European Commission

EU publishes long-awaited and ambitious Customs Reform and it includes VAT implications!

July 4, 2023 in European VAT, News

EU publishes long-awaited and ambitious Customs Reform and it includes VAT implications!

The European Commission published in May 2023 a package of proposals to transform and modernize the EU Customs Union.  

The reform aims to significantly simplify current customs procedures with measures such as replacing traditional customs declarations and giving customs operators digital tools able to cope with the recent boom in parcels entering the EU, notably due to the growing digital economy.  

As mentioned in the press release published by the European Commission, the intention behind this reform is to introduce a data-driven, smarter and safer Single Market in which customs operators would be equipped to handle the increasing number of parcels entering the EU and also simplify requirements for traders.  

What does this ambitious reform entail?  

Firstly, the proposal includes the creation of a new EU Customs Authority which will administer an EU Customs Data Hub at the core of the new customs system. The plan is to gradually replace the existing customs IT set-up in each EU Member State. By replacing national customs IT systems with an EU Data Hub, the European Commission is hoping to save Member States up to €2 billion a year in operating costs. Additionally, introducing a new EU Customs Authority is viewed as way to improve risk management and customs checks at EU level.  

Secondly, the proposals suggest that traders importing goods into the EU will be able to use a single portal when communicating their customs, products and supply chain information. Such simplifications should not only reduce the burden for businesses but also give authorities a greater visibility on the movements of goods within the Single Market.  

Moreover, a new status of ‘Trust and Check’ would allow certain trusted traders to bring goods into the EU without any customs intervention. 

The goal is for the Data Hub to be made accessible first to e-commerce parcels in 2028 and on an optional basis to other types of imports in 2032. However, the use of this new hub is due to become obligatory for all traders from 2038.  

Artificial-intelligence, real-time data and information sharing via the new Customs Data Hub should give more transparency and proficiency to authorities to monitor goods moving into the Customs Union and eventually improve revenue collection.  

Another significant aspect of the reform is that online marketplaces will become central to ensuring that goods sold online fulfil customs requirements. Under the proposals, online platforms facilitating supplies of goods to EU consumers will become the official importers and as a result, liable for ensuring that any VAT and duties are paid for at the time of sale rather than importation. This would be a significant increase of liability for online marketplaces which already took a bigger role in VAT collection when the 2021 e-commerce VAT package was introduced.  

Moreover, the current EUR150 customs duty threshold will be abolished to end fraudulent activity from traders undervaluing consignments. It is estimated that currently up to 65% of e-commerce consignments entering the EU are undervalued to escape VAT and customs duties.  

Lastly, to make it simpler for traders and authorities to apply the correct customs duties, the method for calculation will be greatly simplified into a new ‘tailor-made-e-commerce’ regime.  

The e-commerce sphere has been at the heart of various EU wide reforms in the last few years. From digitising reporting to making e-commerce actors liable for tax compliance, this ambitious reform shows yet again how the European authorities are aiming to create an environment impervious to tax fraud. In fact, online retailers will need to take into consideration the customs changes we have unpacked in this article along with a new proposal for a Council Directive which will also change the use of IOSS in the near future. 

These customs legislative proposals were sent to the European Parliament and the Council of European Union to be agreed upon as well as the EESC for consultation. If approved, the new rules would apply from March 1st 2028.  

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