Since 1993, the EC has been a Customs Union. This means that all 27 member states use the same tariff for imports and exports (i.e. trade with extra-EC countries). Trade within the Customs Union operates on Customs Transit procedures with goods either “in free circulation” or not, subject to Community Transit controls, or not.
The aim of the Customs Union was to have all member states trading without the necessity of Customs controls and the collection of duties and taxes. This “free movement” of goods was also extended to services, labour and people. Of course, some controls do still apply. Customs operate an anti-smuggling program for illegal goods and to ensure legal but controlled shipments are going through the correct procedures. Goods still controlled within the EC are:
Controlled by an export licensing system and for some products and import licensing procedure. Export declarations to UK Customs are not required but traders in this product sector must have good internal control procedures.
Firearms and Explosives
Controlled by a dual export and import licensing system and possibly, depending on the routing, transit approval by the individual states requiring transit permits.
Excise goods are tobacco, alcohol, hydrocarbon oils and derivative products, e.g. perfume, lighter fuel. They are subject to an excise duty set by each national government. The movement of these goods are controlled under the Elecytronic Accompanying Document (eAAD) under the Excise Management Control System (EMCS) procedure to ensure the excise duty is collected in the destination country.
Pharmaceutical companies must be registered to trade within the EC and controlled products can only be supplied to registered traders.
Goods traded within the EC are not officially known as “exports” and “imports”. For Customs purposes they are “supplies” and “arrivals”, while for VAT purposes they are also known as “despatches” and “acquisitions”. On becoming a Customs Union, the member states had to ensure that “free Circulation” of goods was possible. This involved:
- The Customs border points were removed, though anti-smuggling check remain.
- Paperwork was no longer required by Customs.
- Goods originating within the EC could move without the collection of Customs duties or VAT at the arrival points.
- Goods imported from outside the EC are still subject to Customs Duties but the duty rates and tariff numbers have been standardised by all the 27 states. Duty is payable at arrival into the EC with the funds collected being returned to the European Commission not the national governments.
- Once goods entered the EC and all duties have been paid they are in “free circulation” and can be moved within the EC without the collection of further Customs duties.
- VAT to be collected and controlled by the destination VAT offices but not at the point of arrival.
- A system of collecting trade statistical was put in place (Intrastat).
All goods moving within the EC under “free circulation” rules are given the Customs Transit status of T2. Goods not in free circulation (e.g. imported from outside the EC and Customs duties suspended) are classified as T1 movements.
If goods are imported into the EC and duties/taxes are “suspended” under a Customs Regime, e.g. Inward Processing Relief (IPR), then they are not free to move within the EC without Customs control. These goods are known as T1 goods and are controlled requiring paperwork and Customs entries to move between member states. If duties have not be paid or goods are passing through the Community to a destination country outside, they are controlled by the Community Transit (CT) procedure. This allows the goods to pass through member states under Customs control but without routine checks at borders. Full Customs clearance and payment of charges will be made in the destination country. This system has also been adopted by EFTA where it is called Common Transit.
New Computerised Transit System (NCTS)
The New Computerised Transit System (NCTS) is a Europe-wide system, based upon electronic declaration and processing. It is designed to replace the existing paper-based CT system and to provide better management and control of Community and Common Transit. It involves all EU Member States and the EFTA — 31 countries in all — and its use is also a condition of accession for those countries short-listed to join the EU. Each country has developed its own NCTS processing system, according to centrally defined architecture. These systems are connected, through a central domain in Brussels, to all of the other countries. The NCTS will link some 3000 European Customs offices. The aim is that CT users will input all transit declarations, and any other necessary messages, such as arrival of the goods, electronically to the NCTS. NCTS has been developed to:
- combat fraud in Community and Common transit
- improve efficiency and control by allowing electronic declaration to be made.
A key element of the NCTS is the Movement Reference Number (MRN), a unique number generated by the system upon its acceptance of a correct declaration. The MRN has a defined structure of 18 characters; eg 11GB00005112345678.
1 January 1993, with the dropping of the borders between European Community (EC) Countries, the European Commission transferred the responsibility of collecting statistics on the trade in goods between EC Countries from the Customs authorities to Industry. From 1 January 2007 the 2 new member states came under the Intrastat system, including the requirement for EC Sales Lists and the need to show their VAT Registration No. on the commercial invoices.
INTRASTAT– the Intra-Community Trade Statistics – is a community-wide system, so requirements are similar in all EC countries. All VAT registered businesses must complete two boxes on their VAT returns showing the total value of GOODS supplied to and acquired from other EC countries. Larger VAT registered businesses must supply further information on their trade of GOODS each month.
Known as SUPPLEMENTARY DECLARATIONS (SDs). A “larger business” is one whose EC export trade is above £250,000 p.a. (the threshold for reporting inbound freight from other member states is £600,000p.a.) The SDs comprise of:
- 1. DISPATCHES formerly known as exports
- 2. ARRIVALS formerly known as imports
- 3. EC SALES LIST a list of sales made within the EC, quoting the value of the transaction and your customers VAT Registration Number.
Complete and accurate declarations must be received by Customs no later than the last working day after the end of the “reference period” (usually the calendar month). Nil returns, though not required by law, are recommended by UK Customs to prevent unnecessary queries.
It is an onerous task either performed by the finance or shipping departments but it is a legal requirement subject to penalties and fines for non-compliance. Customs prefer the information to be submitted electronically via their internet system though paper returns are accepted. Agents can make SD submissions for EC traders, however the principal who appoints the agent remains responsible in law for the completeness and accuracy of the declarations. The legal framework for Intrastat is provided for in EC Council Regulation 3330/91. This regulation has the force of law throughout the EC. If you do not already make Intrastat returns you should monitor the value of your EC purchases and sales to avoid non-compliance. A lot of information relating to Intrastat reporting and procedures can be found on www.uktradeinfo.co.uk.