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Policy & Compliance
www.bifa.org
The problem with Incoterms – Ex Works in particular
BIFA’s guidance to Members is that in order to protect themselves, from a regulatory viewpoint, they should always endeavour to be appointed as their customer’s direct Customs agent.
Since the UK left the EU on 1 January 2021, BIFA has received numerous enquiries about various matters including Customs representation, establishments and the impact of the various Incoterms – especially Ex Works (EXW) and Delivery Duty Paid (DDP). To summarise, sellers like EXW because all the cost and responsibilities for moving goods are placed on the buyer. Conversely, buyers like DDP terms because all the previously mentioned costs and responsibilities for moving the cargo are placed on the seller. All too often the parties to the commercial contract overlook
the legal requirements imposed by conducting international trade. These have been highlighted by the UK leaving the EU, because all movements between the two entities are now ‘international movements’. The situation is further complicated by many traders engaged in such trade being unfamiliar with particular Customs requirements. In general, all shipments need an export declaration to leave a country and an import declaration upon arrival at the country of destination, which leads to the need for there to be an exporter of record and an importer of record. BIFA’s guidance to Members is that in order to protect
themselves, from a regulatory viewpoint, they should always endeavour to be appointed as their customer’s direct Customs agent. The relevant empowerment is included in Clause 7 of BIFA’s STC, which states: “In all and any dealings with HMRC, for and on behalf of the UK established customer and/or owner, the company is deemed to be appointed and duly empowered to act as a direct Customs agent only, to make Customs declarations in the name of the customer (principal) as its ‘direct agent’.” In order to act as a direct agent, the BIFA Member must be
‘empowered’ by a trader based in the UK. This can be particularly problematical when dealing with EXW shippers, who regard their responsibility as being fulfilled when they make the cargo available for collection. On occasion they decline to be the exporter of record, arguing that they have sold the goods and that the buyer is now the exporter. When the 2020 edition of the Incoterms was reviewed, BIFA
argued very strongly that the term was not appropriate for international trade. This representation was partly successful, because on pages 22 and 23 (English version ISBN 978-92- 842-0510-3) covering Export Clearance, the International Chamber of Commerce states, “EXW may be suitable for domestic trades, where there is no intention at all to export the
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goods” and later it adds that where the buyer “anticipates difficulty in obtaining export clearance, the buyer would be better advised to choose the FCA rule”. BIFA’s Secretariat is aware that in particular for movements
to/from the EU, some Members have taken a firm line advising clients that they are not willing to handle EXW shipments and that the correct term is Free Carrier (FCA). Under this term the seller is required to undertake or pay for all export formalities, including the Customs declaration. However, within Customs, and in particular VAT law, there
are arguments that a freight forwarder can use to persuade the EXW shipper that it is in its interests to be shown as the declarant and appoint the agent as its direct Customs agent. We will now look in some detail at the arguments that Members can use to achieve the above detailed outcome.
Customs law Any company can appoint a Customs agent to act on its behalf as defined in the Taxation (Cross Border Trade) Act 2018 (TCTA 2018). From our Members’ viewpoint, the most important clause of the Act is Section 21 Customs Agents, where it is stated: “21 (1) A person (‘the principal’) may appoint any other person (a ‘Customs Agent’) to act on the principal’s behalf for the purposes of this part, and a) The agent may make Customs declarations in the name of the principal (and in that case the agent acts as a ‘direct agent’) or b) The agent may make Customs declarations in the agent’s own name (and in this case the agent acts as an ‘indirect agent’). The above text must be read in conjunction with Schedule 1
of the TCTA 2018 Section 2 “Eligibility of persons to make a Customs declaration”, which makes specific reference to the often overlooked question of establishment. The law is clear on this stating that “persons may make Customs declarations” only if “they are established in the UK or a specified place outside the UK”. The Customs (Import Duty) (EU Exit) Regulations 2018 re-
state this requirement, Section 1 Article 15 (1) advising the reader “subject to paragraph (2), a person eligible to make a Customs declaration in respect of chargeable goods may not do so unless the person is established in the UK.” There is additional guidance on this subject that can be
viewed at
www.gov.uk/guidance/check-if-youre-established-in- the-uk-or-eu-for-Customs. This guidance clearly specifies the criteria that need to be met to comply with the ‘establishment’
June 2021
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