Policy & Compliance

EU establishment and potential implications

Some guidance on how to determine whether a business is established in the EU – which has major implications for a Member’s legal position

The introduction of the Fulfilment House Due Diligence Scheme in April 2018, and the wider aspects of HM Revenue & Customs’ (HMRC) anti- fraud activities, put the rules of establishment in the EU firmly back on forwarders’ agenda. The establishment issue has wide implications.

It is, inter alia, crucial in defining the Members legal position as a customs representative. Forwarders and customs agents should be aware that they can only represent non- established businesses in the capacity of an indirect representative (Art. 170 UCC), which in itself may change the relationship between the parties involved in the process (eg joint liability for customs debt).

Definition The question about who is an established business in the EU (post-Brexit this is likely to be for the UK only) may, on the face of it, seem an easy one to answer but the intricacies of establishment status can be confusing or misleading. The basic definition of an established person

can be found in Article 5 UCC: (31) “person established in the customs territory of the Union” means: (a) in the case of a natural person, any person who has his or her habitual residence in the customs territory of the Union;

(b) in the case of a legal person or an association of persons, any person having its registered office, central headquarters or a permanent business establishment in the customs territory of the Union;

(32) “permanent business establishment” means a fixed place of business, where both the necessary human and technical resources are permanently present and through which a person’s customs-related operations are wholly or partly carried out;

Going further and looking at the UK specific

HMRC guidance, forwarders will find the following: A UK establishment exists if:


• the place where essential management decisions are made and the business’s central administration is carried out is in the UK

• the business has a permanent physical presence with the human and technical resources to make or receive taxable supplies in the UK. Additional guidance from HMRC says that a

company that is incorporated in the UK would also normally be considered to have an establishment here as long as it is able to receive business supplies at its registered office.

Due diligence and establishment status These relatively straightforward definitions can be viewed as sufficient. However, the difficulty lies in their practical application. What freight forwarders should do to determine the establishment status of their customers becomes increasingly important. Failure to do so may result in the customs agent unwittingly becoming an indirect representative and thus jointly and severally being responsible for customs debts, etc. BIFA has always encouraged Members to

apply due diligence when taking on new customers. Due diligence has also recently become the

focus of HMRC’s policies toward traders’ compliance; but how can Members make sure that their business partner is an established entity within the EU (and in particular within the UK)? Here are a few questions you can ask and

hints that may prove helpful when determining the establishment status of a customer.

EORI registration The EORI number is required for business importers and exporters but it is not linked to the UK or EU establishment. Non-established businesses operating in the UK will be required to register under the EORI scheme just like UK- established businesses. The EORI Validation Checker will not make a distinction between the two categories either, so whilst the EORI number

will be required for all international traders it does not mean that Members are dealing with a trader established in the EU.

VAT registration Checking the VAT registration number may seem like an obvious way to establish the status of a business but this again, similarly to EORI, may be misleading. The UCC definition applies to the EU establishment, hence businesses registered in other member states will be treated just like UK businesses. Additionally, the UK regulator recognises the notion of non-established taxable persons or businesses (NETPs) which may be required to be registered for VAT purposes in the UK. These businesses may still be considered to

be established in the EU if their main business centre is located in another member state, but VAT registration alone will not make them an EU established business if they do not meet the criteria specified in the previous paragraphs.

April 2019

Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20