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The demise of “domestic sale” for transaction value in the EU Union Customs Code

by Karolien Vandenberghe, Senior Managing Associate, PwC Legal

Belgian customs notice of June 28, 2019 changes circular 2018/C/9 of January 24, 2018 regarding customs valuation

The Belgian customs authorities published a notice on June 28, 2019 announcing that they will no longer apply the “domestic sale exclusion” in order to determine the transaction value of goods at entry, with immediate effect.

Basic principle: Transaction value

The EU Union Customs Code (UCC), which entered into force on May 1, 2016, provides for a customs valuation system that, in principle, bases customs value on the transaction value of the goods entering the EU customs territory for the first time. The UCC uses the last sale before entry as the relevant transaction.

Transaction value is a well-known customs concept. The UCC defines it as “the price actually paid or payable for the goods when sold for export to the customs territory” (art. 70 UCC). In order to determine transaction value it is necessary to identify “the sale for export”. Prior EU customs legislation, going back to Council Regulation (ECC) 1224/80 of May 28, 1980, has used the same definition.

The power of an obscure six-word-long footnote in non-binding EU guidance for EU customs practice

In April 2016, the European Commission published non-binding guidance to clarify the notion of transaction value. In its section on “sale for export”, the guidance inconspicuously introduced the notion of “domestic sale”, stating that a domestic sale does not qualify as a sale for export to the EU. A footnote to “domestic sale” added “buyer and seller in the EU.” These six words ignored past and existing legislation and a judgment of the European Court of Justice (CJEU June 6, 1990, Case C-11/89, Unifert). The location of buyers and sellers had never been taken into account in order to determine whether “a sale for export” was present, as this was based on the actual, physical flow of the goods sold.

Even though the guidance was not binding, EU customs authorities implemented it.

Imagine a sale between a US and a Dutch company, followed by a second sale between the Dutch and a Belgian company. The goods are produced in the US and are transported to Belgium by the Belgian company once the second sale has been concluded. 

This last sale between the Dutch and the Belgian company could no longer constitute “a sale for export” under the guidance. Customs authorities demanded that the declarant of customs value would be able to demonstrate the transaction value of the first sale between the US and the Dutch company. While this resulted in a decrease of customs duties due (as the first sale price is usually lower than the second sale price), some importers would not be able to obtain the invoice of the first sale, forcing them to show customs value by using secondary – more complicated – valuation methods (e.g.: transaction value of similar goods).

In October 2018, the EU’s Customs Expert Group (CEG) therefore rightfully concluded that all references to “domestic sale” should be deleted from formal EU guidance on the interpretation of the notion of transaction value because it is “a concept that does not exist in the customs legislation.”

Belgian customs authorities have now adopted this position. As of June 28, 2019, a sale between two companies in the EU may qualify under the transaction valuation method if the goods sold are destined for export to the EU. Belgian customs authorities will no longer apply the section in circular 2018/C/9 of January 24, 2018 that referred to the domestic sale exclusion.

Businesses should evaluate their contracts and supply chain to identify potential impact.

About the author

Tom Declercq

Karolien Vandenberghe is a US and EU qualified attorney at PwC Legal who focuses on Trade and Customs.