Taxation (Cross-border Trade) Bill

Legal background

Customs and the UK tariff

24 Most of the law governing the administration of the EU Customs Union is contained in the Union Customs Code (UCC) and its delegated and implementing acts. As an EU Regulation, the UCC is directly applicable in the UK, meaning that it is automatically given legal effect in the UK. Domestic legislation governs certain aspects of the current Customs regime, such as enforcement powers, penalties, and appeals. The most substantial piece of domestic legislation which relates to the current Customs regime is in CEMA.

25 Duties are generally applied at a standard rate – known as the Most Favoured Nation (or "MFN") rate. These rates may be reduced through preferential tariff rates for certain goods originating from certain countries. Such trade preferences are permitted by the WTO as an exemption to the MFN rule (which is contained in Article I of the General Agreement on Tariffs and Trade ("GATT") 1994).1 Article XXIV of the GATT allows preferences in the context of free-trade areas and Customs unions. The UK currently participates in many free trade agreements (FTAs) as a member of the European Union.

26 The ‘Enabling Clause’2 permits trade preference schemes in order to promote the trade of developing countries, on the basis that the preferential treatment is made available to all other similarly situated countries. They should, according to WTO rules, be based on objective eligibility criteria relating to a country’s economic circumstances.

27 The UK currently provides trade preferences for exports of goods from around 70 countries through EU Regulation 978/2012 Applying a Generalised Scheme of Preferences ("GSP").3 There are three tiers within this model:

● Everything but Arms (EBA): full import duty-free and quota-free access for all products except arms and ammunitions. A country is granted EBA status if the UN has listed it as a Least Developed Country 4 .

● standard GSP: reduced import duties on two thirds of product tariff lines.

● enhanced GSP terms (GSP+): full removal of import duties on the two thirds of product tariff lines covered by the standard GSP. Available to economically vulnerable countries which ratify and implement 27 international conventions on human and labour rights, environmental protection and good governance 5 .

28 WTO agreements enable members to apply trade remedy measures. These can be applied where imports are being dumped (exported at prices below the selling price in the exporter’s domestic market or below the normal commercially viable selling price); where the imports have been subsidised; or where there is a harmful surge in imports.

29 Trade remedies rules are currently operated at an EU level by the European Commission, and are provided for through EU regulations 2016/1036 (anti-dumping), 2016/1037 (anti-subsidy) and 2015/478 (safeguards). Trade remedies include:

● imposition of anti-dumping duty as permitted by Article VI of the GATT 1994 6

● anti-subsidy measures as outlined in the WTO Agreement on Subsidies and Countervailing Measures 7

● safeguards measures as outlined in the WTO Safeguards Agreement 8

VAT and excise

30 EU law largely harmonises VAT and excise rules across the EU. As an EU Member State, the UK is required to implement EU Directives in domestic legislation. The main legislation for VAT is the EU Principal VAT Directive (Directive 2006/112) and the main legislation for excise is the Excise Directive (Directive 2008/118). Other EU Directives also apply and there are various EU VAT and excise Regulations which are directly applicable in the UK.

31 The UK has implemented the Principal VAT Directive through the Value Added Tax Act 1994 (as amended). The main body of the Act sets out the general principles governing the tax, such as when the tax becomes chargeable, what the rate of VAT is, who has to pay it, and what VAT businesses can recover. More detailed rules, such as lists of supplies of goods or services that are exempt or zero-rated, are contained within its schedules. The Act also provides a range of powers to introduce secondary legislation. Some parts of HMRC’s VAT public notices also have the force of law. This tertiary legislation usually prescribes administrative procedures.

32 The UK also gives effect to EU excise rules in primary legislation, including through the Customs and Excise Management Act 1979, Alcoholic Liquors Duty Act 1979, and Tobacco Products Duty Act 1979. EU excise provisions are also implemented substantially through secondary legislation, such as the Excise Goods (Holding, Movement and Duty Point) Regulations 2010 (SI 2010/593). This includes the duty suspension regime, which ensures the equal treatment of excise goods moving within and between Member States with excise duty only being charged in the member state where the goods will be consumed.