Sharp focus on the right tariff

Classifying goods in the correct customs tariff is important, but not always easy – the experts of the National Binding Tariff Information Unit know all about that.

When exporting or importing goods, a business would be well advised to arrange for Binding Tariff Information (BTI). This will prevent the use of an incorrect commodity code and will prevent Customs from levying too much or too little customs duty on import. Anyone who wants to apply for such BTI will be dealing with the National BTI Unit of Dutch Customs.

Anyone with an EORI number can apply for BTI. “Such decision offers the holder legal certainty for a certain period as regards the classification of goods in the customs tariff,” says Ed Tulp, member of the national team. “We issue BTI that is valid for three years. Before the current legislation, which came into force on 1 May 2016, the period of validity was six years. This period was reduced, as most BTI applications at the time concerned electronics, and the turnover rate of this type of product has increased. A product that is launched today will be out of date tomorrow, so to speak.”

“The same can be said for other product groups, such as food supplements,” Tulp’s colleague Renée Alderliesten adds. “Manufacturers regularly adjust their composition. They become more and more cautious with adding sugar, for instance.”

Medicine or food supplement?
Since 1 October last year, a BTI application must be filed in electronic form. The digital application form should specify, among other things, the type of transaction (e.g. import or export) and the code under which the goods are classified or expected to be classified. After a formal acceptance of such request, Customs will have 120 days to issue BTI. If a product must be examined in more detail, it may take a little longer. Alderliesten: “In case of an application for a food supplement, for example, we always send the product to the Customs Laboratory for analysis. How much glucose, starch, and sucrose does it contain? Ultimately, the answer to that question co-determines the classification and whether any additional customs duties must be paid. And if a product can be regarded as a medicine under the Dutch Medicines Act, no duties need to be paid at all. In that case, however, the product must comply with the provisions of this particular legislation.”

Timely and as complete as possible
In determining the right tariff, it helps if the BTI application is as complete as possible, Alderliesten continues. “We would like the business to send along brochures, version descriptions or samples. Anything will help us to form an opinion. If we are not supplied with any information, we sometimes also copy photographs from the manufacturer’s website, for example.”

It is also advisable to submit a BTI application at the earliest possible stage, Tulp says. “Suppose you found a product in China that you believe will be a total success. In that case, it would be a good idea to take a sample with you immediately after your visit to that country – so before you sign a contract, start the manufacture or find someone to ship it for you. For if you start thinking about customs duties only when the first shipment arrives in the port of Rotterdam, you cannot expect BTI to be issued immediately on the basis of your application. In any case, it is advisable to check in advance how much import duty will be levied on a product. Customs works on the basis of ex post controls. If you do not apply for BTI, it may very well be that after three years it appears that you should have paid customs duties at a rate of five percent instead of zero percent. This may then have a serious financial impact. For it is not possible to apply for BTI with retroactive effect…”

Public versus confidential
Each BTI that is issued is included in a database of the European Commission, which can only be consulted by the customs authorities of all EU Member States. In addition, the European Commission’s website provides access to a public database, containing information on each BTI that has been issued and is still valid. In this database, businesses can search by keyword or description whether BTI has already been issued for their product – or comparable commercial goods – and find information on, for example, the period of validity of the BTI. “For competition and privacy reasons, however, this database does not contain any names or other sensitive information,” Tulp says. “Parties submitting a BTI application can also state in their application which data they consider to be confidential and therefore do not want to see published online. The information contained in the database therefore mostly provides a reference framework. In court, interested parties who object to a certain tariff tend to refer to BTI that has been issued for similar products. That court, however, will only assess whether we have classified the product in the correct manner prescribed by law. The holder is the only party who can derive legal certainty from BTI.”

It flies and it’s a…
BTI is issued in all 27 Member States. It therefore seems justified to ask whether all EU Member States are on the same page. “We are a single Customs Union, so it should make no difference whether a product is imported into Antwerp or Amsterdam. And yet reality is sometimes a bit more problematic,” Tulp acknowledges. “Take drones, for example. When drones became popular, we saw that one customs administration classified the products as flying objects, another administration as flying cameras, and yet another administration as toys. In such cases, the Member States concerned will discuss whether they can reach agreement on the classification of the products. Sometimes, however, the various parties stick to their guns. The classification of the product will then appear as an item on the agenda of a meeting of the Customs Code Committee in Brussels. This will ultimately result in a statutory or non-statutory measure.”

No BTI may be issued which is in conflict with the contents of any previously issued BTI, Alderliesten explains. “So if a foreign colleague has already classified a certain type of drone as a ‘flying camera’, then I cannot classify the same product as a ‘toy’. And if a Dutch business wants to import this drone as well, we will not be able to issue BTI as long as discussions in Brussels are ongoing. Which tariff can best be applied on import in that case? If you do not want to run any risk, you should declare a product according to the most heavily taxed item. If the tax turns out to be lower, you can get a refund. Vice versa, you may receive an additional assessment if you choose a tariff that is too low. Of course, these are difficult things for businesses to consider. If you select five percent and your competitors declare the product at zero percent, customers might buy the drones from your competitors. In our experience, many market players do not mind paying a few percent import duties. As long as everyone – read: including the competition – does so.”

Legal certainty comes first
What does all this mean for holders of BTI? Tulp: “If the conclusion is that we have issued BTI with an incorrect commodity code and it is established that the goods must be classified under a different commodity code – for example after a Brussels decision or in consultation with fellow Member States – then we must inform the interested party. Until such a decision is made, that interested party will have legal certainty. We will not impose an additional assessment. What is more: suppose we want to withdraw BTI, and a business can demonstrate that it has entered into purchase contracts on the basis of that same BTI, then it can continue to use the commodity code stated in the BTI up to six months after declaration, depending on the situation. The aim is to prevent businesses from being disadvantaged by circumstances beyond their control.”

Years of legal proceedings
Apart from any differences in interpretation within the EU, there are businesses that are not satisfied with the BTI that is issued to them. Alderliesten: “If you disagree with our decision, you can enter an objection to it within six weeks. A decision must then be made on the objection within a certain period. You will then have the opportunity to appeal to the Customs Division of the North Holland District Court, after which you can appeal to the Amsterdam Court of Appeal. If you do not agree with their judgment either, you can appeal to the Supreme Court. Eventually, such a dispute may be brought before the Court of Justice in Luxembourg. If you’re unlucky, it will take you three to four years.”

“Eventually, such lengthy legal proceedings may have consequences for BTI that we issued years ago. Suppose we hear this year that BTI that was issued in 2015 must be declared invalid. Since it was valid for six years at the time it was issued, it is still valid now. In that case, we must invalidate it with effect from the date of issue. For companies, this means that they can apply for a refund.”
Is that not a pity for the Treasury? No, Tulp says firmly. “We do not care into which tariff group a product is classified. Sometimes we are reproached for always aiming for the highest tariff, but that is not true. We care about a right classification and a correct levy.”

National units in the spotlight
Dutch Customs has several national teams and units, all of which focus on specific tasks and have highly specialist in-house expertise. As knowledge and advice centres, they support the customs regions and often customs clients as well (be it directly or indirectly). Some of these organisational units (such as the Central Import and Export Service, the Central Excise Unit and the National Customs Help Desk) have been discussed in Customs NL inSight before; other units have so far received less attention. In this issue, we will highlight five of the latter group of units: our national units that deal with valuation, tariff classification, origin, guarantees and clearing respectively.

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