- July 5, 2022
- Posted by: Florence
- Categories: Customs, VAT
At a Glance…
In a judgment of 12 May 20221, the Court of Justice of the European Union (CJEU) ruled that a customs representative cannot be held liable for the payment of value-added tax (VAT) on import, unless national legislation explicitly says so. By doing so, the court recognises that there is no legal basis in EU customs law for such liability, and that the answer is to be found in the EU VAT Directive. In turn, while the EU VAT Directive provides for the possibility for EU member states to make customs representatives liable for import VAT, this option needs to be transposed into national legislation implementing the Directive. Customs brokers cannot be liable for import VAT in those member states where VAT laws do not specifically provide for their liability.
The court goes one step further by adding that the principle of legal certainty requires that the persons liable for import VAT (customs representatives, as the case may be) must be expressly and unambiguously identified in the national legislation. For Belgium, the dedicated legal provision2 arguably fails to comply with this standard imposed by the court.
The role and liability of the customs representative
The importation of goods into the EU will trigger the incurrence of a customs debt.3 The EU’s customs laws lay down the rules governing that customs debt. These rules are set in regulations that are directly applicable in exactly the same manner in all EU member states. The primary person who is liable to pay the import duties is the declarant. This is the person in whose name the customs declaration is lodged.4
It is very common to use a service provider, the so-called customs representative, when completing customs formalities. Representatives assume a specific responsibility towards their principal, but also towards the customs authorities. Where customs representatives are acting in a so-called ‘indirect’ capacity (as opposed to a direct capacity), they are acting on behalf of a principal, but in their own name (not the name of the principal). Such an indirect representative will qualify as the declarant, with the corresponding liability for the payment of the customs debt to the authorities. This is a joint and several liability, together with the principal.5
Whereas EU customs laws clearly set out the rules determining the persons liable for the payment of customs duties, they do not explicitly cover the liability of the customs debtor for the payment of other taxes that are triggered at the time of import, such as VAT. In practice, however, customs authorities across the EU widely consider that the indirect customs representative is liable for the payment of both customs duties and VAT on import, even in the absence of a legal provision recognising such VAT liability. In U.I., the CJEU provides guidance on this matter.
The U.I. case: customs is customs, VAT is VAT
In U.I., the Italian customs authorities held the indirect customs representative (U.I.) and its principals (i.e., the represented importers) jointly and severally liable for the payment of both the customs duties and the VAT on import. The Italian authorities referred to the EU customs legislation to justify this treatment.
The CJEU considers that the Italian customs could not do this. The court recalls that the provisions of EU customs laws only govern liability for customs duty, not for other taxes on import. The court arrives at this conclusion taking into account the context and purpose of the provision, as the positioning, the wording and the definitions of Articles 77 and 84 of the Union Customs Code refer only to a “customs debt” and make no mention of VAT at all.
In the same judgment, however, the CJEU confirms that EU member states have full discretion to designate the person(s) liable for payment of the VAT on import.6 As such, member states may, explicitly and unequivocally, designate or recognise the indirect customs representative as being jointly and severally liable, together with its principal, for the payment of import VAT.7 Because of this discretion, EU member states have to take the principle of legal certainty into account: they can only legally designate or recognise the indirect customs representative as liable for the payment of import VAT if that representative is designated as such in an express and unambiguous manner.8
This means that for a customs representative to be held (jointly and severally) liable for VAT on import, there must be a legal provision in the national law of the EU member state expressly and unambiguously designating or recognising the customs representative as a VAT debtor. The provision of the national VAT legislation cannot be generic or unclear, as this will not pass the test of legal certainty. The liable person must be named expressly in the legislation, the CJEU said. The court therefore limits the liability of the customs representative in member states that do not expressly make customs representatives liable for import VAT.
If we take the case of Belgium, we find that the law considers that “all persons liable for the payment of import duty are liable for the payment of VAT on import”.9 Based on this provision, the Belgian authorities (customs or VAT) regularly take the position that the customs representative can also be held liable for VAT on import. In practice, this often makes up the bulk of the tax debt upon import, given the high VAT rate compared to the often much lower customs duties. However, this Belgian provision arguably fails to comply with the standard of legal certainty imposed by the court, as no explicit reference is made to a specific debtor (the customs representative), nor is there any reference made to the basis on which the customs debt was incurred.
Whether customs representatives in Belgium can lawfully be held liable for VAT on import is therefore questionable. We know from the U.I. case that they cannot be in Italy.
- ECJ 12 May 2022, C-714/20, ECLI:EU:C:2022:374 (U.I.).
- Article 8(1), 3° Royal Decree no. 7 of 29 December 1992 concerning the importation of goods for the purposes of value added tax, Belgian Official Journal, 31 December 1992 (hereinafter, import VAT RD).
- Articles 77(1) Regulation (EU) No. 952/2013 laying down the Union Customs Code (hereinafter, UCC) and 2(1)(d) VAT Directive.
- Article 5(15) UCC.
- Articles 5(15), 77(3) and 84 UCC.
- Considerations 43 and 44 EU VAT Directive and ECJ 12 May 2022, C-714/20, ECLI:EU:C:2022:374, ‘U.I.’, paras. 55 and 56.
- ECJ 12 May 2022, C-714/20, ECLI:EU:C:2022:374, ‘U.I.’, paras. 57 and 59-63.
- ECJ 12 May 2022, C-714/20, ECLI:EU:C:2022:374, ‘U.I.’, paras. 59-63.
- Article 8(1), 3° import VAT RD.
This article was initially published by Reed Smith LLp – here.