The Dutch legislation does not seem to explicitly provide for the liability of the forwarder. This means that the current liability of the indirect customs representative does not seem to have a legal basis in neither of the EU or Dutch law.
This is good news for forwarders and their clients since it potentially limits the liability of the forwarders and subsequently their fees and guarantees required by them.
Introduction: decision ECJ and analysis
In this article I will look into the following issues. Firstly, it will be looked what the ECJ decided in its recent Case C-714/20 (U.I. Srl v Agenzia delle Dogane e dei monopoli – Ufficio delle dogane di Venezia). Secondly, I will analyze the case in light of the previous ECJ cases on similar matters. I also touch upon the deductibility of the import VAT by the forwarders. Finally, the article looks at the practical implications of this case for the EU and the Netherlands.
In order to file an import declaration in the EU, the declarant must be established within the EU. Therefore, in order to import goods in the EU, a non-EU business has an option to appoint an indirect customs representative that is established in the EU who would import those goods on behalf of the non-EU business. The indirect customs representative compared to a direct customs representative, acts in its own name and if the indirect customs representative is indeed established in the EU, the indirect customs representative is able to import the goods in the EU on behalf of the non-EU company. Acting in an indirect capacity means that the indirect customs representative is held jointly liable for the import duties to be paid when importing goods in the EU for the non-EU business. This liability is based on Article 77 (3) of the Union Customs Code (UCC) that provides that the declarant shall be liable to pay duties due on import. In the event of indirect representation, the person on whose behalf the customs declaration is made is also liable. Article 84 of the UCC provides that where several persons are liable for payment of the customs debt, they shall be jointly and severally liable for payment of the customs debt. Consequently joint and several liability for payment of customs duties applies in case of indirect representation.
Import VAT is payable by any person or persons designated as liable by the EU Member State (MS) of importation according to Article 201 of the EU VAT Directive. In the Netherlands, the invitation to pay the import VAT is usually sent by the Customs to the same person who receives the payment request for the customs duties.
The indirect representative is generally a payer of import duties towards the Customs and charges those duties from the business it is representing, however, the problem arises if their principal goes bankrupt, disappears or refuses to pay the import taxes payable. The Customs can in its control activities go back several years and request the payment of import taxes many years after the goods are released into free circulation in the EU. Acting as an indirect customs representative consequently involves major risks. Therefore, they are not easy to find or only at very high cost.
No joint liability for import VAT under the EU law
On 12 May 2022, the ECJ gave its decision in Case C-714/20 (U.I.).
According to para. 48-52 of the judgement, the joint and several liability of Article 84 UCC does not apply to import VAT. The ECJ rules that Article 77(3) of the UCC must be interpreted as meaning that, on the basis of this provision alone, the indirect representative is only liable for the customs duties due for the declared goods and not also for the import VAT due for the same goods. Joint liability only applies to the customs duties not to VAT according to Article 77 (3) of UCC.
Consequently, the indirect customs representative cannot become jointly liable for the payments of import VAT only on basis of the UCC.
EU VAT Directive
Article 201 of the EU VAT Directive 2006/112/EC must be interpreted as meaning that the liability of the indirect representative for the payment of import VAT cannot be recognized, jointly and severally with the importer, in the absence of national provisions which, explicitly and unambiguously, designate or recognize it as being liable for this tax.
Consequently, the EU VAT Directive does not provide for joint and several liability of the forwarder either. According to the judgment, the forwarding agent is not jointly liable for the import VAT if there are no national provisions which explicitly state the liability of the forwarder.
Comments from VAT perspective
The ECJ has previously ruled that the VAT is not always due when the customs debt arises. In its judgment of 2 June 2016 in Joined Cases C-226/14 Eurogate Distribution) and C-228/14 (DHL Hub Leipzig), the ECJ stated that although customs duties became payable since the goods concerned were unlawfully removed from customs procedure (customs warehousing end external transit respectively), no import VAT was payable because those goods did not enter the economic network of the EU. Consequently importation for VAT purposes does not always coincide with importation for customs purposes and the import VAT is not always due when the customs duties become payable.
Deductibility of import VAT by the forwarding agent or carrier
The import VAT paid by a forwarder or carrier on behalf of the importer cannot generally be deducted by this forwarder or carrier. According to the EU VAT Directive and the ECJ case law, the import VAT can only be deducted by the importer of the goods who either is an owner of the goods at the moment of importation and/or uses the goods for its taxable economic activities. For example, in its judgment of 25 June 2015 in Case C-187/14 (DSV Road A/S), the ECJ stated that in respect of import VAT, “a right to deduct exists only in so far as the goods imported are used for the purposes of the taxed transactions of a taxable person”. Since the value of the goods transported did not form part of the costs making up the prices invoiced by a transporter whose activity was limited to transporting those goods for consideration, the conditions for input VAT deduction were not satisfied according to the ECJ. The ECJ decided that it is in line with the VAT Directive to exclude the deduction of VAT on import which the carrier, who is neither the importer nor the owner of the goods in question and has merely carried out the transport and customs formalities as part of its activity as a transporter of freight subject to VAT, is required to pay. In the light of other judgments of ECJ, such as in Joined Cases C-226/14 and C-228/14 and the recent case C-714/20, it is questionable whether the import VAT would become payable at the first place.
In its judgment of 8 October 2020 in Case C-621/19 (Weindel Logistik Service), the ECJ again noted that a taxable person may deduct from the amount of VAT that he is liable to pay, the tax due on imported goods where those goods are used for the purposes of his taxable transactions.
Consequently, if the carrier or forwarder becomes liable for payment of import VAT which it cannot reclaim because of the reasons above, then the import VAT becomes a non-recoverable cost for the carrier or forwarder unless it can re-charge this import VAT from its principal / the importer of the goods. Therefore, it would be welcome news for the forwarders that they may not always become (jointly) liable for import VAT when they are (jointly) liable for the customs duties.
Consequences for the practice
It follows from the decision that to make an indirect customs representative jointly and severally liable for the payment of import VAT, the national legislation is required which explicitly and unambiguously provides for this liability.
The legislation of each MS should consequently be analyzed on the light of the ECJ judgement to evaluate whether its legislation provides sufficiently clear provisions for joint liability of the indirect customs representative for the payment of import VAT. If those provisions do not sufficiently clearly establish the liability of the indirect customs representative for the import VAT, then the Customs cannot charge those taxes from the forwarding agent.
This ECJ decision can consequently have a major impact on the forwarders since they may (depending from the national legislation in place not become liable anymore for import VAT which usually involves major share of the payable import taxes. This means that the risks of the forwarders will be diminished and subsequently also fees and bank guarantees that indirect customs representatives require from their customers could be adjusted downwards which would make the indirect representation less costly for non-EU importers.
Consequences in the Netherlands
The Dutch legislation does not seem to contain any provisions which explicitly state the liability of the forwarder.
In Article 22, first paragraph, of the Dutch VAT Act, it is stated that “with regard to the VAT on importation, the legal provisions referred to in article 1: paragraphs 1 and 2, of the General Customs Act (Algemene douanewet) shall apply by analogy […].
Article 1: paragraphs 1 and 2, of the General Customs Act (Algemene douanewet) refers to the UCC which is applicable.
The aim of those provisions is to ensure that the person who becomes liable for customs duties under the UCC, also is liable for import VAT. However, as was explained above, the ECJ decided in Case C-714/20 that the UCC does not provide the liability of the indirect customs representative for the payment of import VAT.
In addition, Article 23 of the Dutch VAT Act may apply on import. Article 23 provides that the import VAT is payable by the reverse charge when certain conditions are met. If Article 23 applies on import, then the indirect customs representative does not become liable for import VAT either.
Consequently, it seems that the Dutch legislation does not contain provisions which explicitly and unambiguously, designate or recognize the indirect customs representative as being liable for import VAT.
It follows from the ECJ decision in C-714/20 that to make an indirect customs representative jointly and severally liable for the payment of import VAT, the national legislation is required which explicitly and unambiguously provides for this liability.
Consequently, according to the ECJ, the Customs is not allowed to request the indirect customs representative to pay import VAT unless the local laws of this country explicitly provide for such liability.
It seems that in the Netherlands, the indirect customs representative is not jointly liable for the import VAT because there are no national provisions which explicitly state the liability of the forwarding agent.
The ECJ decision could potentially diminish the liability of an indirect customs representative by limiting the liability to the customs duties. This is good news for forwarders since they are not able to deduct this import VAT paid because they do not use the imported goods for their taxable output transactions.
In addition of being positive development for forwarding agents, it could also be positive news for their clients since it could potentially limit the fees and bank guarantees that indirect customs representatives require from their customers. This is because the forwarders are not anymore liable for import VAT which usually involves major share of the payable import taxes.