Tax alert no. 14 – Non-preferential origin of goods
In this issue:
In which cases can certificates of non-preferential origin still be used?
At the end of 2018, European Commission issued new guidance related to computation and proof of non-preferential origin of goods from third countries.
Non-preferential origin is the economic nationality of the goods while the customs status shows if the goods have been released for free circulation or not in the related country.
In the context of the safeguard measures or other types of commercial barriers imposed by the European Union (for example, antidumping duties), importers are responsible for correctly determining the non-preferential origin for the traded goods.
Trough the new guidance, European Commission signals the importers as well as customs authorities on the fact that at EU level computation and proof of non-preferential origin has to be done strictly based on the rules provided by the EU customs legislation (and not based on the ones applicable in the export country). Moreover, for applying the non-preferential origin rules it is important that the importer to know if the goods are falling under a special non-preferential import regime or not.
What kind of goods fall under a non-preferential special import regime?
The European Commission defines “the special non-preferential import regime” as where the goods to be imported are subject to EU tariff quotas (as the case of safeguard measures against imports of US steel products and other countries).
Only in this case, the non-preferential origin can be proven by means of a certificate of origin which needs to be issued strictly according to the rules and format provided by the Union Customs Code Norms (Annex 22-14). Otherwise, the proof of origin may be rejected. This may lead to additional tax burden towards importers.
What happens to the goods which are not subject to such a regime?
In case of goods which are not subject to a non-preferential special import regime (most of the goods imported in EU), the EU Commission points out that for proving origin at import time, certificates of origin issued in third countries (for example China, Thailand, Taiwan) cannot be taken into consideration. This is because such certificates are issued based on other origin rules which differ from the ones applicable at EU level, offering insufficient information on non-preferential origin.
For example, many goods originating in China are subject to anti-dumping duties (ranging between 40 - 60%) on imports into the European Union. Recent investigations by European Anti-fraud Office (OLAF) have found that, to avoid these charges, suppliers often export them from China to other countries (e.g. Taiwan, Thailand, India) and declare the origin of the goods as being from those countries on the basis of certificates of origin issued erroneously. As part of the subsequent checks, the customs authorities invalidate these certificates and oblige European importers to pay these anti-dumping duties plus interest and related penalties
How can importers prove the origin in this case?
The first recommended instrument would be to obtain an Binding Origin Information (BOI) from the European customs authorities, a document certified by the customs authorities that verifies and confirms the origin of the goods.
In this way, the origin of the goods is in fact secured as long as the information underlying the issuance of an BOI was correct and complete. Importers will know exactly what duty they have to pay before importing and can negotiate more efficiently the purchase price or delivery method.
The second recommended instrument for proving non-preferential origin in the absence of an IOO would be a document drawn up by the declarant (or directly by the exporter if information is considered confidential) containing the information necessary to determine the non-preferential origin (e.g. description of the goods, description of the process if obtained from materials wholly obtained in the country of export, the rule of origin applied, etc.). A standard model document (for information purposes) is included in the European Union Guidelines.
How the above can impact your business?
Verifying the correctitude of the non-preferential origin of goods during post import customs controls is one of the hot topics in Romania and the European Union.
Declaring and proving the origin of the goods at the time of the import formalities and during post checks customs inspections falls under the responsibility of the importers. It is therefore essential that you know the rules of origin applicable at EU level to avoid any additional import duty payments.
Mihai Petre, Director, Tax
For additional information, please contact:
Alex Milcev, Partner – Head of Tax&Legal
Ernst & Young SRL
Bucharest Tower Center Building,
22nd Floor, 15-17 Ion Mihalache Blvd.,
Sector 1, 011171, Bucharest, Romania
Tel: (40-21) 402 4000, Fax: (40-21) 310 7124