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Be wary of Incoterm Delivery Duty Paid


BIFA is hearing anecdotal evidence that EU importers are insisting UK suppliers should use the Delivery Duty Paid Incoterm. But given the responsibilities this places on the shipper, great caution should be exercised


In the last few weeks, BIFA has become increasingly aware of greater emphasis on the use of the Delivery Duty Paid (DDP) term. It would seem that buyers in both the EU and UK are aware that this offers them the maximum protection and the least responsibility. As the 2020 edition of Incoterms states: “The seller bears all risks in bringing the goods to the named place of destination or the agreed point within that place.”


Cross-border problems


The seller must deliver the goods as in DAP or DPU. However, under DDP all import clearance formalities are at the cost and risk of the seller. This may well work without causing any difficulties with domestic transactions or transactions within a customs union, but for cross-border international trade it can be particularly problematic. As the opposite of EXW, where the buyer must


be able to carry out the export clearance formalities, with DDP the seller must be able to carry out the import clearance formalities. This is where most of the problems seem to occur, generating additional arguments about who


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should pay storage charges if these are incurred. Many importing country’s rules, including the


UK’s and EU’s, require the declarant to be a “established” in their territories. BIFA has written articles on the subject, noting that the establishment criteria are not enshrined in Customs but Commercial Law.


The seller is highly unlikely to be established in the importing country and there are likely to be problems. When taking instructions from the overseas seller, the import agent will be asked to clear the goods on its behalf, using its EORI number. In this scenario, the UK agent can only act as the indirect representative on behalf of the overseas party, making the former jointly and severally liable for any customs debts. In addition, under other legislation, Trading Standards would expect the agent to be responsible for product recalls, etc. BIFA has always stated that its Members should never act as an indirect representative, because of the potential liabilities this incurs. Particularly since the implementation of the Union Customs Code, which brought this matter to the fore, we have advised Members to only clear goods for a UK or EU (until 01/01/2021)


established entity as a direct representative, thus largely protecting themselves from possible enforcement action by HM Revenue & Customs. In this scenario the entry can be prepared so


that the agent pays the import duty and re-invoices this sum to the overseas seller, often via its agent. The VAT is for the UK-established importer and can either be charged to its deferment account or paid by the agent and collected directly from it. The VAT can then be recovered via VAT returns and post 1 January 2021, when postponed VAT accounting is re-introduced for VAT registered businesses, simply accounted for.


Storage and demurrage costs One other area that causes issues relates to the payment of storage and/or demurrage costs if they are incurred. In many cases these will be charged to the seller. Incoterms 2020 DDP B(9) (c) clearly states: “The buyer must pay: any additional costs incurred by the seller if the buyer fails to fulfil its obligations in accordance with B7, or to give notice in accordance with B10.” In effect this is saying that delays incurred by the buyer failing to obtain key documents, such as an import licence, or delaying acceptance of cargo are chargeable to it. The recommendation is that the contract should always stipulate who is responsible for storage, etc, and in what circumstances.


The DDP Incoterm is one of the most widely used and misunderstood Incoterms, and we have highlighted two of the main areas of concern. We are hearing anecdotal evidence that EU importers are insisting that UK suppliers use this term. Given the responsibilities placed on the shipper, caution should be exercised, particularly relative to storage and customs clearance. In many cases DAP or DPU will be a more suitable term.


September 2020


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