Customs and excise quarterly update - November 2021
In this update we report on (1) the revised timetable for border controls on imports from the EU; (2) regulations regarding the new Freeports; and (3) updates to safety and security requirements on imports and exports from the EU.
We also comment on three recent cases relating to (1) time limits and procedural requirements in a customs context; (2) whether UK acquisition VAT can apply when a bonded warehouse is not located in the UK; and (3) the tariff classification of mastectomy bras.
The revised timetable for border controls on imports from the EU
On 14 September 2021, Lord Frost, the Minister of State in the Cabinet Office made a written statement to the House of Lords announcing revisions to the timetable for the phased introduction of border controls on imports from the EU into Great Britain.
Under the revised timetable:
- Import safety and security declarations will be required from 1 July 2022 (previously 1 January 2022). From 1 January 2022, import declarations may no longer be deferred.
- Pre-notification of agri-food imports will be introduced from 1 January 2022 (previously 1 October 2021). This means advance notice of imports of consignments of products of animal origin (POAO), certain animal by-products (ABP) and high-risk food not of animal origin (HRFNAO) must be given to relevant regulatory bodies. The date for pre-notification requirements for low-risk plants and plant products has not changed (1 January 2022).
- Export health certificates (official document confirming that the product meets UK health requirements) for POAO and certain ABP will be required from 1 July 2022 (previously 1 October 2021).
- Physical sanitary and phytosanitary checks (and certificates) for POAO, certain ABP and HRFNAO will be required from 1 July 2022 (previously 1 January 2022).
- Physical checks on these products and high-risk plants must take place at border control posts from 1 July 2022 (designated and approved inspection sites) instead of the place of destination of the product.
The statement can be viewed here.
New freeports and freezones customs and VAT regulations
In The Spring 2021 Budget, the Chancellor announced the identity of eight freeport tax sites in England and the Finance Act 2021 contained measures providing for enhanced capital allowances for plant and machinery and structures and buildings expenditure incurred, together with stamp duty relief for land acquisitions, in freeport tax sites. Free zones will be as provided for under section 100A, Customs and Excise Management Act 1979.
The main benefits of free zones are duty deferral (import duty is paid only when released for free circulation in the UK), duty exemption when goods enter the free zone simply for storage or processing before being re-exported, duty inversion (where goods are entered into the free zone for processing and duty is paid based on the tariff for the finished product where this is lower than the tariff on the components of the finished product) and simplified customs procedures.
On 18 October 2021, the Free Zones (Customs, Excise and Value Added Tax) Regulations 2021 (SI 2021/1156) (the Regulations) were made, which establish the customs and VAT rules that will apply to UK free zones (freeport customs sites). The Regulations can be viewed here.
Updated safety and security requirements on imports and exports from the EU
New guidance has been published on the safety and security requirements of imports and exports from the EU into Great Britain. After the end of the transition period following Brexit, Great Britain is now no longer part of a safety and security zone with the EU. The guidance covers what the new requirements will be and how to comply with them.
The government recognises the impact that coronavirus (COVID-19) has had on businesses and it has decided to introduce new border controls (from the end of the transition period) in stages. Safety and security export declarations have been required in most cases since 1 January 2021, however, goods that did not require safety and security import declarations before 1 January will continue to be imported without them until 30 June 2022
From 1 July 2022, safety and security declarations will be necessary for goods being imported to Great Britain from the EU and other territories that did not require these before 1 January 2021. This will reflect the existing model already in place for trade between Great Britain and countries outside the EU.
From 1 October 2021, safety and security declarations became due on goods leaving Great Britain in vehicles, and for empty containers, pallets and vehicles moving to the EU under a transport contract. This reflects the model in place for Great Britain trade with countries outside the EU.
Safety and security requirements for goods moving from Great Britain to Northern Ireland have been in place since 1 January 2021. Safety and security declarations continue to be required for goods entering and leaving the UK from countries outside the EU.
The full guidance can be viewed here.
FMX – origin certificates must be valid when repayment claim made
In FMX Food Merchants Import Export Company Ltd v HMRC  UKFTT 385(TC), the First-tier Tribunal (FTT) has held, dismissing the taxpayer's appeal in part, that valid certificates of origin must be in place at the time a repayment claim is made in order for preferential rates of duty to apply.
FMX Food Merchants Import Export Company Ltd (FMX) appealed against decisions of HMRC refusing applications for repayment of import duty paid at the full rate on the importation of root vegetables from Costa Rica. HMRC had refused the applications on the grounds that the movement certificates (EUR1) corresponding to the imports had expired prior to HMRC's receipt of the application for repayment (although they had been provided at the time of importation, they had expired by the time the repayment claims were made).
Article 236 of the Community Customs Code (CCC) provided that import duties shall be repaid so far as it is established that, when paid, the amount of the duties was not legally owed, and made provision for claims to be made within three years of the demand, or on the customs authority's own initiative.
Article 239 of the CCC provided that repayments could also be made in other circumstances, so long as determined in accordance with the procedure of the customs code committee and in circumstances where no deception or obvious negligence could be attributed to the person concerned.
The Implementing Regulation (2454/93/EEC) provided, in Article 890, that customs authorities were to grant repayment where the request was accompanied by, amongst other things, a certificate of origin, movement certificate, or other appropriate document indicating that the goods were eligible at the time of acceptance for free circulation for preferential/favourable tariff treatment due to their nature, where the document referred specifically to the goods in question, all conditions relating to the document's acceptance were fulfilled, and all other conditions for the granting of preferential/favourable treatment were met.
Article 21 of the relevant trade treaty between the EU and Central American jurisdictions, including Costa Rica, provided that a certificate of origin was valid for twelve months and that certificates submitted late due to 'exceptional circumstances' might still be accepted.
The appeal was dismissed.
HMRC argued that the detailed provisions governing repayment had not been complied with as the EUR1s were invalid by the time the repayment claims were made (regardless of whether they had been referred to in the customs declarations on import).
FMX argued that Lane Fouracres Associates v HMRC  UKUT 0067 (TCC) could be distinguished as in that case certificates of origin had not been submitted within the period of their validity. In addition, it argued that HMRC's decision was inconsistent with other decisions it had previously made allowing repayment; HMRC should have informed FMX of entitlement to a preferential rate, and some of the items did in fact claim the preferential rate on importation.
In the view of the FTT, although Lane Fouracres was not on all fours with the facts in the present case, it was of persuasive authority. In that case it had been held by the Upper Tribunal (UT) that the 'paramount principle' to be abided by was that of verifying entitlement to repayment by strict compliance with the words of the Implementing Regulation. The Implementing Regulation required that the conditions relating to the certificates of origin had to be met when the request for repayment was made. The FTT noted that Article 21 of the CCC mitigated the strictness of the 12 month validity of the certificates of origin where there were exceptional circumstances, but the FTT did not view the circumstances in this case as exceptional. The FTT considered that FMX and/or its agent had failed to inform themselves of the availability of a preferential rate. Since the certificates had expired when the repayment was sought, the appeal was dismissed.
This decision demonstrates the importance of complying with the strict time limits and procedures required in a customs context.
The decision can be viewed here.
Ampleaward - sales between EU bonded warehouses and the fallback provisions
In HMRC v Ampleaward Ltd  EWCA Civ 1459, the Court of Appeal dismissed an appeal bought by HMRC against a decision of the UT that a UK-registered wholesaler's acquisition of alcohol, delivered to a bonded warehouse in an EU member state, was to be treated as taking place outside the UK and therefore was not subject to UK VAT.
The issue to be determined in this case was whether the UK can charge acquisition VAT on purchases by a UK VAT registered trader of excise goods held in a bonded warehouse in another member state of the EU in circumstances where those goods: (i) never enter the UK in the course of that transaction; and (ii) are sold on while in the bonded warehouse to a customer who is not registered for VAT in that other member state.
On 19 August 2016, HMRC notified Ampleaward Ltd (Ampleaward) of its assessment of VAT stating that because it had not provided evidence to show that acquisition tax on the acquisitions of alcohol had been accounted for in the EU member state of destination, an assessment of acquisition tax of £1,308,648 for the VAT period 09/12 to 03/16 was being issued. Ampleaward unsuccessfully appealed against that assessment to the FTT, but its appeal to the UT was allowed.
Readers of the Customs and Excise Quarterly will recall that we covered the UT decision in our August 2020 update. You can view our commentary on the UT's decision here.
HMRC appealed to the Court of Appeal.
Court of Appeal judgment
The appeal was dismissed.
The Court of Appeal unanimously confirmed the decision of the UT that section18(3), Value Added Tax Act 1994 (VATA), which enables goods to be moved from one bonded warehouse to another without liability to UK VAT irrespective of whether the warehouses are in the UK or other member states, went further than was permitted by VAT Directive 2006/112. The Court held that the correct remedy for this would be for Parliament to amend the VATA, not (as HMRC argued) to read down section18 to conform with VAT Directive 2006/112.
This judgment demonstrates the complexity of fiscal issues and statutory interpretation when goods are traded across borders. It will be interesting to see if Parliament amends VATA in light of this judgment.
The judgment can be viewed here.
Amoena Ltd – classification of mastectomy bras
In Amoena Ltd v HMRC (Case C-706/20, EU:C:2021:698), the Court of Justice of the European Union (CJEU) confirmed that mastectomy bras were not "accessories" and classified the bras under sub-heading 6212 10 90 of the Combined Nomenclature (CN) which carries a 6.5% customs duty charge.
The request for a preliminary ruling by the CJEU concerns the interpretation of the judgment of 19 December 2019, Amoena (C‑677/18, EU:C:2019:1142) (the Amoena Judgment) in which the CJEU held that mastectomy bras could not be classified as an 'accessory' as they did not allow the breast forms (designed to replace all or part of one or both breasts that have undergone surgical removal) from performing a function other than that for which the breast forms are designed.
Amoena Ltd (Amoena) imported a consignment of mastectomy bras into the UK. On 1 August 2017, HMRC classified the goods in sub-heading 6212 10 90 of the CN in accordance with Implementing Regulation 2017/1167, as requiring a customs duty rate of 6.5%. Amoena applied for a refund on the same day. One month later, HMRC refused the application. Amoena appealed that decision to the FTT, in part because it claimed the mastectomy bras should be classified as breast form 'accessories' in accordance with Note 2(b) of Chapter 90 of the CN, and ought to be classified in Heading 9021 (under orthopaedic appliances), and thus exempt from customs duties.
Amoena sought clarification on application of the pronouns 'they', 'them' and 'their' in place of mastectomy bras or the breast forms in the Amoena Judgment. Amoena also requested clarification on the interpretation of the Amoena Judgment in light of the pronoun substitutions, to determine if the Amoena Judgment applied the appropriate test, or had misapplied the test for an accessory. The FTT referred these issues to the CJEU.
The CJEU considered whether 'they', 'them' and 'their' applied to the mastectomy bras or breast forms throughout the relevant passages of the Amoena Judgment. In doing so, the CJEU answered Amoena's second question regarding the test for being an accessory for the purposes of the CN, which would place the mastectomy bras in orthopaedic category Heading 9021. The notes to this part of the CN state that interchangeable parts or devices which enable a machine to perform a particular service relative to its main function must be classified as 'accessories', for the purposes of Chapter 90 of the CN. Although an ancillary element, such as a mastectomy bra, may enable a machine (for example, the breast form) to perform an additional service or function in connection with the main function of that machine, the CJEU found that this was not the case for mastectomy bras.
The CJEU stated that whilst the mastectomy bra side openings enable the breast forms to be held in place, in its view the bra added nothing to the main function of the breast forms and did not improve their intrinsic function.
There has been a number of court judgments concerning the customs classification of mastectomy bras highlighting the interpretation and classification difficulties of this product. Importers of mastectomy bras will undoubtedly be left disappointed by the CJEU's decision, although it does offer clarity on the applicable CN Heading and import duty rate of 6.5%.
The decision can be viewed here.