International Business Articles
By Bartosz Dzionsko – German Attorney at Law at WINHELLER
Where the movement of goods is subject to customs legislation, the supplier’s declaration is one of the most important supporting documents. The EU has concluded preferential trade agreements permitting the preferential customs treatment of bilateral imports of goods with various countries. Based on the supplier’s declaration, the exporter can prove the origin of the goods (preferential origin status). This will allow him to apply for a movement certificate (e.g. EUR.1 or EUR.Med).
These certificates are worth real money as they entitle their users to benefit from reduced duty rates in the country of destination (so-called preferential duty rates). It is not uncommon that the preferential duty rate for goods with a preferential origin status is “0” percent which means that often no duties are charged at all.
Many errors occur
In practice, we see that supplier’s declarations are prone to errors that can have serious consequences. The reasons for this are manifold. Some errors are caused because people are not aware of the importance of the supplier’s declaration, the scope of its contents, and its relevance for the customer. The supplier’s declaration is the preliminary proof for obtaining a formal preference certificate. Therefore, it is particularly important, for example, which countries are mentioned in the supplier’s declaration. Inserting other countries without checking carries a great risk that the supplier’s declaration will be false.
Errors can entail prison sentences
As a supplier’s declaration can be used to prove tax-relevant facts, errors can easily result in allegations of tax evasion. The parties concerned are also often accused of minor tax offence that – in contrast to tax evasion – do not require an intentional act.
Common errors include:
- filing/passing on the document without previously checking the rules of origin (e.g. list requirements);
- determining an inaccurate item number (especially if a check fails to reveal that the preferential trade agreement refers to other item numbers because they have changed in the meantime);
- conversion of production or purchase of different materials, which pass unnoticed but influence the preference determination process;
- price changes, which can have a negative effect on the preference determination process;
- same article numbers for different batches: If articles have the same article numbers though some of them have preferential origin status while others do not, all articles concerned are considered as articles without preferential origin status.
Recourse claims from contract partners
By the time a movement certificate is applied for, the goods often have gone through numerous previous suppliers, which in most cases have given their customers evidence of the goods’ origin by means of a supplier’s declaration. One error in the chain of evidence relating to the preferential origin will therefore result in a domino effect mostly entailing a post-clearance recovery of duties and imposition of fines. Consequently, the supplier will often be faced with recourse claims from his customers if the supplier’s declaration was filled out incorrectly. These claims may exceed the value of the goods many times over.
Thorough training of employees is imperative
In order to avoid errors, the respective goods should be checked in advance to determine whether they fall under a preferential trade agreement and/or fulfill the so-called rules of origin. As the agreements vary, in many cases, a check must be performed for each country.
Employees in charge of issuing supplier’s declarations should imperatively be given comprehensive training because even formal errors in a supplier’s declaration may be serious.
Our experienced customs attorneys will be pleased to assist you in preparing supplier’s declarations and in carrying out classifications in the tariff system.
WINHELLER Attorneys at Law & Tax Advisors
Tel.: +49 (0)69 76 75 77 80
Fax: +49 (0)69 76 75 77 810