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Customs update 2018RussiaMarch 2018

Customs update 2018Russia

© 2018 Deloitte Consulting LLC 2

The new Customs Code of the Eurasian Economic Union entered into force on 1 January 2018. To ensure its proper functioning, though, the Eurasian Economic Commission will have to issue a number of supporting regulations and Russia will need to adopt the new Federal Law “On Customs Regulation in Russia”. Most of the developments and amendments are meant to simplifying the customs formalities and making the business environment in Russia more attractive.

The trend towards digitalisation in customs continues. Significant changes are expected in the goods’ traceability mechanisms, which would allow monitoring movement of the goods from the producer to the customer. Traceability should become an effective automation tool, but will also create new challenges for the business.

Rapid development of e-commerce remains under the scrutiny of the Russian Government, including regulations regarding the goods acquired by private customers from foreign online stores.

At the same time, the practical focus of the customs authorities still stays with more conventional issues, such as customs valuation (in particular, inclusion of license payments into the customs value of imported goods).

In this update, we have summarised the most important changes in the EEU and Russian customs laws and regulations, which may affect the business in 2018.

Introduction

New Customs Code and Relevant Legislative Acts

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Contacts

Contents

Introduction

Customs Valuation

Traceability of Goods within the EEU

Customs Incentives

E-commerce

Trade Restrictions




Contents

Customs Valuation vs. Transfer pricing

General provisions

Automotive Sector –The New Investment Regime

Limits On Duty-Free Imports Of Goods Acquired Online For Personal Use

Russia’s Counter-Sanctions: Extension of Embargo

Expansion of Data Required for Customs Clearance of Purchases from Foreign Online Stores

Imports rom Turkey

Inclusion of License Fees into the Customs Value

Labelling and traceability of pharmaceuticals



Contacts

Contents

Introduction

Customs Valuation


Customs Incentives

E-commerce

Trade Restrictions


Customs Valuation


Customs Incentives

E-commerceTrade Restrictions




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Customs Valuation


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Trade Restrictions



On 11 April 2017, all member states (Russia, Belarus, Kazakhstan, Armenia, and Kyrgyzstan) of the Eurasian Economic Union (the “EEU”) signed the EEU Customs Code (the “EEU Code” or the “Code”), which replaced the Customs Code of the Customs Union from 1 January 2018.

The key changes introduced by the EEU Code include:

A simplification of customs operations. In particular, there would be no need to provide the customs authorities with documents confirming the information in the customs declaration, unless the high risk profile is identified for a particular shipment

The transition to the electronic document flow. The Code prioritises the electronic declaration, with hard copy declarations allowed in a limited number of instances. Introduction of 16 electronic declaration centres is expected, aimed at the acceleration of customs clearance and centralisation of customs payments

A possibility to postpone customs payments up to one month from the release of goods, with interest to be payable for such delay

A new approach to regulating the authorised economic operators (the “AEOs”), a special category of importers/exporters who enjoy a simplified customs clearance operations. According to the Code, AEOs are classified into three groups with different privileges

The implementation of a one-stop-shopping procedure, whereby any documents previously submitted to other state authorities (e.g. for transport control, phytosanitary control, etc.) do not need to be resubmitted to the customs. A further unification of databases and enhanced information exchange between the state authorities in Russia and EEU will be required to implement this procedure effectively

The introduction of the preliminary rulings issued by the customs authorities regarding the customs valuation methods to be applied to imported goods (subject to adoption by each EEU member state)

The EEU Code provides plenty of references to decisions to be adopted by the Eurasian Economic Commission (the “EEC”). On 1 January 2018, together with the EEU Code, some EEC acts have already come into force, in particular, regarding various aspects of filing a customs declaration, conditions of automatic release of goods (i.e. without participation of customs officers), confirmation of actual export of goods from the EEU territory, etc.

Additionally, quite a number of issues need additional Russian legislation (e.g. the law “On Customs Regulation in Russia”). The new provisions cover various issues, including increase of validity term for preliminary classification decisions (Binding Tariff Information analogue), exemption of exported goods from customs clearance fees, clarifications regarding the entities authorised to act as a declarant, customs payments, customs control, etc.


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The respective bill has not been submitted to the Russian State Duma yet, although initially it was expected to enter into force together with the EEU Code. It is now expected to be considered and adopted in 2018.

Until then, the current national legal framework will be applied to the extent not contradicting the EEU Code. At the same time, the Russian Ministry of Finance will be entitled to issue regulations, governing the customs issues.

The new Code and related regulations should significantly simplify customs formalities and enhance the cooperation between the customs of EEU member states, in particular, due to the improvement of electronic document flow systems and implementation of unified customs regulations. At the same time, a closer cooperation between the customs authorities of EEU member states will allow them to analyse the information available (e.g. on customs values of identical/similar goods imported into different EEU member states) and to increase control over the intra-EEU transactions.

A simplified customs clearance procedure should accelerate completion of the customs formalities, which would likely result in customs control being shifted to the post-clearance stage. The companies will have to exercise stronger internal controls over their customs operations to mitigate the potential customs risks.


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Customs Valuation

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Customs Valuation

In 2017, the Technical Committee on Customs Valuation (“TCCV”) of the World Customs Organisation (“WCO”) offered clarifications regarding some customs valuation issues. As previously clarified by the Russian Supreme Court, international customs legislation, WCO’s recommendations and clarifications may be used to interpret the EEU’s customs legislation. The TCCV’s clarifications could be used by the business as a guidance in disputable and controversial cases regarding customs valuation.

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Customs Valuation vs. Transfer pricingCustoms Valuation

Case Study 14.2: Use of Transfer Pricing Documentation when Examining Related Party Transactions under Article 1.2 (a) of the (WTO Valuation) Agreement

In October 2017, the TCCV published Case Study 14.2 that considers how transfer pricing documentation should be used when examining related party transactions for customs valuation purposes, i.e. to determine whether the price of imported goods was influenced by the relationship between the buyer and the seller. Case Study 14.2 is subject to approval of the WCO Council in June 2018.

Case Study 14.2 illustrates a scenario where the customs authorities use a transfer pricing report, where the company used the resale price as its transfer pricing method, for customs valuation purposes. The case study considers whether the import price of luxury bags was influenced by the fact that the buyer and the seller are related in terms of customs legislation. The customs authorities resolved that the customs value was influenced by the relationship and, thus, understated, since the importer’s margin was above the range indicated in the transfer pricing report.

Similar to the case above, the companies may try to seek additional arguments to justify the declared customs value in related-party transactions, using transfer pricing documentation. Please note, however, that the application of transfer pricing reports for customs purposes should be thoroughly considered on a case-by-case basis. In some cases, Russian courts accept transfer pricing reports as additional evidence to support the customs value of imported goods (e.g. case #А40-223888/2015, considered by the Russian Supreme Court in March 2017 – the “John Deere case”). Although the court did not opine on the applicability and sufficiency of the transfer pricing report to justify the customs value, it supported the declared customs value, stating that the importer provided all documents (including the transfer pricing report) confirming that the relationship between the foreign seller and the importer did not influence the price of imported goods.

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Inclusion of License Fees into the Customs ValueCustoms Valuation

Advisory Opinion 4.17: Royalties and License Fees under Article 8.1 (c) of the Agreement

Inclusion of license fees into the customs value of imported goods typically remains one of the most crucial and ambiguous issues for importers. In July 2017, the TCCV published Advisory Opinion 4.17, according to which a franchise fee related, in particular, to operation of stores and not to the imported goods, shall not be included into the customs value of imported goods.

In Russia, there is no uniform regulatory practice on whether the license fees, partly related to operation of stores (or other similar activity, not related to imported goods), should be included into the customs value of imported goods. This ambiguity makes importers balance between the risks of administrative liability and increased customs costs.

The WCO proposes an approach whereby the franchise fees are included into the customs value inasmuch as they are related to the imported goods.

The TCCV’s opinion should be useful for the companies that import goods into Russia and have (or are going to have) franchise arrangements with foreign right holders. We recommend paying close attention to inclusion of franchise fees into the customs value and reviewing the current arrangements to identify options to mitigate customs-related risks, as well as saving opportunities.

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General provisionsTraceability of Goods within the EEU

The digitalisation of economy pushes the companies and governments to introduce new automation tools for improvement of processes and regulatory environment. One of such instruments is the traceability mechanism, allowing to monitor the movement of goods from the moment they are imported or produced until they are purchased or consumed.

According to Resolution No. 20 of the EEC Council dated 17 May 2017 “On the Draft Agreement for Traceability of Goods within the EEU”, national Track & Trace (“T&T”) systems should be introduced for certain types of goods in each EEU member state. When enacted, the Agreement will establish the main principles for operating the T&T systems, will cover the goods imported into and released in the EEU for free circulation, as well as provide for exchange of information between the EEU member states. Movement of goods between EEU member states will be prohibited, if such goods are not included in the national T&T system.

Among the components of the traceability mechanism are the labelling of goods and reporting of their production/import and sale/transfers, which have already been introduced for fur articles. Pilot T&T projects have been initiated for pharmaceuticals and tobacco products with outer garments, shoes, perfume, car wheels, etc. to follow. On 2 February 2018, the Agreement for Labelling of Goods in the EEU has been signed.

On 31 December 2017, Federal Law No. 487-FZ was passed by the State Duma; it authorises Russian Government to determine what goods are subject to obligatory labelling, list of companies performing labelling of particular goods, and the labelling procedure. The law will come into effect from 1 January 2019.

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Imports and distribution of pharmaceuticals in Russia has been subject to significant changes, including the EEU’s single market for pharmaceuticals introduced in 2016, as well as the pilot T&T project from February 2017 until 31 December 2018.

The obligatory labelling and full deployment of a T&T system for pharmaceuticals are expected by 1 January 2020. Earlier deadlines may be introduced by the Russian Government for vitally essential pharmaceuticals and the so-called “Seven Nosologies” programme (a state programme to provide drugs to patients with certain rare diseases that require expensive treatment) drugs.

Generally, labelling of pharmaceuticals is designed to protect consumers against the counterfeit drugs and ensure a quick removal of counterfeit and low-quality products from the market. At the same time, it will provide the state authorities with control over the flow of products in the market. With the Russian Federal Tax Service as an operator of the system, data inputs are likely to be used for tax control purposes and can further be shared with other state authorities, including the customs. This is why, when T&T systems are implemented, the companies are advised to ensure that not only the T&T requirements are met, but the customs, tax and legal risks are properly dealt with as well as relevant optimisationopportunities are elaborated (e.g. electronic document flow is implemented, big data are collected for further analysis, etc.).

Labelling and traceability of pharmaceuticalsTraceability of Goods within the EEU

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Customs Incentives



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Automotive Sector – The New Investment RegimeCustoms Incentives

Currently, producers of vehicles and vehicle components that use imported parts and materials may enjoy a decreased/zero customs duty rate for imports under the industrial assembly regime, provided they meet certain conditions, including the required localisation level. To qualify for these incentives, a company should sign an agreement with the Russian Ministry of Economic Development. However, according to Russia’s obligations upon accession to the World Trade Organisation in 2012, all industrial assembly agreements should be terminated by 2020.

To promote localisation and support the (highly-)localisedproducers, a new investment regime (the “NIR”) for OEMs instead of the industrial assembly regime will be introduced. The NIR provides for a compensation of the excise duty, ecological levy, and import customs duty paid on imported goods for producers of vehicles, light commercial vehicles, trucks, and buses if they meet the localisation requirements.

The NIR is intended primarily for the companies operating under the industrial assembly regime (i.e. under Decree 166) by the moment of the NIR introduction, while other companies may qualify for it after five years only. The NIR will be formalised in a special investment contract (“SPIK”) between the Russian Federation (most likely represented by the Russian Ministry of Industry and Trade) and an OEM.

There is no information on the new incentives for producers of automotive components (i.e. operating under Decree 566) yet.



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E-commerce

Overall decrease of the limits on imports of goods for personal use should be implemented starting from 2019. For 2018, the limits on the purchase of goods for personal use from foreign online stores will remain the same: EUR 1,000 and/or 31 kg per month. Whatever exceeds these limits is charged at 30 percent of its excessive customs value, but not less than EUR 4 per each kg over the limit.

From 1 January 2019, the limits will be decreased to EUR 500 and/or 31 kg per month, from 1 January 2020 – to EUR 200 and/or 31 kg per month. Also, starting from 1 January 2020, the customs payment will be decreased to 15 percent of the excessive customs value, but no less than EUR 2 per each kg over the limit.

The limits on other types of imports for personal use (e.g. in a passenger’s luggage, except for air transportation) will also be amended: EUR 1,000 and/or 50 kg from 1 January 2019, EUR 750 and/or 35 kg from 1 January 2020, and EUR 500 and/or 25 kg from 1 January 2021. The current limit is EUR 1,500 and/or 50 kg. These changes do not cover the imports in a passenger’s luggage when travelling by plane (the limit remains EUR 10,000 and/or 50 kg).

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E-commerce

According to Decree No. 1861 of the Russian Federal Customs Service dated 24 November 2017, in addition to passport details, the recipient’s taxpayer identification number (“TIN”) should be indicated in the register of goods delivered by freight forwarding companies and express delivery services, which is submitted to the customs authorities upon customs clearance. Additionally, relevant screenshots or links to the pages of online catalogues should be provided to the customs authorities together with the register.

These changes are introduced as a part of the experiment on the application of the Unified Automated Information System of Customs Authorities (UAIS CA) in respect of the goods purchased by individuals in foreign online stores and delivered by freight forwarding companies and express couriers. UAIS CA will record the passport details, TIN, information on the weight and value of goods acquired, etc. The customs authorities will use this information to identify whether the goods are genuinely imported for personal use or are intended for commercial use and/or further resale.

The new procedure will be tested throughout Russia from 7 December 2017 until 1 July 2018. The new rules will not affect the goods delivered by post.

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Russia’s Counter-Sanctions: Extension of EmbargoTrade Restrictions

Since August 2014, the import of certain agricultural products, raw materials, and foods originating from the European Union, the USA, Canada, Australia, Norway, the Ukraine, Albania, Montenegro, Iceland, and Liechtenstein have been prohibited.

In July 2017, the embargo on the imports of certain types of foods into Russia was extended until the end of 2019 (Resolution No. 790 of the Russian Government dated 4 July 2017).

The list of the goods prohibited for import into Russia includes, in particular, several types of meat and fish, milk products, fruit and vegetables.

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Imports from Turkey Trade Restrictions

In January 2016, Russia banned the import of certain Turkish goods into Russia. In 2017, this embargo was gradually cancelled (Resolution No. 672 of the Russian Government dated 2 June 2017 and Resolution No. 1301 of the Russian Government dated 26 October 2017).

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We hope that you will find this customs update interesting and useful. Should you have any questions or comments, please

do not hesitate to contact our specialists listed below.

Oleg Berezin

Partner

Indirect Tax

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Andrey Silantiev

Partner

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