First Sale planning can reduce the customs value through using an earlier sale in the supply chain and thus stripping out subsequent mark-ups. Its application legitimately reduces customs duties on goods sourced through intermediaries and has been accepted by the main commercial blocks of the world – the EU, US & Japan.
The EU Commission has now circulated initial drafts of the Delegated and Implementing Acts to put meat on the bones of the new Customs Code, due to take effect from July 2016. These Acts seek to remove the ability to use first sale by requiring the importer to use “the transaction occurring immediately before the goods are declared for free circulation”.
The Acts published by the Commission are still in draft form but show a clear intent to get rid of first sale. HMRC is asking importers using First Sale to provide it with information on level of savings to support the UK’s arguments for retaining the measures.
There is also a question over whether the EU Commission is acting within its powers to get rid of first sale. The valuation provisions in the EU Customs code give effect to Article VII of GATT, an international agreement to which the EU is a party. These provisions were interpreted by the European Court of Justice as allowing the use of first sale (C-11/89). Against this the World Customs Organisation (WCO) Committee adopted commentary 22.1 in April 2007 suggested the abolition of first sale planning. The WCO Committee has merely an advisory function and its commentaries have no binding effect but its output has been influential.
We are following developments on this issue carefully and will keep you informed.