to unrelated buyers in EU
• B has no separate legal identity
• B does not buy the IT goods but on receiving them from A, B enters
them into free circulation and stores them at its premises
• Customs value for identical or similar goods sold for export to the EU
cannot be established
• B claims that the customs value should be determined under Method
4 and that its actual profit and general expenses may be deducted
from the selling price. Is this correct?
24

First Sale in the EU
26
Article 147(1) IPCC
• “Where a price is declared which relates to a sale taking place
before the last sale on the basis of which the goods were
introduced into the customs territory of the Community, it must
be demonstrated to the satisfaction of the customs authorities
that this sale of goods took place for export to the customs
territory in question”
• First sale for export to EU can be used as customs value of
good → keeps customs value low
• Generally is used for intercompany transactions as only related
company can obtain necessary information – Can be used
between unrelated parties as well

Requirements for first sale
• First sale must:
• occur prior to import into EU
• clearly be for export to EU e.g.
– Goods manufactured according to EU specifications
– Goods manufactured specifically for EU buyer
– Goods ordered from intermediary are shipped directly
from manufacturer
27

Assists/ cost sharing
arrangements

Article 32 (1)(b) CC – “assists”
• “the value, apportioned as appropriate, of the following goods and
services where supplied directly or indirectly by the buyer free of charge
or at reduced cost for use in connection with the production and sale
for export of the imported goods, to the extent that such value has not
been included in the price actually paid or payable:
i. materials, components, parts and similar items incorporated in the
imported goods,
ii. tools, dies, moulds and similar items used in the production of the
imported goods,
iii. materials consumed in the production of the imported goods,
iv. engineering, development, artwork, design work, and plans and
sketches undertaken elsewhere than in the Community and
necessary for the production of the imported goods”
29

How to reconcile customs value
• Assists are potentially dutiable – need to consider:
• how to apportion their value to imports; and/or
• best method to adjust customs value
• Where importer is part of group of companies, not unusual for
parent company to seek to recover R&D costs through “cost
sharing” arrangement
• Consider what benefit importer receives in exchange for
payment
• Not all elements are necessarily dutiable (e.g.
merchandising, sourcing)
30

Apportionment
• Apportionment can get very complicated, but possible savings opportunities...
• What types of costs are dutiable? (Article 32 CC)
• Exclude costs incurred in EU
• Only costs relating to goods imported into the EU are dutiable
• Apportionment is permitted based on the generally accepted accounting
principles of the importing country (e.g. quantity imported vs. worldwide
production)
How do you make adjustments to customs value (in the UK)?
• Add uplift to transaction value for each entry; or
• Make retrospective adjustments to customs value (consider prior agreement
with HMRC)
31

Article 32(1)(c) CC – Royalties & licence fees
“Royalties and licence fees related to the goods being valued that the
buyer must pay, either directly or indirectly, as a condition of sale of the
goods being valued, to the extent that such royalties and fees are not
included in the price actually paid or payable” must be added to the
customs value
in order to be dutiable, royalty/licence fee must:
• relate to imported goods; &
• constitute a condition of sale of those goods
33

When are royalties/licence fees dutiable?
• Even if sales contract does not explicitly require buyer to make
these payments, it can be an implicit condition of sale if buyer
were not able to buy goods from seller without this payment
• Country of residence of recipient of payment is irrelevant
• Where you pay royalty/licence fee to seller of goods imported –
highly likely that it is dutiable
• Where you pay royalty/licence fee to a third party – look at facts
carefully. Is it a condition of sale?
34

What constitutes a “condition of sale”?
• Royalty/licence fee payable to third party will be dutiable where
the seller or person related to him requires the buyer to make
that payment (Article 160 of IPCC)
• Person related to the seller will be (Article 143 IPCC):
• corporate relationship (i.e. company which is part of the
same group as seller)
• contractual or other relationship where some element of
control
35

Concept of “control”
Commentary No. 11 of Customs Code Committee (Jan. 2007) sets
out some examples of factors to be taken into account
36

Concept of “control” (cont’d)
Licensor
charges
Royaltiess
Export of the
manufactured
goods to the EU
Examples of controls of the Licensor upon
the Manufacturer on:
• sourcing of materials and components used in the
manufacturing process,
• characteristics of the goods and technology used,
• clients of the Manufacturer for the goods exported,
• selling price of the exported goods,
• Manufacturer’s accounting records.
37

Concept of “control” (cont’d)
• A combination of such indicators, which go beyond purely
quality control checks by the licensor, demonstrates that a
relationship of control exists and hence the payment of the
royalty would be a condition of sale
• Certain indicators carry more weight and show more strongly
than others that the licensor exercises restraint or direction over
the manufacturer/seller
• Where possible, avoid written records setting out control
exercised by 3rd party licensor over manufacturer
38

• Similar issues to assists (apportionment etc.)
• Remember that not all royalty/ licence fee payment is
necessarily dutiable (e.g. 7% royalty may be specified as
representing 3% for patent rights, 2% for marketing know-how
and 2% for trade mark usage)
39

WCO Commentary 25.1 on 3rd party royalties &
licence fees
• Adopted in April 2011
• “relate to the goods being valued” = “incorporate the IP and/or
are manufactured using the IP covered by the licence” e.g.
“incorporate the trademark for which the licence fee/ royalty is
paid”
• “condition of sale” = where “the buyer is unable to purchase the
imported goods without paying the royalty or licence fee”
• Need to review all facts including linkages between the sales
and licence agreements
• List of factors to take into account
40

Customs issues to consider
Two main issues:
1. What is value of imported goods? Can you use TP price?
2. How do post transaction TP adjustments impact customs
valuation?
42

Can you use TP price for customs valuation?
• Generally, customs value between related parties is the
transaction value (i.e. TP price) provided relationship has not
affected price i.e. arm’s length price
• What is meant by “related”? (Article 143 IPCC)
• Customs authorities in importing country may assess whether
transaction value is acceptable – “circumstances of sale” test
• WCO Commentary 23.1 re use of TP studies
• Note, post transaction TP adjustments may impact customs
value
43

Retrospective adjustments to customs value (UK)
• Security arrangements or individual arrangement with HMRC
• Voluntary disclosure (avoid penalties)
• Retrospective price increase – pay additional duties and VAT
(blanket adjustment possible)
• Retrospective price decrease – refund? Yes, where
appropriate evidence
44

Other Member States
• Should TP adjustments be disclosed to customs authorities?
• In most Member States, this is required where prices are
adjusted upwards (note, failure to disclose this will be
considered to be fraud in some countries, such as Germany)
• Procedure for amending entries can very time consuming:
may involve manually amending past entries
• Advance pricing agreements may be available
• Not all Member States will be prepared to issue refund of
overpaid duties (unless provisional entries are made)
45

The Facts
47
$ Sale 1
Non-EU
EU
XYZ Sourcing Co
XYZ Sales Co
Customer
XYZ Intellectual
Property
$ Licence fee
for use of
trademark
Independent Manufacturer
$ Sale 2
Mould and
design work
provided
free of
charge
$ Sale 3

Case Study
48
• You look at the facts and decide that the customs value should be
based on the price for Sale 2 as this is “last sale for export to the
country of importation”. What issues do you need to consider?
a) Related party transaction
• Is the sale price acceptable?
• Any consequences if that price is retrospectively amended post
importation?
b) Are the licence fees dutiable? Would your assessment differ if the
IP owner was not a related company?
c) Assists
• How should you value and report these?
1

2
Case Study
49
• You are looking for ways to reduce the potential duty liability for the
company. You decide to look into using the principle of “first/ earlier”
sale so that you can base the customs value on the price paid for Sale
1 instead of Sale 2
a) What conditions do you need to meet?
b) Would the use of first sale have any impact on your assessment
of whether (i) the licence fees; and (ii) assists, are dutiable?

Case Study
50
3
• You’ve been informed that not all countries accept first/ earlier sale
and that this principle may shortly no longer be available for imports
into the EU. You attend an industry group where a few of the
members are discussing moving to a “buying agency” arrangement as
an alternative.
a) What would the impact of this be for your supply chain (see next
slides for flowchart)?
b) What factors would you need to consider?
c) Are there any other alternatives?
Note, ‘buying commission’ = fees paid by an importer to his agent for the
service of representing him in the purchase of the goods being valued
(Article 32.4 Customs Code)

Alternative Supply Chains?
51
Independent
Manufacturer
XYZ Sales Co
Sourcing, Quality
Control, etc.
XYZ Sourcing Co
(Agent)
Buying Commission
(Sale 2 minus Sale 1 –
too high?)
Sale
Independent
Manufacturer
Sale 1
XYZ Sourcing Co
IOR in Country of Importation
Sale 2
XYZ Sales Co
Sale 3
Customer
IOR = Importer of Record

Importance of Tariff Classification
•Classification is
• decisive for the determination of the applicable duty rate;
• a matter of compliance.
•Tariff duty rates are set line-by-line, and so in order to determine correct
duty rate, one needs to establish the correct classification;
•Classification cannot be ignored, even where the likely universe of
classifications all result in 0% duty determinations;
•Classification is very important, but can be very complicated.
53

Structure of HS Tariff
•21 Sections and 97 Chapters, basically moving from
unmanufactured to manufactured goods;
•Generally, tariffs tended to be higher on manufactured goods,
and lower on industrial inputs since EU Member States wanted the
industrial processing to be done in-country;
•Chapter headings are very broad and not binding; wording of the
tariff headings is decisive.
54

The Hierarchy of Rules
55
•WCO through the Harmonised System (HS) establishes the system for
classification to a 6-digit level:
• Organises tariff structure;
• Establishes categories at 6-digit level;
• Establishes Notes to Chapters;
• Establishes the General Rules of Interpretation (GIRs);
•The HS also publishes the Explanatory Notes (ENs). The effect of these
is determined by national law, e.g. the EU see these as interpretative
aids, which are not legally binding;
•The EU is required to implement the HS. This is done through the
Combined Nomenclature (CN) at a six digit level. The CN contains EU
specific subheadings at an 8 digit level.

The HS in Practice: the EU
56
•EU implementation of HS Tariff – Regulation 2658/87
•EU Tariff classification/Commodity Code = 10-digit number (imports); 8
digits (exports):
• 1st 4 digits = HS headings (“Tariff Heading”);
• digits 5+6 = HS sub-headings;
• digits 7+8 = EU Combined Nomenclature (CN);
• digits 9+10 = TARIC (covers EU Tariff and related measures;
where no further breakdown is required, the 2 digits “00” are
shown):
→ In EU, you will need 10-digit code to correctly classify your goods
on import.

The General Interpretative Rules
57
•6 broad rules: GIR 1 to 6;
•3 broad techniques:
1. Classify according to the wording of the heading (i.e., obvious, no
disputes) (GIR1);
2. Classify according to which the wording of the heading is more specific
(GIR 3(a) and, where this is not possible, as if they consist of
material/component which gives product its “essential character” (GIR
3(b));
3. If nothing else works, then the alternative classification with the highest
number will determine (GIR3(c)).

Examples
58
•heading 0702:
“Tomatoes, fresh or
chilled”
• GIR 1
• heading 8517:
• “Telephone sets,
including
telephones for
cellular networks”
•  GIR 3(b)
• heading 8471:
“Automatic data-processing
machines and units
thereof”
•  GIR 1 + Note 5
to Chapter 84

ECJ Vario Tek, pending case C-178/14
60
• Matter of dispute are sport glasses with integrated
videocameras
• Dispute: Tariff classification
under 8525 8091 (4,9%)
“Video camera recorders
only able to record sound
and images taken by the
television camera" or under
8525 8099 (14%) "others"

Questions referred (free translation):
61
1. Does the fact that a video camera does not have a zoom option
exclude its classification into subheading 8525 80 9 CN in the version
of the Commission Regulations (EU) No 861/2010 of 5 October 2010
and No 1006/2011 of 27 September 2011, each amending Annex I of
the Council Regulation (EEC) No 2658/87 on the tariff and statistical
nomenclature and on the Common Customs Tariff?
2. If no, does a video camera recorder already have an option to record
the sound and image taken by the camera within the meaning of
subheading 8525 80 91 CN if a video or audio file can be copied to
the removable media device required for the operation of the camera
by means of a USB port, without it being possible to listen to or view
this file with the camera alone?

Arguments:
62
Pro 8525 8091
• Wording “video camera recorders” does
not imply any zoom function;
• recording of pictures and tones
produced by the camera only;
• recording data from other machines:
• is a rather theoretic possibility, since
no playing function exists;
• for such recording the memory card
is required rather than the camera;
• camera cannot be used for playing
functions, PC is required (no
autonomus function as required in ECJ
cases (C-208/06 and C-208/06).
Contra 8525 8091
• No optical zoom as requested in
explanatory notes 8525 8091 and 8525
8099;
• Explanatory notes 8525 8099:
• if data recording from other machines is
possible, then tariff classifation under
8525 8099.

ECJ Amazon's Kindle, pending case C-58/14
63
• Matter of dispute is amazon's e-book-reader Kindle with, inter
alia, dictionary functions
• Dispute: Tariff classification
under 8543 7010 (0%)
"Electrical machines with
translation or dictionary
functions" or under 8543
7090 (3,7%) "others"

Questions referred:
64
1. Is the description of goods in subheading 8543 7010 of the
Combined Nomenclature 1 to be understood as covering only
apparatus which have exclusively translation or dictionary
functions?
If no:
2. Does subheading 8543 7010 of the Combined Nomenclature
cover also apparatus the translation or dictionary functions of
which are secondary by comparison with their main function (in
this case, a reading function)?

Arguments:
65
Pro 8543 7010
• Tariff classification rules:
• Wording of the subheading 8543
7010, no interpretation required;
• no classification in "others" possible
as applicable subheading exists;
• wording of the Regulation No.
763/2011 classifying e-book-reader
without translation or dictionary
functions in 8543 7090.
Contra 8543 7010
• Statement of the EU Commission
that there are no reasons to limit the
Regulation No 763/2011 to e-book-reader
without translation or
dictionary functions;
• Tariff classification by UK and Dutch
authorities in 8543 7090.

Classification of
Accessories and Parts

Introduction
67
•Classification of parts and accessories mostly relevant with
respect to machinery and electronic devices (Section XVI) as well
as to medical devices (Chapter 90);
•Although many such machines are subject to a 0% duty rate,
parts are not;
•If not classified correctly, importation of parts (spares) can easily
lead to underpayment of import duties.

Challenges (1)
68
•Applicable Notes are very complexe, since they consist of
exclusions, inclusions and references
• Note 2 to Section XVI
“Subject to note 1 to this section, note 1 to chapter 84 and to note 1 to chapter 85, parts of machines (not being parts of
the articles of heading 8484, 8544, 8545, 8546 or 8547) are to be classified according to the following rules:
a.Parts which are goods included in any of the headings of chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466,
8473, 8487, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings;
b.Other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the
same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in
heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate. However, parts which are equally
suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517;
c.All other parts are to be classified in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate or,
failing that, in heading 8487 or 8548.”
• Note 2 to Chapter 90 (follows same principles)

Challenges (2)
69
•No definition of „accessories“ or „parts“ available, neither in the customs
tariff nor in the Explanatory Notes
•ECJ established definition in „Turbon International“ (C-276/00):
• “‘Parts’ implies a whole for the operation of which the part is essential.
• It is not sufficient to show that, without that article, the machine or apparatus is not
able to carry out its intended functions. It must be established that the mechanical or
electric functioning of the machine or apparatus in question is dependent on that
article.”
• “‘Accessories’ implies an interchangeable part designed to adapt a machine for a
particular operation, or to increase its range of operations, or to perform a particular
service relative to the main function of the machine.”

Challenges (3)
70
Classification of parts is complex. The following questions must be answered:
1.Is the product essential for the operation of the whole?
2.Does the mechanical or electrical working depend on the product?
3.Is the product excluded on the basis of Note 1 to Section XVI?
4.Is the product included under heading 8484, 8544, 8545, 8546 or 8547?
5.Is the product included in heading 8409, 8431, 8448, 8466, 8473, 8487, 8503, 8522,
8529, 8538 or 8548?
6.Is classification in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538
appropriate?
7.Is the product included in any of the headings of Chapter 84 or 85?
8.Is the product suitable for use solely or principally with a particular kind of machine, or
with a number of machines of the same heading (including a machine of heading 8479 or
8543)?
9.Is the product equally suitable for use principally with the goods of headings 8517 and
8525 to 8528?

Challenges (4)
71
Answering these questions leads to the following classifications (in random order):
1.Classification on the basis of objective characteristics and properties;
2.Classification according to Note 1 to Section XVI;
3.Classification on basis of objective characteristics and properties under heading 8484,
8544, 8545, 8546 or 8547;
4.Classification under one headings of Chapter 85 or 85 (irrespective of the product they
are intended for);
5.Classification with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473,
8503, 8522, 8529 or 8538 as appropriate;
6.Classification in heading 8517;
7.Classification in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as
appropriate; and
8.Classification in heading 8487 or 8548.

Examples (1)
72

Ink Cartridge – printer part or just ink? (1)
73
•ECJ C-276/00 „Turbon International“ and C-250/05 „Turbon II“
•Is an ink cartridge “accessory or part” (0%) of a printer, or just “ink”
(6.5%)?
•ECJ held the ink cartridge is „ink“:
• Turbon International: “While it is true that, without an ink-cartridge, a printer is not
able to carry out its intended functions, the fact remains that the mechanical and
electronic functioning of the printer in itself is not in any way dependent on such a
cartridge. The inability of the printer, in the absence of an ink-cartridge, to transcribe
on to paper the work produced with the aid of a computer is caused by lack of ink
rather than a malfunctioning of the printer.“

Ink Cartridge – printer part or just ink? (2)
74
•ECJ held the ink cartridge is „ink“:
• Turbon II: “Even if an ink cartridge, such as that at issue in the main proceedings, is
constructed in such a way that the printer does not function in the absence of that
cartridge, the fact remains that the ink contained in the cartridge is the most
important factor for the purpose of using the goods at issue. In fact, the ink cartridge
is not inserted in the printer in order to make the printer itself function but specifically
to supply it with ink. Therefore, the ink must be regarded as determining the
essential character of an ink cartridge.“

Examples (2)
75

Stove Pipe Set – stove parts or pipe connectors? (1)
76
• ECJ C-450/12 „Hark“
• Is a stove pipe set, i.e. the tubular elbow component, a „accessory or part“
(2.7%) of a stove, or metal „pipe connector“ (3.7% and 58.6% ADD!)?
• ECJ held the stove pipe set is „stove parts“:
• “It is apparent from the factual findings of the referring court that the tubular elbow
component at issue in the main proceedings, as well as the chimney connection and
the surround, are intended exclusively for use with stoves. Furthermore, that
component serves to connect the stove to the chimney flue. In the absence of such
a connection, the stove could not be operated because flue gases would escape.
Therefore, it must be concluded that the tubular elbow component is essential for
the operation of the stove.”

Stove Pipe Set – stove parts or pipe connectors? (2)
77
•ECJ held the stove pipe set is „stove parts“:
• Moreover, it is apparent that “a tubular elbow component such as that at issue, is
intended not to connect the bores of two tubes together or to connect a tube to some
other apparatus, but to connect a stove to a chimney flue. Consequently, that piece
cannot be considered to be a part of general use within the meaning of Note 2(a) to
Section XV of the CN.”

Examples (3)
78

Parts and accessories intended for programming
systems?
79
• ECJ C-297/13 "Data I/O“
• Are motors, power supplies,
lasers, generators, cables and
heat sealers intended for
programming systems to be
classified as parts in the sense
of tariff heading 8471 (0%) or
should they be classified under
under headings 8501, 8504,
8456, 8543, 8544 and 8422 of
the CN respectively?

Parts and accessories intended for programming
systems?
80
In ECJ C-370/08 "Data I/O“ the Court
ruled that an adapter can only be
classified in tariff heading 8536 if it is
not classified under tariff heading 8471
or 8473.
Do the latter tariff headings take
precedence over tariff heading 8536?
ECJ: no general rule giving
precedence; the goods must be
classified as individual goods under
one of the latter headings, according to
their respective characteristics and
taking into account the applicable
notes.

ECJ C-378/87 “Top-Hit”
• In 1981 products were declared as
“Other articles of wood” and declared
under tariff heading 4428 (1981
version);
• The customs authorities considered
the products “furniture” in the sense of
tariff heading 9403 (1981 version) and
recovered the additional duties due;
• The importer appealed the decisions
and argued that the underpayment of
import duties was the result of an error
of the authorities in the sense of the
current art. 221(1)b of the CCC.
82

ECJ C-378/87 “Top-Hit”
• The ECJ rejected the appeal stating that the
importer did not “observe all the provisions in force
concerning its customs declaration”;
• This was the case since the importer had with the
description of the goods as “other articles of wood”
failed to declare “the particulars necessary for the
identification of the goods and for the application of
the import duties and any other provisions
governing the release of the goods for free
circulation”.
83

ECJ C-138/10 “DP-Grup”
• In 2007 “frozen turkey legs” were declared for
free circulation. The customs classification
was initially accepted by the customs
authorities;
• Afterwards, laboratory analysis proved that
classification incorrect;
• The importer wanted to have the import
declaration annulled, but the goods were
already released for free circulation;
• In the appeal procedure the questions was
addressed whether such an annullment is
possible.
84

• The ECJ considered that the provisions in force
require that the “declarant will provide the
customs authorities with complete and accurate
information”;
• The obligation on the declarant to provide
accurate information also extends to the
determination of the correct subheading at the
time of the tariff classification of the goods;
• The ECJ made reference to its Top-Hit ruling.
85

• It also considered that in case of any doubt
of the correct classification, the importer
can request in advance a binding tariff
information (BTI);
• From this obligation it follows that, once
accepted by the authorities, the customs
declaration can not be revoked or
annulled, unless one of the strict
exceptions to this rule applies as defined
in the CCC.
86

• The ECJ ruled that when a declaration is
submitted, the authorities must take a passive
approach in the sense that “they confine
themselves to monitoring compliance with the
requirements laid down in Article 62 CCC”;
• Consequently, the acceptance of the
declaration by the authorities does not form a
decision “on the accuracy of the information
provided by the importer”;
• Solely the importer is responsible for the
accuracy of the information provided according
to the ECJ.
87

• Since the importer is solely
responsible, it is up to him to
demonstrate the accuracy of the
information, should the authorities
decide to verify it;
• This is even the case if the goods
are already released;
• The requirement of the “passive
approach of the authorities”
confirms the applicability of the
Top-Hit ruling.
88

Take away points:
1. The use of the correct customs classification is
mandatory (obviously!);
2. Importers are only protected against post clearance
recovery relating to the classification of the goods, if:
a. The customs classification of the goods is
confirmed in a BTI; or
b. On the basis of the description of the goods, it
should have been immediately clear that the
classification could not have been correct;
Example: products described as “prepared knots or
tufts for broom or brush making” classified under sub-heading
1404 9000 – correct would be tariff heading
9603 on the basis of Note 3 to Chapter 14.
89

Best practice:
1.Many 3PL service providers use the wording of
the Combined Nomenclature to describe the goods
(e.g. for sub-heading 1404 9000 “Vegetable
products not elsewhere specified or included;
other”, rather than “prepared knots or tufts for
broom or brush making”);
2.This practice may render the protection of art.
220(2)b CCC against post clearance recovery
useless;
3.If changing the practice of using the wording of
the CN is (practically) impossible, then the only way
to obtain (any form of) legal certainty regarding the
customs classification is obtaining BTI’s confirming
the classification.
90

EU Anti-Bribery, Trade and Customs
Webinar Series 2014
How to classify and value your products
Sophie Clocheret, Of Counsel, Brussels
Jennifer Revis, Of Counsel, London
Bettina Mertgen, Associate, Frankfurt
Vanessa Dersch , Associate, Frankfurt
The webinar recording for this presentation is available here:
http://www.bakermckenzie.com/WBTCEUCustomsWebinarSeries/
26 June 2014
Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology
used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an
office of any such law firm.

EU Customs valuation and classification - June 2014 (webinar)

Recommended

Recommended

More Related Content

Similar to EU Customs valuation and classification - June 2014 (webinar)

Similar to EU Customs valuation and classification - June 2014 (webinar) (20)

Recently uploaded

Recently uploaded (20)

EU Customs valuation and classification - June 2014 (webinar)