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Looking beyond Brexit - inward investment to Poland

Brexit rules of origin – a new playbook for EU and UK importers and exporters

By Dr Michał Bernat, managing counsel at Dentons Tax Practice in Warsaw, legal adviser, tax adviser
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Zero tariff only for goods ‘originating’ from the UK

Despite the UK’s departure from the EU, the parties managed to sign off in December 2020 on the Trade and Cooperation Agreement (TCA) governing EU-UK commercial relationships from 1 January 2021 going forward. One of the pillars of TCA is the customs union between the EU and the UK, which waives duties on imports from the UK into the EU, and conversely.

However, in order to import customs-free, an EU importer must ensure that the goods indeed originate from the UK. This will be established on the basis of bespoke rules of origin laid down directly in the TCA, which derogate from usual (customs) rules of origin found in the EU’s customs code or (following Brexit) in the UK’s internal laws. A bird’s-eye view of these rules have been provided below from the perspective of an EU (including Polish) business importing goods from the UK, but the comments below would apply accordingly also in the case of goods flowing in the opposite direction.

Which goods originate from the UK?

In simple terms Brexit rules of origin require that in order to qualify as goods originating from the UK these must be either:
•    obtained wholly in the UK, as per the exhaustive list of situations provided in TCA (including, for instance, livestock raised in the UK or natural resources extracted from the British soil),
•    produced in the UK exclusively from materials originating from the UK (as in case of a fruit jam manufactured in the UK from UK-only ingredients) or,
•    produced (including assembled) in the UK incorporating materials originating from outside the UK, but only if the UK production process meets the criteria set in TCA specifically for various product groups (“product-specific criteria” in TCA language).

Minor (insufficient) processing in the UK will not be enough

Importantly, even goods that do comply with the product-specific criteria can still be considered as not originating from the UK if the production process taking place on these goods in the UK is limited merely to one or a few operations listed in TCA as “insufficient production”. As an example, products which in the UK are subject only to preserving operations, simple assembly, simple mixing or simple packaging, would be deemed on this insufficient production basis as not originating form the UK.

Goods not originating from the UK

It follows from the above that goods which have not been produced at all in the UK and are just passing through the UK on its way to the EU, goods which were produced in the UK, but do not meet the TCA product-specific criteria or were only subject in the UK to minor processing defined in TCA as insufficient production, would not benefit under TCA from zero tariffs (these goods would be subject to EU’s common tariff, which also might be zero for certain goods, but will not be zero for many others).

Spotlight on product-specific criteria

It can be expected that, in practice, most attention and dispute will be attracted to the case of goods produced in the UK based at least partly on non-UK components. Leaving aside the insufficient production exception, the major issue for these goods would be to verify whether they indeed comply with the TCA product-specific criteria.

These criteria typically require that goods change their tariff classification due to the production process in the UK, or that the value or weight (net of packaging) of non-originating (non-UK) materials does not exceed certain thresholds or that a specific production process is taking place in the UK. EU importers should in any event note that the product-specific rules are being laid down in the TCA based on the Harmonised System (HS) nomenclature, which is obviously different from the EU’s own Combined Nomenclature (CN) EU importers are used to.

Detailed rules for specific trading aspects

The TCA goes on to establish a set of detailed rules addressing various specific cases that may occur in the business practice. For example, it importantly stipulates that product sets, frequent in trade, will be considered as originating from the UK only if the value of the non-originating components does not exceed 15% of the ex-works price of a set. Accessories and spare parts supplied with UK-originating products will not affect their status if they are invoiced with and are customary for such products. It is also required that UK-originating and non-originating fungible products be segregated physically or (when used for production) accounting-wise to retain their respective status. Products leaving and subsequently returning to the UK will principally be deemed as no longer originating from the UK unless they remain essentially intact. To disperse any doubts, the TCA also clarifies that certain elements used for production of goods, such as fuel, energy, catalysts, solvents, plants, machines, equipment and other materials not incorporated in these goods, do not impact the origin of the goods.

New red tape for importers

If the conditions above are met and particular goods imported by an EU importer from the UK can indeed be considered as originating from the UK, the importer may claim under the TCA the benefit of zero tariff for these goods based either on:
•    A statement on origin issued by the exporter, typically in an invoice, based on a template attached to the TCA (importantly, the importer can use the statement on origin not only to a single shipment, but also to multiple shipments of identical products imported into the EU within the validity period indicated in the statement, which cannot exceed 12 months unless the EU provides for a longer period, not exceeding 24 months), or
•    On the importer’s knowledge of the status of the goods (which would require the importer to carry out examination of the goods under TCA rules of origin and to hold adequate evidence to that effect).

In either case, the EU importer would need to expressly raise their zero-tariff claim in a customs declaration (or, as TCA permits, within three years of importation, unless the EU provides for a longer period). Needless to say, EU customs authorities are also able (upon or after importation) to request EU importers claiming TCA benefits to produce evidence underlying the importers’ knowledge of the UK origin of the goods, or a copy of a statement of origin (and certain limited information on the goods, as mentioned below), as the case may be. Upon importation, EU customs authorities can also choose to suspend TCA tariff benefits until the verification process completes – in such a case goods should nevertheless be released if an EU importer provides an adequate security or guarantee.

Moreover, in any event, EU importers would need to retain the statements on origin received or the evidence underlying the importers’ knowledge, as applicable, for three years following importation. As regards the UK exporters, they would need to keep the statements on origin they issued (and the supporting evidence) for up to four years.

Statement on origin or the importer’s knowledge?

The essential difference between statement on origin and the importer’s knowledge models seems to be that the former requires an EU importer to produce (if so requested by customs authorities) only the statement received from the exporter (together with any supporting information the EU importer may deem relevant), whilst under the latter, the EU importer would actually need to produce whatever evidence needed to substantiate the UK origin of the goods imported. Consequently, unlike in the statement-on-origin scenario, in the importer’s-knowledge scenario, the importer would need to obtain from the exporter extensive information on the products traded, given the level of detail and complexity, as well as fact-sensitiveness, of the TCA rules of origin.

Nevertheless, it also appears to follow from the TCA rules on verification of origin and on administrative cooperation that even if an EU importer claimed TCA benefits on the basis of a statement on origin, EU customs authorities could still request that that EU importer produce various information demonstrating that the TCA rules of origin have been complied with (albeit TCA aims at limiting such information to items it lists exhaustively). The EU importer would thus be well advised to collect such information from the UK exporters in advance. In the absence of such information provided by the EU importer, the EU customs authorities may request the UK counterparts to investigate the exporter which issued the statement on origin and to revert with a report, which would allow EU customs authorities to conclude whether to apply TCA benefits or not.

New customs world post-Brexit

That brief overview clearly demonstrates that the EU importers trading with the UK would need to carve out in their internal financial policies a dedicated system for reporting and recording of imports from the UK, including retention of documents supporting UK origin of the goods imported, such as statements on origin or documentation supporting importers knowledge. Given the distinct character of TCA rules of origin, the approaches used for other third countries could not be automatically extended to imports from the UK. In that respect, EU importers may also need to review and possibly rearrange their existent contracts with and practices for the UK partners, as well as to put in place verification procedures for new UK suppliers or products, in order to be able to secure TCA benefits.


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