How much customs duty is due when products are imported into the EU depends, among other things, on the commodity code under which the products are classified. On worldwide level, the classification of goods is determined by the Harmonized System (HS) of the World Customs Organization (WCO), an international nomenclature of goods and corresponding codes at a six-digit level (tariff heading and subheading).
In addition to the Harmonized System, the European Union has its own list of commodity codes: the Combined Nomenclature (CN). The CN supplements the HS with two additional digits. Besides this, (additional) TARIC codes also apply.
The TARIC stands for "integrated Tariff of the European Union" and is a database with all measures related to EU customs tariff, trade and agricultural legislation. These TARIC codes are used for both import and export declarations and are based on the CN. The TARIC code numbers are a combination of the CN code and two additional digits, which indicate the measures and/or obligations applicable to imports or exports of that specific product. Subdivisions or additional codes may be added for each Member State. This database thus contains all measures for the specific product such as customs duties, commercial measures, regulations (barriers, laws) and statistics. When trading with third countries, the EU uses the ten-digit TARIC code.
The HS and CN are divided into 21 sections, each representing a particular group of goods. Each section consists of a number of chapters. In total, there are 97 chapters in the HS and 99 chapters in the CN. The first two digits of a commodity code equal the number of the chapter.
Headings are subdivisions of chapters. These, in turn, are broken down into subheadings. Generally, the first headings of a chapter contain the basic products/raw materials. The further into the chapter, the more processed the products are.
In addition to the HS and CN, explanatory notes are written for the sections, chapters, headings, and the subheadings. At the HS level, these are made by World Customs Organization (WCO). At EU level, explanatory notes are prepared by the Nomenclature Committee of the European Commission. The explanatory notes drawn up by the European Commission for the CN and by the WCO for the HS are not legally binding, but, in accordance with established case law, are important tools in the interpretation of the tariff headings.
Goods are classified in the CN by applying the principles included in the six general rules for the interpretation of the CN in their fixed order, and the same applied when goods need to be further subdivided in the subheadings.
Classifying goods under the correct tariff heading and subheading is not always simple. The EU customs legislation provides for the possibility to obtain certainty about the classification by requesting customs to issue a Binding Tariff Information (BTI) decision. A BTI decision is binding on both customs and the holder of the BTI. A BTI provides certainty on the commodity code to be used for a period of three years.
The BTI-application is digitized and must be done via the EU (Customs) Trader Portal. Here the interested person fills out the form. In this form the interested person must indicate, among other things, under which commodity code he believes the products should be classified. Also, the application must contain all specific information, such as leaflets, samples, a description of the goods and their composition, which customs needs to assess the tariff classification.
After filing the BTI application, the customs authorities shall notify the applicant of their conclusion on the classification of the goods as soon as possible, at the latest within 120 days. The customs authorities also have the option of extending this period (in principle by 30 days).
The customs authority's specialized BTI team in Rotterdam examines BTI applications in The Netherlands and makes a decision on the application by issuing the BTI decision. Customs is not obliged to issue a BTI decision for the commodity code proposed by the applicant in the BTI application.
Customs may decide that the goods should be classified under a different commodity code. Applying for a BTI therefore entails the risk that customs will have a different opinion about the correct tariff classification. That risk should always be weighed against the certainty on the tariff classification that would be obtained if the customs authorities would share the applicant's opinion on the applicable commodity code. A thorough preparation of a BTI application, covering factual and legal aspects, is therefore essential.
Once customs has issued the BTI, it is generally valid for three years. However, there are cases where the BTI is declared invalid after it has been issued. This can occur, for example, if the BTI does not (longer) correspond to customs law due to an amendment to the CN.
It can also occur that the European Commission promulgates a classification regulation that conflicts with the BTI or that the Court of Justice issues a ruling on the classification of a product that is incompatible with an issued BTI. In these cases, a BTI may be revoked. It is not common for BTI’s to be revoked within the period of validity. If it happens, it has no retrospective effect.
Be aware that a BTI cannot be revoked at the request of the holder. If an importer applies for a BTI and is granted a BTI but for an adverse commodity code, he cannot just request the authorities to withdraw that BTI-decision because on second thoughts he does not need or want the BTI. Again, a BTI-application may result in legal certainty, but is at the same time not without risks or obligation.
If the BTI-holder does not agree with the BTI issued by customs, he will therefore need to lodge a timely appeal against the BTI decision.
If the BTI loses its validity after three years, a new BTI application must be submitted in time. This BTI application can of course refer to the previous BTI. Assuming that in the meantime no relevant changes have been made to the regulations, generally customs will issue a new BTI, which applies for three consecutive years.
The BTI is binding on the holder, as well as on all customs authorities within the EU. The fact that the BTI is binding on the holder means that he must use the BTI in all EU Member States for his imports. This is done by mentioning the reference number of the BTI in the customs declaration and classifying the products accordingly.
A BTI can only be invoked by the (legal) person listed in the BTI as the rightful holder (and for this person the BTI is binding). In principle, others cannot derive any rights from the BTI. In addition, it is important to note that goods for which a BTI is used, correspond in every aspect to the products for which the BTI was issued. The BTI does not apply to products that differ from the goods for which it was granted.
Despite the fact that a BTI is only binding on the holder, a BTI issued to another person is not without significance. It can be used as a guideline for your own BTI application or as evidence in an appeal procedure against, for example, a tax assessment. After all, in customs law the liberal use of evidence applies. There is no reason why a BTI issued to another person cannot be used by another interested party to prove his case in proceedings against a decision of customs on a classification issue.
In order to obtain a BTI for the desired commodity code (and minimize the risk of an unpleasant tariff classification decision by customs), it is important to prepare a BTI application carefully and to properly substantiate the proposed tariff classification.
If customs issues the BTI for the commodity code that the applicant has anticipated, that is of course a good thing. The applicant can then derive the right to import the goods under that commodity code from the BTI. Of course, there is a chance that customs will issue a BTI for a commodity code that the applicant does not find desirable (usually because of a higher percentage of customs duties applies) and considers incorrect.
If the holder of a BTI disagrees with it, he will have to file an appeal in time. In the Netherlands, the deadline for this is six weeks from the date of the decision. Customs can then be asked to reconsider the classification of the product. However, filing an objection to a BTI does not have a suspensive effect. This means that the holder is bound by the BTI during the appeal and must use the BTI (refer to it in import declarations et cetera). For the time being, he mandatorily will have to use the BTI and, pending the appeal, may meanwhile decide to make appeal payment notification in respect of new imports and/or make requests for repayment.
If customs upholds the BTI, as a next step an appeal can be lodged with the independent customs court. For more information on the objection and appeal procedure in customs matters, please refer to: Appeals against decisions of the customs authorities | Ploum Rotterdam Law Firm
The decision on a BTI application provides certainty about the classification of the goods. This can be a relevant advantage. After all, the importer may in principle assume that his imports are compliant in respect of tariff classification and that he is not under- or overpaying duties on import in the EU. The costs of import are clear and can be charged to customers as part of sales prices. At the same time, it is not entirely without risk to apply for a BTI. Although the applicant will indicate and substantiate in the BTI application under which tariff subheading the goods should in his view be classified, the customs authorities may disagree and will eventually decide for which code they will issue the BTI. If customs issues the BTI decision for an adverse commodity code with a higher duty, an appeal against that decision is needed to challenge customs decision, at least if the interested person does not want to accept the BTI decision.
The lawyers and customs specialists of Ploum's Customs, Trade & Logistics team have extensive experience in requesting BTI decisions for clients and we can help you prepare for your BTI application. This includes a legal analysis of the tariff classification. We also help our clients to identify the relevant considerations that go into deciding whether or not to apply for a BTI in respect of a particular product. We also regularly conduct appeal proceedings for clients against adverse BTI decisions. You can contact us if you need advice on a BTI application or want to be assisted in an appeal against a BTI decision.
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