Incoterm DDP – be wary

Incoterm DDP – be wary

 

A lot of our customers have come to us in recent months with thoughts of changing current DAP Incoterms to DDP for exports, perhaps in fear that their EU customers will find purchasing from the UK less financially attractive should tariffs be imposed bilaterally.

DDP, or Delivered Duty Paid, places the maximum responsibility on the seller as it also involves the destination import clearance and payment of VAT and duties applicable.

Our industry body BIFA posted a concise article about this in their September magazine and a link can be found here at page 16.

As you can imaging, this has been something which the industry has been trying to discourage. However, some customers are bowing to pressure from their EU customers thus insisting on DDP. So how can we handle this?

Well in truth, we can’t really. Whilst our partners are happy to deal with import customs, and will also facilitate the advancing of duty if necessary (under strict and restricted controls), the legal aspect is more complicated.

  • Under DDP, we, and any sub-agent performing customs procedures, would become Indirect Representatives. Therefore we, and any sub-agents would be equally liable for any customs debt should customs not receive settlement.
  • In order to be able to apply DDP, the exporter needs to be registered in the EU as having a fixed establishment. Alternatively, they would need a fiscal representative to do this on their behalf. The exporter would need an EU EORI number in either case. Also, the exporter would become the importer of record in custom’s eyes and not the actual consignee of the goods.
  • If the exporter did obtain an EU EORI and a fixed establishment or appoint a fiscal representative, we would have to have a legally binding rigid indemnity to defend us and/or our sub-agents in the event we/they became liable as acting in an indirect capacity

An alternative to consider is an adjustment to Incoterm DAP by suffixing with ‘cleared’. So DAP <named place> cleared. This would mean that the exporter would pick up the EU import clearance charges, but the EU Importer would be the importer of record and using their EORI number would be liable for duty and any import VAT. The exporter and importer should then make a contractual agreement between themselves agreeing to reimburse the EU importer for the duties paid. (Import VAT is recoverable in periodic VAT returns)

Our partners would most probably agree to settle the duty aspect on ‘behalf of’ the EU importer, but seek settlement via ourselves from the exporter. Import VAT may be able to be treated in a similar way, although as the EU importer would recover it on their VAT returns, it doesn’t seem necessary.

A difficulty with this is that the EU importer would be recorded by their customs authority as having paid duty. How that would impact on their local accounting system I don’t know.

However, adopting the DAP principal, we (and any sub-agent) would be acting as Direct Representatives as long as the authority is endorsed by the exporter, thus being protected from any possible customs debt.

Lastly, how does one go about appointing a fiscal representative? How does one become ‘established’ in the EU? These are questions which I cannot answer and I would suggest that initially HMRC is approached.

So, whilst it is not infeasible to perform such a process, there are also other considerations. Yes, our partners could withhold delivery should our customer not make payment of VAT and Duties, but apart from delaying delivery, certain local regulations, particularly Italy, provide that if the goods are present in their country, they become legally the property of the consignee, whether or not the goods have been paid for, in the case that any party wishes to take a lien on them.

Best advice is to avoid at all costs and come to some alternative agreement between buyer and seller.

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