3-rd Customs Practitioners Conference: There is no good supply chain without good customs!
The 3rd Customs Practitioners Conference (national conference in Lithuania) was held on 10 December 2020 under the slogan: "There is no good supply chain without good Customs!". We provide an overview of the presentations, which covered international, EU and national legislation, Brexit, preferential origin of goods, import/ export VAT and post-clearance audits.
One of the goals of the Lithuanian Customs Practitioners Association is to build contacts with similar associations in other countries to exchange Customs knowledge and best practices. As this conference was held 'on the eve of Brexit', we are grateful to Dinesh Unadkat, the board member of the UK's Association for International Trade ACITA, who accepted our invitation to speak at the event. During his long carrier in Customs, Dinesh Unadkat has witnessed both, the UK's accession to the European Union and now - the withdrawal. As the Customs formalities are going to be re-established between the EU and the UK on 1 January 2021, Mr. Unadkat emphasized the importance of close cooperation in the supply chain exchanging Customs knowledge and experience.
The conference started with an overview of practical aspects of Customs formalities between the EU and UK in the first part 'Legal updates and their impact on business' and continued with the topics of supply chain challenges and conflict minerals (EU regulation applicable to EU importers as of 1.1.2021) and data elements of Customs declaration (new national legal act applicable as of 1.12.2021). The second part was dedicated to preferential origin - free trade agreements, including the future agreement between the EU and UK, mean that the reduced or eliminated Customs duties shall be granted only on goods that comply with the preferential rules of origin set out in the agreement.
The afternoon session focused on the aspects of export and import VAT, such as: the criteria crucial in determining the taxation of the goods, i.e. whether 0% VAT rate can be applied or not; how to check business partners to avoid VAT fraud; what should Customs brokers need to know about VAT to advise their clients, etc. The final session covered the post-clearance topic: the duties of Customs auditors and the process of audit; the audits conducted by two institutions - Tax and Customs, and the case of different conclusions; what information (including the results of post-clearance audits) could be provided in the annual Customs report, which is public, to make it most useful for business.
Please find short summaries of the presentations below. Most of them are prepared by the speakers themselves.
LEGAL UPDATES AND THEIR IMPACT ON BUSINESS
“Do you trade with the UK? Practical aspects of Customs formalities as of 1 January 2021”, Enrika Naujokė, director of UAB Muita and Dinesh Unadkat, director of J.D. Consultants Ltd.
The speakers emphasized that Customs formalities would be necessary regardless of the conclusion of a free trade agreement between the EU and the UK. They overviewed how to plan Customs formalities and to cross 'smart' borders, how to choose a Customs broker, to use T1 and T2 declarations. In particular, the attention was drawn to the proper completion of the common transit procedure. In case the procedure is not properly ended in the electronic Customs systems, the holder of the procedure has either to cover Customs debt or to present an alternative proof of ending, which is an original Customs document or a copy of it certified by Customs (see Art. 51 of the Convention on the common transit procedure). To acquire such a document might be a very complex and lengthy process!
"Supply Chain Challenges - Conflict Minerals", dr. Aušra Bieliūnienė, Chief Import/ Export Coordinator of UAB Thermo Fisher Scientific Baltic
The world’s resources are unevenly distributed and at different historical times there is a greater demand for some raw materials than for others. These are two conditions that presuppose conflict situations, hotspots, conflict zones. The 'problem of mineral resources' relates to the prerequisite for the socially and environmentally responsible exploitation of mineral resources.
On 17 May 2017, European Parliament and Council adopted Regulation (EU) 2017/821 imposing an obligation on Union importers of tin, tantalum, tungsten, their ores and gold from conflict and high-risk areas to carry out a thorough supply chain inspection. This Regulation entered into force in 2017, but starts to apply to EU importers from 1 January 2021. It aims to ensure transparency and certainty regarding the purchasing practices of EU importers from conflict and high-risk areas.
“Changes in Requirements for Data Elements of Customs Declarations”, Rūta Petkevičiūtė, Chief Specialist, Customs Policy Division, Customs Department
The national long-standing 'Instructions for Completing the Single Administrative Document' have been replaced by new rules set out in order No 1B-810 of the Director General of the Customs Department, which entered into force on 1 December 2021. The new rules are based on the provisions of the Commission's Delegated and Implementing Regulations to the Union Customs Code governing data on electronic and paper-based Customs and re-export declarations, including declarations of small consignments and mail, and declarations entered in the declarant's records. Important change - the explanations of the data elements of the declarations provided in the rules are no longer linked to the boxes and parts of the Single Administrative Document.
PREFERENTIAL ORIGIN OF GOODS
"Issues of Rules of Origin in EU Trade Agreements", Raimondas Ališauskas, International Trade Law Expert, Lecturer at MRU School of Law
The rules of origin of goods define the economic "citizenship" of goods and distinguish between national and foreign goods under the domestic regulations in force. The rules of origin are divided into preferential and non-preferential. Preferential rules of origin are an essential part of the EU's free trade agreements; therefore, it is important for the companies involved in international trade to know the origin of their goods. It should be emphasized that the benefits of a future EU-UK or any other free trade agreement, i.e. reduced or eliminated Customs duties shall be granted only on goods that comply with the preferential rules of origin set out in the said agreement.
“Practical Mistakes and Situations Observed by Vilnius Territorial Customs”, Rima Zabalevičienė, Deputy Head of the Tariff and Customs Evaluation Division of Vilnius Territorial Customs
The speaker presented practical mistakes and situations that businesses encounter when Customs upon importation receive documents proving the preferential origin of the goods or documents confirming the status of the EU-Turkey Customs union, for instance, when certain data is missing or is entered incorrectly in the EUR.1 movement certificate. Attention was drawn to the Registered Exporters' (REX) system administered by the European Commission, where and how information on the validity of the REX number can be checked and who registers such exporters in Lithuania.
VAT ON IMPORT AND EXPORT
“Customs Procedures and VAT Taxation”, Andra Černevičiūtė, Head of the Indirect Tax Division of the Legal Department of the State Tax Inspectorate
For businesses dealing with goods that are placed under a certain Customs procedure, it is very important to determine what kind of Customs procedure is applicable and the time when the goods were placed under such procedure. Those two criteria are the most crucial ones in determining the taxation of the goods, i.e. whether 0% VAT rate can be applied or not.
“Customs Procedures and VAT Fraud in Trade in the European Union”, Sandra Gudelienė, Chief Specialist of the VAT Control Division of the Control Department of the State Tax Inspectorate
The speaker began by outlining what VAT fraud is, how it is carried out and what damage can be done to states' budgets. She also explained that VAT fraudsters can gain an unfair advantage in competitive markets by supplying goods below market price. The speaker also emphasized that, before starting trade with new business partners, it is recommended to gather information not only on the subject matter and main terms of the contract, but also to gather as much information as possible on the partner himself, in order to avoid VAT fraud. According to the case-law, a taxable person who knew or have known that he was involved in VAT fraud when he acquired the goods, whether or not he benefits from the resale of those goods may lose his right to deduct VAT, the application of the VAT rate or the recovery of the VAT overpayment (difference), therefore consequences could be very significant.
“Practical aspects of VAT on imports and exports. Problematic situations”, Karolina Jogminaitė-Matačienė, VAT consultant, head of UAB KJ & Associates
The speaker covered the following risks to business: recovery of VAT actually paid, cancellation of import VAT return in case of import VAT offsetting and the abolition of the 0% VAT rate on exports. She noted that businesses expect Customs brokers to inform them about potential risks of VAT, but Customs brokers do not always know the "subtleties" of VAT. One more source of risk, as practical situations show, are cases when the positions of the State Tax Inspectorate and the Customs differ, although in the same situation the opinion of both institutions should be unanimous.
TRENDS IN INFRINGEMENTS AND OTHER AREAS
"Customs Audit in the European Union and Lithuania", Jolanta Diktanienė, Chief Specialist of the Economic Entities Inspection Division of the Customs Department
Did you know that under Article 48 of the European Union Customs Code, customs auditors may visit your company one, two or three years after the Customs formalities had been completed? The presentation provides an overview of: the Customs risk areas; actions the auditor could perform in your company; documents, extracts from the general ledger and other accounting records that you may be asked to provide, etc.
The presentation emphasizes the fact that all EU Member States should follow the recommendations of the European Union Customs Audit Guide. Only then we can expect that the audit would be carried out in a professional, high-quality, comprehensive manner, that all phases of the Customs audit would be carried out consistently, in accordance with common standards, not only in the different regions in each Member State but throughout the EU.
The information provided in the report highlights the high level of standards to be held for auditors. They must not only be good risk analysts, experts in many Customs risk areas, but also have a good knowledge of accounting, through which registers identify the possible discrepancies in the declaration of goods.
We would like to send a message to all traders, whose companies will be subject to Customs audits, that Customs auditors have a duty not only to identify irregularities but also to help companies to understand and apply the laws and regulations, as well as national legislations correctly, to advise, for example, which Customs procedures or documents are most useful for their business.
"The relationship between State Tax Inspectorate and Customs inspections: can the conclusions of the institutions differ?", Monika Bielskienė, Law Firm WALLESS, lawyer
The topic of the talk - opposing conclusions of State Tax Inspectorate and Customs Authorities on the same actions and transactions of one company while applying the same article of VAT law. An example of the 42nd Customs procedure was analysed. State Tax Inspectorate performed an audit of a company and concluded that 0% VAT in the intra-Community supply was applied correctly. Customs Authorities, while performing the subsequent audit, claimed the opposite, i.e., that conditions to apply 0% VAT in intra-Community supply were not fulfilled. The speaker talked about the position of Customs Authorities, Commission on Tax Disputes, national and EU courts and gave advice on what can be taken from this example by both businesses and tax authorities.
"Annual Report on Customs Activities through business eyes", Tadas Ronkaitis, supply chain management expert
The speaker presented the annual publicly available 'Report on Customs Activities' of Lithuanian Customs. He overviewed what this report is for and the content. The strategic goals of Customs and their relevance to business were also briefly introduced. The speaker noted, that the review of the business-relevant parts of the 2019 activity report raises concerns about the relevance of the information to the wider business community.