When goods cross a border, customs formalities need to be completed. The trader has the option to complete the formalities themselves, or engage someone else to do this for them. Generally, traders find someone, such as a customs agent, to complete the formalities for them. In this case, the customs agent would act as either a direct or an indirect representative.
This article explains the difference between these two types of representations and what the responsibilities and liabilities are for both the trader and the customs agent.
There are three types of representation:
1 Self-representation: the trader acts on their own behalf.
2 Direct representation: the customs agent acts in the name of and on behalf of the trader.
3 Indirect representation: the customs agent acts in their own name but on behalf of the trader.
Previously, we discussed in our article Are Software Solutions The Future? (https://jyxborderconsulting.com/managing-the-cost-of-making-customs-declarations-are-software-solutions-the-future) whether bringing customs formalities in-house using a software solution would be worth considering. For businesses completing customs formalities in-house, they are using “self-representation”.
When the trader engages a customs agent, usually, what the customs agent offers is a direct representation relationship. This means the agent is acting in the name of and on behalf of the trader, taking instructions from the trader to complete the import/export customs declaration.
A customs agent acting as an indirect representative acts in their own name but on behalf of the trader. The key difference between direct and indirect representation is that because the agent is acting in their own name, they are jointly and severally liable for any customs debt. Being an indirect representative poses more risk to the customs agent.
Given the choice, both the trader and the customs agent would prefer to be in a direct representation relationship. However, there are default positions where an indirect representation is the only option.
The theory: when indirect representation is the only option
The most common scenario when an indirect representative is required is when the trader has no customs establishment in the country of import. For example, a business based in the EU, importing into the UK, or vice versa.
Customs establishment refers to when the business has a registered office, central headquarters or a permanent business establishment. A permanent business establishment is defined as a place of business where staff are permanently employed and where the technical resources of the business are always present. In addition, the business’ customs operations must be wholly or partly carried out there. This is the case in the UK and the EU.
In the UK, HM Revenue & Customs (HMRC) lists the following as examples of evidence of establishment:
~ a certificate of registration issued by the Registrar of Companies
~ details of where staff are employed and the work that they carry out
~ physical premises owned or leased by the business
~ details of contracts, orders or invoices held or issued by the business
~ proof that the business has its own accounts
~ Having UK VAT or UK Economic Operator Registration and Identification (EORI) numbers does not necessarily mean or provide sufficient evidence the business has establishment.
Businesses with no customs establishment must have an indirect representative, since the declarant must be established in the customs territory. The end of the Brexit transition period meant that many businesses suddenly found themselves in need of an indirect representative, as they did not have established businesses in both customs territories.
For example, UK businesses with no customs establishment in the EU needed a customs broker willing to act as indirect presentative in the EU to import, and vice versa. In addition, movements as simple as a stock transfer from an EU warehouse to the UK meant the business had to consider representation requirements.
Another scenario when indirect representation is the only option is when a trader wants to make use of the customs agent’s Customs Freight Simplified Procedures (CFSP) authorisation.
However, there is one exception to this which is in the context of the delayed declaration for goods arriving in the EU from Great Britain in 2021.
Delayed declarations is an easement introduced to facilitate trade in 2021 between the EU and Great Britain. When this easement is used, the trader must submit supplementary declarations. In order to submit supplementary declarations, the trader, or a customs agent acting on their behalf, must have CFSP authorisation. In this case, HMRC have said that the customs agent helping a trader to submit supplementary declarations can act as a direct representative.
The reality: struggles to find an indirect representative
Few customs agents are willing to offer indirect representative as an option. Many have internal policies specifically stating that they would not accept traders requesting indirect representation. This means many traders could not find an indirect representative. In the UK, some traders have been presented with a letter to sign, stating that the customs agent is acting as a direct representative, despite having told the customs agent that they have no customs establishment in the UK. This is a major challenge for businesses.
There are many reasons why customs agents are unwilling to act as indirect representative. Having joint and several liability for customs debt is already risky when the trader is unknown to the customs agent. The financial reward is often insufficient. Consider the cost of a customs declaration versus the duty payable on the goods that the agent could be liable for. Furthermore, customs is not the only concern when goods are imported. In some cases, the indirect representative for non-established business is responsible for meeting regulatory requirements as they are the importer/declarant of the goods.
In practice, it is in the benefit of both the trader and the customs agent to be clear as to which type of representation is being used. It is also essential that the trader understands that the agent must be provided with clear instructions to customs clear goods. The customs agent is deemed to be the indirect representative if their client has no customs establishment. The agent could also be deemed to be self-representing if instructions from the trader are not followed.
Traders struggling to find an indirect representative face few options. They can either establish customs presence, then find a direct representative or implement self-representation.
Another option could be reviewing the terms they trade under and changing the terms of the sale to a term that means the buyer of the goods is the importer (e.g. DDP to DAP).
Changes come with costs. It is recommended that businesses carefully review their operating model to determine what can be adjusted so that customs formalities can be completed in a compliant manner, using the correct representation.
This article was written with Toby Spink, Director, BKR Consultants Limited. For further guidance and help, please get in touch with Toby or Jessica.
The article first appeared in CCRM Journal for Practitioners in Europe, Issue 9, June / July 2021: