ACC Country Profile 2012,
Igor Dankov, Senior Manager
Robert Zeldy, Manager
The new Customs Code of Ukraine took effect on 1 June 2012. It was the result of a long working process by various state authorities and businesses. The American Chamber of Commerce took an active part in this process. The authors of this article, for example, were members of the relevant Governmental and Parliamentary working groups and submitted numerous proposals that became provisions of the Code. We discuss these provisions in detail below.
The proposals were based on the best practice available around the world. Ukraine has declared its adherence to EU values and a willingness to join that organization in the future. For it to do so, its legislation must be aligned with the EU’s. Adapting Ukraine’s customs legislation is a priority task for the state authorities.
The EU has successfully implemented the WTO’s customs valuation principles and accumulated many best customs practices. Logically enough, we studied this experience and tried to borrow from it while preparing our proposals.
The purpose of this article is twofold. On the one hand, we summarize our contributions to the new Code. On the other hand, we discuss a variety of complex customs issues that remain unsolved in Ukraine.
Opinions about the new Code vary. Some say that it is worse than the previous Code. Many believe there are a lot of good changes as compared to the previous legislation.
It is obvious that many changes to the Code are good for business. The unambiguous successes include:
Businesses may also benefi t from the following provisions of the Code:
The new Customs Code is certainly not perfect. It is diffi cult to create an ideal document that will satisfy both the fi scal authorities and the business community. The following areas call for further improvement:
The Customs Code could be improved in other areas as well.
Below we summarize certain provisions we drafted towards making the Code more effective.
Historically, customs valuation has been an area of dispute between importers and the customs authorities. The customs valuation provisions of the old Code were based on WTO principles (the Agreement on Implementation of Article VII of the GATT). However, the customs authorities have often misused these provisions in order to increase revenue collections, as:
As a result, the customs authorities have challenged declared value without suffi - ciently explaining their reasons for doing so. The basis for such a challenge could be the availability of higher prices in their internal database. The next step was to request that the importer present additional documents to support the declared value. As a rule, customs was requesting documents that either did not exist (e.g., price calculations of the goods) or that were diffi cult to obtain (e.g., a foreign export customs declaration, even if the exporter could declare the goods electronically).
Should the importer fail to present the additional documents, the customs authorities have the right to defi ne customs value themselves. The old customs valuation rules were thus favorable for customs and denied the importer the ability to determine customs value.
We focused our efforts on changing this situation and making the customs authorities explain (preferably in writing) every step they take when rejecting a value as well as how they arrived at the new customs value.
We proposed the following minimum provisions (they were included in the new Customs Code).
We suggested that a customs offi ce may reject declared value only in the following cases:
However, practice shows that the customs authorities have often misunderstood these provisions. We would thus advise further clarifying the terms “incorrect calculation of customs value” and “incorrect election of a customs valuation method.”
There are three different cases in which customs must present arguments if they do not accept a declared value:
We recommend that an importer use these benefi cial provisions of the Customs Code. If customs fails to argue why they rejected a declared value, a declarant will have a good chance of winning a court case. There is no need to hold the goods under customs control until the dispute is resolved. It is possible to release the goods against fi nancial guarantees and then appeal against the customs valuation.
As we mentioned above, the customs authorities have often demanded excessive documents, in the hopes that the declarant will fail to present them. In this situation, customs obtains the right to determine the customs value itself. Even when the declarant submits the requested documents, customs can disagree with it and reject the declared customs value.
We thus suggested determining the list of documents required to support declared customs value as follows:
These Code provisions prevent customs offi cials from demanding arbitrary documents.
We proposed strengthening the requirement that the customs authorities must substantiate an adjustment of a customs value. Specifi cally, they need to provide the following information:
If customs fails to provide this information, it will be easier for the declarant to appeal against the adjustment.
The customs authorities release goods against fi nancial guarantees when:
We managed to improve the process as follows:
Also, we proposed that a fi nancial guarantee remain in effect until the fi nal resolution of a customs valuation dispute. For instance, even if the declarant cannot convince customs within 80 days, it will be possible to appeal to a higher customs body or to a court. Until there is a decision from these authorities, the fi nancial guarantee should continue to apply. Unfortunately, this proposal was not implemented in the Customs Code.
We suggested that the Customs Code incorporate certain WTO Customs Valuation Decisions that Ukraine committed to following. In our opinion, this would facilitate the practical use of these Decisions.
Cases where customs administrations have reasons to doubt the truth or accuracy of the declared value (Decision 6.1)
We suggested that this Decision be broadly implemented by requiring the customs authorities to substantiate their decisions for rejecting and adjusting declared values. We proceeded from the fact that the Decision requires the customs authorities to have reasons to doubt the declared customs value. See above for how this was implemented.
We note that Ukraine did not commit to follow this Decision. In our opinion, a failure to follow it is not in line with the general principles of customs valuation.
Valuation of carrier media bearing software for data processing equipment (Decision 4.1)
This relates to customs valuation of carriers (e.g., CD, DVD, etc.) with computer software. In this case, for customs valuation purposes only, the value of the carrier medium should be taken into account. The customs value should not include the value of the software provided that it is distinguished from the value of the carrier medium (i.e., they are separate on the invoice).
The designation “carrier medium” does not include integrated circuits, semiconductors, or similar devices incorporating such circuits or devices. This rule thus will not apply, for example, when software is recorded on a laptop hard drive.
Treatment of interest charges in the customs value of imported goods (Decision 3.1)
This decision relates to the customs treatment of interest charges in the customs value of imported goods. It is particularly relevant to the import of assets under a fi nancial leasing contract. In this case, a question may arise as to whether interest charges should be added to the customs value of the imported assets.
The Code (following Decision 3.1) stipulates that interest charges will not be a part of the dutiable value when the following conditions are met:
It is not relevant whether the fi nancing is granted by the seller, the bank, or any other legal entity or which customs valuation method is applied for valuing the goods.
Treatment of payments in respect of broadcasting/distribution rights of sound or cinematographic recordings
While working on proposals for the new Customs Code, we focused on a number of other important areas. We discuss these proposals below. Many of them were developed further based on our initial ideas.
The Tax Code allows the controlling authorities (including customs) to issue rulings on the application of tax legislation. We thought it would be good to oblige customs to grant rulings on the practical application of customs legislation. Thus, the customs authorities can now issue rulings on a wider range of customs issues (not only tax ones). The important points about the customs rulings are as follows:
If the customs legislation is unclear and may be interpreted in favor of both the declarants and the customs authorities, the decision should be taken in favor of the declarants. This provision allows for favorable treatment of the customs legislation if it lacks clarity.
We supported this provision and recommended including it in the Customs Code.
This concept is not new. Rather, the Ukrainian customs authorities have long known about it. We proposed that the customs authorities follow this concept and it was included in the Customs Code.
According to this concept, various types of control over goods should be performed using a single customs information system (Recommendation UNECE/ CEFACT № 33, 2005). The customs authorities would coordinate all communication with other state authorities. Thus, the importer would need only to provide all information about the goods to customs. The latter would then connect with other authorities regarding licenses and permits.
The customs authorities have already committed to start implementing the single window concept from 2013.
According to the WCO’s approach, introducing the e-declaration of goods is an area of priority development for customs administrations. We have supported the Code’s provisions concerning introducing e-declaration in Ukraine. Ukraine’s customs authorities have committed to fully introducing e-declaration by the end of 2013.
We fully support the following approaches:
E-declaration represents a signifi cant facilitation of cross-border trade. At the current stage, trade is hampered by outdated IT systems and by the absence of electronic circulation of documents between various state authorities. E-declaration may be fully implemented within four to fi ve years.
We support the following provisions of the Customs Code:
The draft Code envisages insuring customs brokers’ liabilities for a minimum of EUR 300,000. This could be a serious blow to customs brokers’ activities in Ukraine. We actively moved against this provision of the Code and it was excluded.
The general conclusion is that the new Customs Code is a rather progressive document. Much will depend on how the customs authorities implement it. The likelihood of improper implementation will rise if business fails to demand that the authorities follow the rule of law.
There is no ideal document, and the Code has room for improvement. The main areas for improvement include:
We have already started polishing the customs law in the following areas:
As active members of the Chamber’s Customs Committee, we will continue making all efforts to lobby for the interests of the business community.