PwC expert’s recommendations were accepted during development of the Authorized Economic Operator concept

The implementation of the AEO institution is one of Ukraine’s international obligations, specifically prescribed by the Ukraine-EU Association Agreement and the WTO Trade Facilitation Agreement. Businesses expect practical implementation of the AEO institution through the adoption of the Draft Law “On amendment of the Customs Code of Ukraine (regarding Authorized Economic Operator and simplification of customs procedures)” (Bill No 4777) and the Draft Law “On amendment of the Tax Code of Ukraine regarding the taxation of importation of goods into the customs territory of Ukraine by Authorized Economic Operators” (Bill No 4776). The proposed acts were developed by the Ministry of Finance working group with input from prominent industry leaders and customs policy experts.

One of the main architects of the AEO concept and champions of the proposed legislation was Ms. Oksana Drozach, Co-chair of the Customs Committee of the American Chamber of Commerce in Ukraine, Senior Consultant with PwC, Ukraine. In particular, Ms Drozach contribution to the AOE concept includes the following notions:

(1) preliminary audit of AEO applicants should be aimed at testing applicant’s internal processes’ safety and security protocols and measures;

(2) the simplifications for AEOs should be available not only to importers/exporters, but also to all companies that operate as part of the international supply chain (i.e. carriers, bonded warehouses, customs brokers, etc.);

(3) a balanced set of criteria for assessment of AEO applicant. It should prevent granting the AEO status to unreliable companies as well as avert the abuse of applicant’s rights and corruption on part of tax officials;

(4) the list of facilitations and criteria for AEOs should be in line with EU practice. It will set the stage for the recognition of Ukraine’s AEOs by EU countries.

Oksana discloses that “…some initiatives were subjects of long-lasting debates with the tax and customs authorities. The main issue was the preliminary audit of AEO applicants. Previously, tax authorities, by leveraging ambiguities of certain criteria prescribed by the effective law, treated it as a regular tax/customs audit aimed at uncovering underpayments to the State Treasury. It would allow the tax authorities to “bargain” with the AEO applicant by negotiating outcomes of the audit and the amount of financial sanctions. Safety and security of the applicant’s internal processes remained outside of the audit scope that would allow non-compliant companies to gain eligibility for the simplifications and the competitive advantage on the market”.

The expert says: “This practice would dilute the European AEO concept that provides control of safety and security of AEO applicants’ internal processes (e.g. recruitment, decision making, documentation handling and storage, etc.) during preliminary auditing. Only upon the condition of maintaining the described above focus of the preliminary audits the AEO status will be granted to reliable companies. Moreover, the improper focus of preliminary audits would block further mutual recognition of Ukrainian and EU AEOs.

Thus, a realization for the need to develop new criteria for AEOs applicants came about. The criteria would be based on the world best practices and amend the effective the Customs Code. Thanks to active collaboration between the Ministry of Finance, the State Fiscal Service of Ukraine, as well as various businesses and noncommercial associations such criteria were eventually developed and all the above-mentioned ideas agreed upon.