New Customs Code Highlights
On 19 April 2012 Ukrainian President Viktor Yanukovych signed the Customs Code that comes into force on
1 June 2012. Driven so much by customs considerations, we arranged a panel of experts on the topic. The influence of the Code on Ukrainian business circles; regulations that cause concern of legal practitioners; general positive innovations; the most disputable issues of the Code; key changes in export/import operations; difficulties occurring in connection with the fact that there is no transitional period for the new Code; determination of customs value; rules on protection of intellectual property rights are the core issues for a set of independent opinions.
The principal Customs Code provisions which are expected by business circles to make positive changes after their implementation provide, among other things, for:
— A six-fold reduction in the period of customs clearance (as compared to the current rules) from 24 hours to 4 hours.
Practically, this implies quicker delivery of goods, lower corruption risks, better capacity at customs offices, larger international turnover, and higher operational efficiency of carriers. However, it is unlikely that the 4-hour customs clearance deadline set by the Code will be so strict that customs officers will not be able to miss it.
— “The abolition of serfdom” that enables the clearance of goods and commercial vehicles at any customs office.
This provision will make it possible for businesses to save the time and money they spend on transportation. On the other hand, this may lead to a heavier workload for customs offices located at the most popular carriage routes and key points. Thus, the long lines will probably offset the time saved.
— A product group is permitted to be declared under one commodity code; that is, a consignment consisting of more than 10 different commodities may, if applicants or their authorised persons so wish, be declared under a code which fits the highest rate of import duty (for such a consignment).
Such innovation is expected to be mutually beneficial for each applicant and customs office as the former gets reduced customs procedures, less paperwork and headache and the latter has higher budget revenues and lighter workload.
— The Customs Code has introduced (or more precisely, borrowed from the Tax Code) customs consultations, meaning that the persons concerned may request, and customs authorities are obliged to provide consultation on the practical application of specific provisions of Ukrainian customs legislation.
Such consultations will be individual in nature and, more importantly, serve for businesses as a solid legal basis for their further actions. Even if advice according to which a business has been acting is either changed or cancelled, such a business may not be held liable.
One of the most controversial innovations of the new Customs Code of Ukraine is the institute of an authorized business operator. Chapter 2 of the new Customs Code implies provision of preferential status to some declarants.
Along with other preferences, authorized business operators will have significant advantages determining the customs value of goods (established in Clauses 22-23, Article 58 of the new Code). The method of determining the customs value based on the contract price will be applied automatically, and the accuracy control of determining the customs value will be conducted only after the customs clearance is completed and the goods have crossed the border.
In view of the automatic application of the contract price method, there is a legitimate concern. What if the institute of the authorized business operator becomes a new feature that would enable customs authorities to turn a blind eye to dubious import-export transactions without fear of possible consequences.
As participants of the new Customs Code’s preparation, we believe that the most important changes in the field of EXIM activity, introduced by the new Customs Code, are as follows (to name but a few):
— Goods may be cleared through Customs at any Customs office except for excisable goods, natural gas, precious metals, stones and medicines (unofficially called “Abolishment of Customs Serfdom”);
— Possibility of subjects of foreign trade activity to declare the imported goods before they cross the customs border by filling pre-arrival preliminary declaration. In such a case when the goods cross the border, they are considered as being in free circulation without the requirement to bring them to a specific inland customs office;
— A right of the owner of the goods, stored in a bonded warehouse, to sell them to third parties without any obligatory requirement to complete their import customs clearance;
In such a case when the goods cross the border, they are considered as being in free circulation without requirement to bring them to a specific inland customs office
— Abolishment of a financial deposit to be paid by an IP right holder to introduce its IP object into the Customs Register of IPR objects;
— Improvement of customs valuation procedures (e.g., defined exhaustive list of mandatory documents, based on which the customs value of the imported goods is determined as well as grounds for rejecting the customs value declared by an importer, production cost calculation may be requested by Customs only in related-party transactions, etc);
— Introduction of the authorized economic operator status which results in simplified customs procedures for its holder, automatic application of primary customs valuation method with minimum documentation requirements, limited number of the cases for holding scheduled audits by Customs.
On 13 March 2012 the Verkhovna Rada of Ukraine adopted the Customs Code of Ukraine and On Amending Certain Legislative Acts of Ukraine in connection with the Adoption of the Customs Code of Ukraine Act of Ukraine.
While adopting the new Customs Code the Ukrainian authorities declared that the adoption of the mentioned Act was aimed at bringing the customs legislation of Ukraine into correspondence with the International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention), Convention on Temporary Admission, and implementation of the SAFE Framework of Standards of the World Customs Organization into national legislation. In addition, MPs have repeatedly stated that the main purpose of the new Code is to bring together the provisions previously contained in various laws and by-laws. It was presumed that an entrepreneur would only have to open one document and be able to find in it complete information about her/his import-export operation.
The major drawback of the new Customs Code is the fact that the Code lacks harmonization with other Ukrainian legislative acts
Having analyzed the adopted Customs Code, we can say that the Code contains really progressive provisions for Ukraine regarding possibility for electronic declaration, reduction of bureaucratic procedures, a clear (definitive) list of documents required for import-export operations. We also believe that there should be no difficulties due to the lack of a transitional period after the adoption of the new Customs Code. However, we are of the view that there may be significant difficulties in respect of performance under certain provisions of the Code.
The major drawback of the new Customs Code is the fact that the Code lacks harmonization with other Ukrainian legislative acts. The Code contains contradictions in the definitions of the concepts that are defined by it. And there is no clarity as to the organization of customs control and payment of customs duties. Thus, we expect adoption of significant legislative changes with respect to the customs legislation of Ukraine.
The State Customs Service of Ukraine (SCSU) officers declare that the Code is an essential step on the way to harmonizing national legislation with international standards.
Indeed, the Code amends the existing procedure for determining and adjusting the customs value of goods and extends the scope of importers rights during resolution of controversies that may arise during this routine. From June the customs value of goods may be declared based on the outcome of prior written consultations between an importer and customs authorities. Moreover, the Code sets out an exhaustive list of primary and additional documents that may confirm the declared customs value. The Code also specifies when the customs value declared by the importer may be deemed invalid or information provided by it is regarded as incomplete.
Such an approach is based on the Code’s provisions stipulating that the primary method of determining the customs value of goods is assessment of their transaction value during imports. Accordingly, under a general rule the value of imported goods specified in cross-border contracts should be taken as a baseline.
The most painful problem of importers, being non-transparent adjustment of the customs value, will not be solved by the new Code
Furthermore, customs authorities may now refuse to proceed with customs clearance on the basis of the declared customs value only if they have reasonable grounds for this. To do so, customs authorities are to provide their own calculations of the customs value and substantiate their adjustments. Otherwise, the customs value declared by the importer will be deemed automatically accepted.
Thus, the Code appears to vest importers with more powers and more abilities to protect their rights.
At the same time, the most painful problem of importers, being non-transparent adjustment of the customs value, will not be solved by the new Code. As before, customs authorities will still be able to use the indices of SCSU’s Database on Customs Value of Goods Cleared for Free Circulation for questioning the declared customs value and adjust it to meet the revenue targets, whose practice remains widely used by the authority over the past decade. Cases when such methodology should specifically apply are not additionally addressed by the new Code, thereby leaving the authority room for its arbitrary use.
It is now evident that customs authorities will continue using the SCSU’s database and old techniques but now they should do this more transparently, as the Code requires the customs authorities to disclose information based on which adjustments to the customs value were made. This will probably force them to consider more accurate decisions when dealing with controversial matters.
Customs brokerage services cover activities on declaring goods and vehicles that are transported through the Ukrainian border.
In order to provide these services, a resident enterprise should obtain a license from the respective government body in accordance with the Customs Code of Ukraine and the On Licensing of Certain Types of Economic Activity Act of Ukraine.
This Code didn’t include certain proposals on issuance of special permits to conduct customs brokerage activities with mandatory financial guarantees and left in place the system of licensing. The permits imposed stricter standards on those enterprises that were willing to engage in customs brokerage activities. They had to meet certain educational standards that would create more professional rendering of services. Financial guarantees for fulfilling a customs broker’s obligations for the benefit of the state budget would secure performance of obligations against innocent parties that resort to the assistance of brokers in transporting goods. The interests of third parties would be protected by these financial guarantees that were significantly high compared to insurance compensation. If provisions on the mandatory permits were adopted, the market of customs brokerage firms would be quite monopolized. Not all market participants have the resources to pay the above-mentioned financial guarantee. Permits would have a significant impact on entrepreneurial activities in the customs sphere. A system of licensing of an entrepreneur’s customs activities remains. Therefore, problems with frivolous issuance and suspensions of licenses remain.
This Code didn’t include certain proposals on issuance of special permits to conduct customs brokerage activities with mandatory financial guarantees and left in place the system of licensing
As regards the structure, the rules on protection of intellectual property rights contained in the new Customs Code of Ukraine are not much different from those contained in the current Code. However, the Customs Code 2012 introduces important innovations. Thus, paragraph 17 part 1 Article 1 sets out a definition of counterfeit goods which are understood as goods comprising intellectual property protected by law, import/export of which into/from the customs territory of Ukraine is deemed to be a violation of intellectual property rights. In the past this term applied only to violation of the owner’s rights. The Customs Code is also supplemented with a definition of a right holder and a list of intellectual property.
The provisions with respect to measures taken by the customs authorities to ensure the protection of intellectual property rights when transporting goods through the customs border of Ukraine (Section 57) have undergone some changes. In particular, the term of possible suspension of customs clearance of goods has been reduced (from 15 to 10 days), but this term may be extended (for 10 days instead of 15 days).
The rights holder and the declarant must be notified of the suspension on the day of the decision, but not the next day, as envisaged by the previous Customs Code. One should also note the significant increase in the amount of fine for importing/exporting goods intended for production or other commercial activity to/from the customs territory of Ukraine in violation of intellectual property rights protected by law. The fine amounts to one thousand personal income tax allowances and seizure of goods transported in violation of intellectual property rights irrespective of the offender.
