Nicole Looks, KPMG Frankfurt

Monika Zitzmann, KPMG Hamburg

Jochen Schmidt, KPMG Düsseldorf

For editorial cut-off date, disclaimer, and notice of copyright see end of this article.

1. Customs law reform in general

The most fundamental reform of European Community customs law since the enactment of a general Customs Code for all EU member states went into effect on 1 July 2001. The new provisions take account of the changes resulting in particular from the European internal market and the World Trade Organisation (WTO) negotiations on the liberalisation of international trade.

The reforms focus on customs procedures of major economic significance, by means of which customs duties can be reduced or even avoided entirely on goods imported from third countries. The procedures in question are those for

  • customs warehousing
  • inward processing
  • processing under customs control
  • temporary importation and
  • outward processing.

This article describes the basic changes in the above procedures, which involve amendments to Regulation (EEC) No. 2913/92 (Community Customs Code) and Regulation (EEC) No. 2454/93 (Customs Code Implementing Rules) pursuant to Regulation (EC) No. 2700/2000 (Official Journal EC L 311/17) and Regulation (EC) No. 993/2001 (Official Journal EC L 141).

All procedural rules for the major customs procedures, notably the rules governing application for and approval of such procedures, have now been standardised and consolidated, thereby making the procedures considerably easier to use in practice. In keeping with the concepts of progressive European integration and above all a common internal market, the revised rules provide that, for most economically significant procedures, a single approval (grant) can be issued that permits the procedure to be used in several member states. The changes made in the specific procedures are described below.

2. Customs warehousing

In Type E customs warehousing procedures, which involve no fixed warehouses and are accordingly almost exclusively monitored by computerised means, it is now possible to select the time the goods become subject to the customs warehousing procedure (time of storage), instead of the time of their removal, as controlling for payment of customs duty (as it is under the Type D customs warehousing procedures commonly employed in Germany). Above all, the applicable customs value is then determined as of the time of storage. Determining the customs value of goods at the time of storage is advantageous when their value rises while in a customs warehouse due to actions taken with respect to the goods or due to their resale.

3. Inward processing

Previously, inward processing could only be approved when the economic conditions were met for processing duty free goods inside the EU with the intent of re-exporting the processed products thereby created. The generally time-consuming and complicated procedures for verifying fulfilment of the economic conditions were intended to ensure that the legitimate interests of other EU manufacturers would not be harmed by allowing processing operations in the EU. The Regulation has now been amended to provide that the economic conditions are always deemed to be fulfilled for all goods except agricultural products, thus obviating time-consuming checks.

4. Processing under customs control

Processing under customs control permits goods from third countries to be subjected to a transformation process in the EU prior to the payment of customs duty so as to transform the goods into a product subject to lower import duty than the goods originally imported. Here as well, verification of the economic conditions has now been done away with in many cases, i.e. for all goods and types of processing listed in the appropriate appendix to the Community Customs Code Implementing Rules. Moreover, processing under customs control is no longer limited to a certain group of goods or certain processing operations.

5. Temporary importation

The temporary importation procedure permits goods from third countries to be used in the EU duty-free or at reduced rates for specifically defined purposes (e.g. for exhibition, for test purposes, or as professional equipment) during a limited period of time. The sometimes confusing rules have now been reorganised according to a clear system. The scope of application of the procedure has also been extended. Particularly noteworthy is the fact that temporary use with a partial exemption from customs duties will be granted in the future for goods owned by persons resident in the EU. The previous restriction to goods owned by a person resident outside the EU has been dropped. Whereas previously no change was permitted in the condition of goods subject to temporary importation arrangements, this restriction has now been relaxed in that repair and maintenance of the goods are specifically authorised.

6. Outward processing

The outward processing rules permit the temporary exportation of Community goods for processing purposes. After completion of processing in a third country, the resulting products qualify for partial exemptions from import duty upon their re-importation into the EU. Previously, the customs duty owing on the re-imported processed goods was almost without exception determined by the so-called "differential charge". Under this system, the duty otherwise owing on the processed goods was reduced by the duty that would be payable on import into the EU of goods of the same sort as originally exported for purposes of outward processing. In the future, customs may upon request be paid on a so-called "value-added" basis in many cases. On re-import of the processed goods, customs is paid only on the processing costs incurred in the third country and the value of third country materials added. The duty rate is that of the processed goods. In many cases, the value-added system leads to lower customs duties.

7. Concluding remarks

We trust that this short summary of essential changes in the Implementing Rules of the Community Customs Code will assist you in determining whether the changes in EU customs legislation may have an impact on your handling of customs transactions.

Editorial cut-off date: 20 March 2002

Disclaimer and notice of copyright

This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. KPMG Germany in particular insists that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note that the article is current only through its editorial cut-off date shown immediately above (not to be confused with the later date as of which the article was placed online – the date appearing at the article's outset). Related developments subsequent to the editorial cut-off are not necessarily reported on in later articles. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While KPMG Germany's articles are carefully reviewed, it can accept no responsibility in the event of any inaccuracy or omission. Any claims nevertheless raised against KPMG Germany on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Germany (KPMG Deutsche Treuhand-Gesellschaft AG). No use of or quotation from the article is permitted without full attribution to KPMG Germany and the article's stated author(s), if any. Distribution to third persons is prohibited without the express written consent of KPMG Germany in advance.