Customs Law – Know How

What are customs duties?

Customs duties only arise when goods are imported into the European Customs Union from countries outside that union. The European Customs Union is largely identical to the territory of the European Union (EU). Today, customs duties are justified by the so called economic tariff theory. Under this theory, the importing state (here the EU) seeks through the imposition of tariffs to siphon off the economic value of unjustified advantages of imported products. Such advantages typically result from the fact that wage and production costs outside the EU are lower and thus the price of the imported goods is lower than the same goods produced within EU. This is precisely why companies regularly produce goods abroad and outside the EU (e.g., in Asia). Tariffs thus ensure, in a sense, fair competition. Under this theory, tariffs only arise on products that enter the domestic (European) market and would have an unfair competitive advantage over domestic products without customs duties.
Practical tip: The above can be used to argue, when customs duties are charged for not carrying out certain prescribed procedures properly or because other misconduct has been committed, that the tariff would not redress a competitive imbalance (e.g., because the goods were never intended to be sold in the EU). The argument should then always be that customs duties do not arise if the misconduct has no impact on the market within the EU (e.g., if goods from inward importation processing demonstrably left the EU customs territory but procedural errors occurred during processing).

Who is Entitled to Customs Duties?

Customs duties are levies which flow directly to the European Union and thus represent the EU’s own resources. They are, in effect, the EU’s only direct “taxes.” Other EU own resources include proportional value-added tax passed onward and Member States’ payments to the EU. In 2015, around €23.3 billion in customs duties were levied in the EU, of which €18.6 billion was transferred to the EU administration. Customs duties thus accounted for 13.6% of all EU own resources (see https://ec.europa.eu/taxation_customs/facts figures/customs duties mean revenue_de). By way of comparison, the tobacco tax in Germany in 2015 alone amounted to €14.9 billion, and Germany’s total tax revenue was €620.3 billion (see https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Steuerschaetzungen_und_Steuereinnahmen/2016 01 29 steuereinnahmen kalenderjahr 2015.pdf?__blob=publicationFile&v=2). The customs revenue is therefore comparatively low compared to tax revenue.

Where are Customs Duties Imposed?

Since the introduction of the EU internal market January 1, 1993, there have been no customs duties between the various states of the EU. Rather, in terms of customs law, the EU is a community area with customs duties imposed at its external borders. The EU itself imposes customs duties, not the individual EU states, and the duties imposed are the same at all external borders. The individual EU states only provide the infrastructure for customs collection (national customs authorities and customs inspectors). Accordingly, the EU regulates customs legislation in its own EU regulations. National customs laws still exist in the individual EU countries, but these only regulate procedural and administrative issues. The primary EU law governing tariffs – an EU regulation that applies directly in every EU Member State – is the Union Customs Code (UCC), effective May 1, 2016.

Note: The Union Customs Code, as an EU regulation, has direct application in the EU Member States and thus does not need to be transposed into national law.

How Does Legal Representation in Customs Law Work?

In customs law, a person with customs liability does not have to personally appear before the customs authorities. Instead, he may retain a representative to represent him, Art. 18 UZK. The customs agent generally can undertake all actions necessary to advance the interests of the represented person (active measures, such as the submission of customs declarations or applications, or passive, such as the receipt of communications). Representation in customs law is always open, i.e., the customs agent must disclose the identity of the person on whose behalf he is working. A so called “hidden” representation does not exist in customs law. A distinction must be made between direct and indirect representation: (a) in the case of direct representation, the customs agent acts in the name and on behalf of a third party, and (b) in the case of indirect representation, the agent acts in his own name but on behalf of a third party. The customs agent must always be resident of the customs territory, but not the represented party.

Note:  The person who submits a customs declaration in his own name or on whose behalf a customs declaration is submitted is a customs declarant and therefore also a customs debtor.  In the case of direct representation, the represented person is the customs declarant.  He must be a resident of the EU, otherwise direct representation is not possible.  In the case of indirect representation, the customs agent is the customs declarant (because he is submitting the customs declaration in his own name) and must be a resident of the EU territory.  However, it is not necessary for the represented person to be an EU resident.  This means that indirect representation should always be considered if the represented person is located outside the EU and does not wish to establish residency in the EU (e.g., a supplier established outside the EU who undertakes to supply on a DDP (Delivered Duty Paid) basis).  Attention:  In the case of indirect representation, the customs agent as declarant also owes the import duties.  He will attempt to have these reimbursed by the represented person but carries the risk that the latter will fail to pay.  The customs agent will be compensated accordingly for this risk by the represented person.