Showing posts from tagged with: Brexit

Completion of Study on Freight Traffic on British Landbridge

This study, which is an important part of the Department of Transport’s work in preparing to meet the challenges of Brexit, is now underway. The work is being carried out by consultants under the management of the Irish Maritime Development Office (IMDO) and involves a significant number of interviews with Exporters, Traders, Freight Forwarders, Hauliers, Ports and Shipping Lines.

Many IEA Member Companies are being asked to respond to the survey work. The results of the research carried out by the IEA earlier in 2017 on the subject will also be fed into the study.

All of the work, when collated, will enable the Department to make not just their own plans but will enable them to inform the EU Transport Commissioner and her team of the real Irish requirements within the Brexit discussions to minimise the disruption to the Landbridge routing.

Clodagh Sheridan | | 0 comments

Welsh Assembly Committee Report Highlights Port Competitiveness Issues in Brexit Situation.

The External Affairs Committee of the Welsh Assembly has completed and issued a significant report that has a focus on the implications for Welsh Ports and related land infrastructure of the potential diversion of traffic moving between Ireland and Britain as well as that traffic currently “landbridging” through Wales to and from continental Europe. The report reflects very much the views expressed to the Committee when they visited Dublin and met with IEA, the Irish Maritime Development Office (IMDO) and Departmental representatives.

Among the concerns voiced in the report was that; “a soft border between Northern Ireland and the Republic, and a hard-maritime border between Wales and the Republic of Ireland, could severely disadvantage Welsh ports and result in a loss of competitiveness leading to a displacement form Welsh Ports – principally Holyhead- to ports in England and Scotland, via Northern Ireland.”  This concern was greater than that about the possible outcomes of moves to develop further routes and frequencies running direct from Ireland to continental Europe.

Clodagh Sheridan | | 0 comments

Measuring Brexit Costs

As of 2016, the value of traded goods and services each week between Ireland and the UK is €1.2 billion. Meanwhile over a year since the UK referendum we still don’t have any real clarity on what the final agreement between the EU and the UK might look like. Given such uncertainty, what can businesses do to identify some of the trade-related implications as a result of Brexit under different scenarios?

Many of these scenarios point to the probability of the UK leaving the customs union, and businesses involved in Ireland-UK trade are now assessing the detail of what the financial impact could be. Unless there is a tariff-free EU/UK trade agreement, Irish goods will be subject to tariffs and the EU’s external border will run through Ireland, with a customs regime between the two jurisdictions. For Irish exporters with imported inputs in their products there are significant implications.

Businesses should consider identifying their impacted supply chains now and quantify the financial consequences of potential additional customs duties, VAT and trade compliance costs. Software such as that developed by KPMG can help businesses deconstruct their supply chains and identify where the costs, bottlenecks and opportunities may lie.

Interrogating your data from different angles is critical. Using VAT and Customs filing data, the software can produce a bespoke report quantifying the key customs duty and VAT impacts arising from Brexit. The tool maps the flows of goods into and out of the UK, giving visibility over the elements of the supply chain that are most exposed to additional cost or supply chain risk as a result of Brexit.

Businesses can then work to identify specific solutions to the issues raised, which could involve alternative supplier sourcing, revision of trade terms or changes to the logistics process. Regardless of possible eventual Brexit outcomes for Ireland, businesses who understand their supply chains now and use innovative technology to quantify product, customer or supply chain exposures will be amongst those best placed for the post-Brexit world – whatever that brings.

Marie Armstrong is a Tax Partner with KPMG in Dublin.

For more details on planning for Brexit and KPMG's indirect tax impact assessment tool, download the pdf by clicking here.
KPMG Ireland is a Platinum sponsor of the Export Industry Awards.

Guest Blog Post | | 0 comments

Transport Department Initiates “Land bridge” Study

As part of its Brexit preparations the Department of Transport, Tourism and Sport (DTTAS) has confirmed that it has commissioned the preparation of a study and report on the British Land bridge. The study will seek to determine the likely effects of Brexit on the quick and competitive flows of goods to and from Ireland. It will also seek to give guidance to Department on the steps that it and other Government Agencies should take to minimise the problems identified.

DTTAS plan to have the report completed within six months. The IEA will sit on the Advisory Board for the study and will seek to ensure that the interests of manufacturing exporters are fully represented there.

Clodagh Sheridan | | 0 comments

Impact of Brexit on VAT

Since the introduction of the Single Market in 1993, there has been no VAT charged on cross border supplies of goods to business customers (B2B) based in other European Union (EU) Member States and no requirement to pay VAT on import when an EU based business brings goods in from another Member State.

Instead, supplies of goods between VAT registered entities within the EU are ‘zero rated’ for VAT purposes, provided that the customer’s VAT number in a different EU Member state is obtained and there is proof that the goods have left the country of departure.

Under the current system, the onus is on the customer to self-account for any VAT arising  on the intra community acquisition of the goods on a reverse charge basis, at the rate of VAT prevailing in the country of arrival, with VIES/EC Sales and Intrastat filing obligations generally arising as part of the related procedure.

So what will change post Brexit when goods are being supplied to business customers based in the UK, including Northern Ireland?

Ultimately the VAT implications will depend on the outcome of the forthcoming Brexit negotiations between the UK and the EU.  If we assume that trading with the UK post Brexit will be similar to trading with any other non-EU country the following scenarios are likely to prevail in addition to any Customs related implications:

  • VAT on importation will become payable on the value of goods being brought into the UK from EU Member States (and vice versa) by both business customers and consumers (allowing for likely de minimis amounts on which VAT will not be collected).The Value for VAT purposes includes the cost of the goods, the related freight & insurance and the customs duty.  In these circumstances arrangements will need to be made by importers of goods to discharge any VAT arising on import or alternatively, to put a VAT deferral account in place which involves lodging a bond with the Tax Authorities. Otherwise the goods being imported will not be released by the Authorities until the related VAT liability is paid.
  • VIES/EC Sales listings and Intrastat filings which supplement details included on VAT filings will no longer be relevant for supplies of goods and services into the UK as these only pertain to cross border supplies between EU based suppliers
  • UK VAT Rates may differ to those currently in existence (standard rate is now 20%) and it is possible, albeit unlikely, that the UK could reduce its VAT rates significantly to encourage trade, as it will no longer be confined by the EU requirements to maintain VAT rates within a certain range.
  • VAT registration may be required in the UK by EU based suppliers maintaining ‘call off’ stocks of goods, there for draw down by single customers, where simplification measures currently exist to avoid the necessity for such registration.UK Registration requirements may also crystallise in circumstances where simplified triangulation arrangements currently applicable involving a chain supply between ‘VAT registered’ entities in 3 different EU Member States enables the avoidance of a VAT registration by an intermediate supplier.  It is also possible, albeit unlikely, that the UK could oblige non-UK established service providers to register for VAT in the UK in respect of the provision of certain services to UK VAT registered entities where the VAT on such services is currently accounted for by the recipient of the services under reverse charge.
  • UK VAT which is correctly chargeable to businesses established in other European Union Member States which are not obliged to register for VAT in the UK, will no longer be reclaimable under the Eighth VAT Directive Electronic VAT Refund (EVR) scheme. This VAT will most likely have to be reclaimed under the Thirteenth VAT Directive Claim procedure which currently applies to businesses in other non-EU Countries.
  • The VAT Margin schemes currently in operation throughout the EU which apply to sales of second hand goods (including cars), works of art, tour operators/travel agents etc. across the European Union may no longer apply in the UK post Brexit.
  • Distance Sales (i.e. sales of goods from a business in one EU Member State to Consumers based in other EU Member Satiates) thresholds will no longer apply in respect of supplies of goods from the EU to UK based consumers and in respect of supplies of goods to EU based consumers by UK based suppliers.

 

It will also be a lot more cumbersome for goods to be supplied cross border to consumers both by UK suppliers into the EU and EU suppliers into the UK due to VAT and possibly Customs duty liabilities crystallising at the time of importation.

At least some of the above scenarios will result in additional administrative requirements and cash flow management costs.

Additional Administration costs include staff costs in preparing and processing the necessary back up detail, obtaining professional advice regarding the VAT implications of trading with the UK, registering for VAT and additional compliance obligations – filing VAT returns etc.

Cash flow management will become critical when managing the time lag between paying and reclaiming VAT because if not managed effectively it can give rise to financial negative cash flow implications / additional working capital requirements as VAT on importation of goods may not be refunded for a matter of months or even longer.

Under the likely new regime VAT physically paid on importation or paid using a deferral account should continue to be reclaimable in line with current rules underpinning entitlement to VAT recovery with Single Administration Documents (SADs) being required when reclaiming VAT paid on import in Ireland and C79s in the case of UK VAT on import.

So what VAT steps should exporters and importers take now in preparation for Brexit?

Be Brexit ready – Start to review your business strategy with regard to the likely impact of Brexit on your business and try to minimise any negative VAT impact as much as possible.  Please see below for further suggestions on how you can become Brexit ready:

  1. VAT deferment facility – This should be considered in the context of bridging the gap between paying the VAT on importation and reclaiming it.
  2. Delivery Terms - Serious consideration should be given to the terms of delivery agreed with suppliers. DDP as opposed to DAT/DDU should be preferred.  This also needs to be considered from a commercial perspective.
  3. Review your supply chain – Have a Brexit Impact study carried out on your business with a view to identifying what steps can be taken at this stage to avoid potential exposure to your business.

 

BDO is actively working with a number of our clients to examine their supply chains to determine the risks of Brexit to their businesses.  We are considering what alternative strategies can be taken to plan as early as possible, rather than them running the risk of being exposed following the conclusion of the negotiations between the UK and the EU.

For more information about our partnership with BDO Ireland click here.

BDO Ireland | | 0 comments

Brexit and Borders

As we move into the negotiation and “divorce” phase of Brexit the main questions being asked by Irish Exporters are

Will there be additional tariffs to consider

Will there be border controls on trade with the UK

While nothing is known with certainty, particularly in relation to tariffs, there are at this point some extremely likely outcomes which businesses need to start preparing for.

Tariff and Duty Costs

The question on the introduction or not of tariffs is probably the most “known unknown”. The answer will depend on whether, or not, there is some form of (Free) Trade Agreement concluded between the EU and the UK. This it-self will only be known after the conclusion of, or at least positive developments in the “Divorce Negotiations”.

At a high level there are two possible outcomes:

A Free Trade Agreement is concluded which allows for a 0% duty rate on trade between the EU and UK.
If this is concluded Exporters still need to be aware of two potential complications
i) Most FTAs require companies to prove their goods are “originating” in order to benefit from the preferential duty rate. This in itself can be a complex process.
ii) Most FTAs do not cover agricultural products or restrict the benefits for agricultural products. While this may be unlikely for an EU-UK Trade agreement it still needs to be considered.

No FTA type agreement is reached and Tariffs are imposed.
In this case the tariff on import into Ireland/ the EU will be the duty rate currently applied by the EU. The tariff on import into the UK will be set independently by the UK Government. This could range from 0% to EU tariff rates to WTO bound rates.

A prudent approach therefore is to assess the impact of EU/WTO rates in looking at the potential additional duty cost that might arise on imports into the UK; and assess the impact of the current EU rates on imports into Ireland from the UK.

 

Borders

The key question at present, possibly more than tariffs, is whether there will be border controls introduced. This tends to break down into two aspects

Will there be border controls, and the requirement for Export and Import Declarations, at the Sea Ports and Airports?

Will there be border controls, and the requirement for Export and Import Declarations, at the North-South Border?

The unfortunate answer is that it is extremely difficult to see a situation where, under current EU legislation, there are no border controls.

We do have to look however at what this means.

Firstly will there be a requirement to lodge Export and Import declarations (SADs in Ireland/C88 in the UK)? It is almost impossible to see a situation where this will not be a requirement once the UK is a non-EU Country.

What does this mean?

Customs Declarations require 54 boxes of information to be supplied to Revenue, from details of the consignor/consignee to customs value to tariff classification to weights. Probably the most complex part of this is the requirement to provide the tariff classification.

These Export and Import Declarations need to be lodged with Customs, electronically, prior to export/import. Most goods will obtain instant clearance (95%) but some goods will require further checks before being allowed to clear. In all cases however these Declarations can be subject to post-clearance audit any time within the next three years.

It is important to remember that the lodging of Export and Import Declarations is no different to lodging any Tax Declaration and therefore the information supplied to Customs needs to be 100% accurate and correct or you may be subject to additional duty costs, fines and penalties (As with any Tax Audit).

The next concern is the type of border controls which might be introduced by Customs. At this point this is not 100% clear but ideally, will involve the use of electronic systems to minimise delays. As we know from many of the recent news reports this is a critical aspect for Revenue at present.

What next?

At this point most companies impacted by trading in the UK are looking at reviewing their supply chains and assessing the impact of additional tariff and non-tariff barriers on their businesses.

This modelling can be done using many resources. Enterprise Ireland, for example recently launched the ‘Brexit SME Scorecard’, a new interactive online platform which can be used by all Irish companies to self-assess their exposure to Brexit under six business pillars. Based on answers supplied by the user, the Scorecard generates an immediate report which contains suggested actions and resources, and information on events for companies to attend, to prepare for Brexit. The platform can be accessed at www.prepareforbrexit.ie

We would therefore recommend that companies pro-actively engage in completing this type of analysis and increase their knowledge of Customs.  This is particularly important for those companies who sell only within Europe, and have a significant portion of sales in the UK,  as this may be their first interaction with the Customs Authorities.

 

For more information about our partnership with BDO Ireland click here.

BDO Ireland | | 0 comments

Customs Classification – the What? Why? & How?

Traders who import or export goods into or out of the EU and following Brexit, the UK are required to provide a classification code for the customs clearance of each of their goods being shipped. When asked to supply a classification code by a clearance agent a number of questions arise, namely;

  • What are customs classification codes?
  • Why do traders need to be aware of them?
  • How do you classify goods for customs declarations?
  • What to do if there is uncertainty regarding the correct classification?

So what are customs classification codes?

Customs classification codes are often referred to as HS / HTS Codes, commodity codes or tariff codes. They consist of a 10 digit code for imports or an 8 digit code for exports. There is a worldwide Harmonised System which around 180 countries apply, which aims to harmonise the first 6 digits of the code across these countries. However, the interpretation of the legislation can differ between countries, so if a US supplier has a HS code on the commercial invoice it may be dangerous to assume that this code will also apply when importing into the EU.

Why do traders need to be aware of them?

Traders need to be aware of the correct classification of their products for a number of reasons;

  • Determines Rates of duty and other taxes at import – the classification of an imported good drives the customs duty rate for the imported goods. The duty rates can vary between 0% up to 25% for certain food items.

The classification of the good also determines if anti-dumping duty or agricultural levies will apply.

  • Origin requirements/benefits for preferential trade – this is particularly important when considering the post BREXIT era. Many traders believe that if a Free Trade Agreement (FTA) is in place then customs duties and declarations will no longer apply. However, the reduction of customs duties in a FTA are conditional, with the condition rules differing between classification headings. Therefore, it is required that the imported goods are correctly classified and a customs declaration is lodged even when a FTA exists.
  • Whether goods are subject to restrictions at import or export
  • Avoid delays or seizures
  • To avoid penalties and post-entry audit issues

The Importer is responsible for correctly classifying their goods on import and export.

Many traders rely on their clearance agent or HTS codes on the supplier invoice to classify their products. However, as an international trader you should be aware of the significance of the data on the customs clearance declaration or the Single Administrative Document (SAD). In the event of a post clearance check some of the more obvious information that a customs official may look out for is consistency of the information provided in the SAD. Take for instance a manufacturing company which imports plastic pipes as part of its operations. In box 31 of the SAD the product description is “Pvc plastic piping 50mm” then the Revenue officer would expect to see a tariff heading 3917 …., In box 33 of the SAD indicting that the product is “tubes, pipes and hoses of plastic”. However, if it is found that the tariff code provided is 4006 …., which covers “tubes … of rubber” this would be a red flag and could result in a post clearance customs audit.

Taking the above example, tariff heading 4006 which the importer has been using, attracts a 0% duty rate upon import into the EU. The correct tariff heading 3917 attracts 6.5%, so if Revenue go back 3 years (further in cases of suspected fraud) then 6.5% of the total shipments of plastic piping could mount up to a significant unbudgeted expense.

Regardless of how the error occurred, it is the importer who will be assessed for this duty which is generally not recoverable, so is a dead cost to the business. Furthermore, if the importer had been aware that the import of this product would have a duty impact prior to commencing importation, they may have been about to avail of customs economic (or special) procedures to suspend or eliminate the duty on import.

How do you classify goods for customs declarations?

The legal document which is used for classification in the EU is called the Combined Nomenclature (CN);

It is made up of:

-21 Sections

-99 Chapters

-960 pages

-Approximately 5,000 headings and subheadings

Classification is determined according to the terms of the headings and is subject to the Section and Chapter notes which are legally binding.

When classifying the product it is important to understand; the make-up of the product, its function, how it is presented at import, if it is an unassembled or unfinished product and the essential character of the product.

There are also guides to assist with the classification process such as the WCO Explanatory Notes and databases such as the eBTI database and TARIC in the EU and CROSS rulings in the US.

What to do if there is uncertainty regarding the correct classification?

There may be times when the classification of a good could fall between two or more headings. In other cases the risk of getting the classification incorrect could be too great in terms of extra customs duty or if one heading applied anti-dumping duty whilst another did not. Additionally, diverging codes could lead to falling foul of import/export restrictions if the classification of a product was deemed incorrect post clearance.

As the penalties for non-compliance can be severe in both financial and reputational terms, certainty is required by traders. The solution in these instances is to obtain a decision from revenue which is known as a Binding Tariff Information (BTI).

A BTI is legally binding on the holder and on all customs administrations within the European Union. Therefore, it provides legal certainty for its validity period of 3 years. The processing time for a BTI can be up to 120 days, so it is important to plan ahead before shipping materials.

Following the introduction of the Union Customs Code, the right to be heard has been removed for BTI applications. Therefore, if a trader submits a complete application to Revenue, Revenue can issue the BTI to an alternative heading without engaging in a further consultation process with the applicant. Whilst the option to appeal the decision remains, whilst the appeal is ongoing the BTI issued will be legally binding on the applicant. We would therefore advise that professional advice is sought prior to submitting an application, to allow the best chance of a satisfactory outcome.

 

For more information about our partnership with BDO Ireland click here.

BDO Ireland | | 0 comments

Brexit Implications on Supply Chain

 

The IEA is heavily involved with Government and its Agencies in work that seeks to reduce any negative impact of this break-up within the EU and to capitalise on any benefits that may arise.  On the Supply Chain side, we have delivered the main issues that are of concern to exporters at a series of consultative and workshop events organised by the Department of Transport, Tourism and Sport (DTTAS). These have had a focus on the Manufactured Goods Supply Chain using any or all of the four transport modes, Road, Rail, Maritime and Air freight. Simon McKeever reported the principal findings of the All-island Transport Consultation at the All-island Civic Dialogue event held in Dublin Castle on February, 17th.

While many uncertainties exist about how post-BREXIT supply chains will work, we have, together with DTTAS and IMDO sought to focus on the British Land Bridge. We have been able to pick up from our experience with the EU backed “Weastflows” project and the current EU-EIP, ITS based East-West freight corridor project bringing in some very useful French and Belgian partners to help in undertaking this work.

This project, along with the evolving BREXIT situation will be addressed at the forthcoming IEA Supply Chain 2017 events.

The Government has established a regular BREXIT email briefings service at their site: www.merrionstreet.ie/brexit.

Vicki Caplin | | 0 comments

Brexit: FAQs

  1. When will the UK finally leave the EU?

At present it looks like this will be April 2019. Theresa May intends to trigger article 50 in March and, from this point, there are two years allowed to complete the exit negotiations. This can be extended if all Member States agree.

At the same time the UK need to negotiate a new form of Trade Agreement with the EU. It is generally believed however that this will be difficult to achieve in two years.

 

  1. What happens if there is no Trade Agreement in place in April 2019?

This is not fully clear. There is a view that a transitional agreement will be put in place however this will depend on whether the trade negotiations are proceeding well.

If not, the UK will revert to being a 3rd Country for the purposes of trading with the EU - essentially it will be treated similarly to the US in terms of imports and exports.

 

  1. What does this mean?

If there is no Trade Agreement then all imports from the UK will be subject to EU import duties.

These duties range from 0% to 14% for industrial goods, 8% to 50% for Agri-food products and 12% for clothing.

 

  1. Will there be a border with the UK?

As a non-EU country the UK will have a border with the EU.

 

  1. How does this differ from the current situation?

This differs from the present situation whereby all 28 EU Member States (which includes the UK) have a common border with all countries outside the EU.  This is called a Customs Union and means that all members of the Union (the EU 28 + Turkey and Andorra):

  1. Operate a common external tariff on all imports so that no matter which country you import into the duty rate applied is identical
  2. Negotiate Free Trade Agreements as a bloc.

 

  1. Why would the UK leave the Customs Union?

Theresa May has stated she wants the UK to have the ability to set its own tariffs and to negotiate its own trade agreements. This is fundamentally incompatible with the rules of a Customs Union.

 

  1. Will the EU and UK negotiate a preferential trade agreement instead then?

It is assumed that some form of trade agreement would be in everyone's interest however this will depend on the negotiations which take place over the next two years.

The most recent comprehensive trade agreement was concluded between the EU and Canada and would provide a good model. However this agreement took eight years to agree.

 

  1. How will this affect the movement of goods?

Regardless of whether, or if, a Trade Agreement is concluded all companies moving goods between the EU and the UK (and vice-versa) will be required to lodge import and export declarations with the relevant authorities. All goods moving across or through the borders therefore will be subject to customs controls and intervention in the same manner as applies to any non-EU import or Export.  If we look at the EU Canada FTA all imports and exports will continue to require import and export declarations to be lodged with Customs regardless of the applicable duty rate.  In addition goods will only qualify for the reduced (or preferential) rate if you can prove your goods qualify as "originating products"

 

  1. How do you qualify goods as "originating"?

This is a complex process. All goods have an applicable tariff code and each tariff code has a listed rule of origin.  Therefore you first need to determine the tariff classification and secondly to check the applicable rule of origin for that heading.

A good rule of thumb is that goods are generally required to obtain 60% added value in the EU (to qualify as EU originating) or undergo a change of tariff heading between imported raw materials and finished products. Minimal processing operations or simple assembly operations do not qualify.

 

  1. What if I move my goods through the UK to get to Europe?

The recent IEA survey found that 2/3 of exporters transit their goods through the UK to mainland Europe and further afield. Goods currently move freely as part of this process and do not encounter any customs requirements.  Going forward this will now be equivalent to goods moving out of the EU to get back into the EU.

It is hoped there will be transit agreements put in place to simplify the movement, however goods will still be subject to customs controls, transit requirements, and guarantees.

 

  1. What should I be doing now to plan for this?

There are several steps to take at this point. Primarily we would advise the following:

  1. Review your supply chain to determine where goods may be caught by customs controls and documentary requirements
  2. Determine the options for alternative routes
  3. Assess your company’s ability to handle these additional requirements
  4. Identify the additional information which will be required by Customs e.g. Tariff Classifications, Customs Origin, EU status of goods.

The additional time and cost involved in moving goods through a non-EU border are extensive and, unfortunately, there is no current scenario whereby this will not be a requirement for the UK if they leave the Customs Union.

It is also advisable to:

  • Assess the impact of additional EU Import duty costs if introduced
  • Assess the impact of WTO rates on any UK imports

While this would be worst case scenario planning it is important to be prepared for these costs. Customs duties are "sticking taxes" and, once paid, are generally not recoverable. They will therefore be a direct hit to your bottom line.

 

For more information about our partnership with BDO Ireland click here.

BDO Ireland | | 0 comments

Iran and Russia – markets to consider for Irish exporters

In previous years Russia and Iran have been highlighted for a number of negative reasons including Russia’s annexation of Crimea in 2014 and Iran’s nuclear program which resulted in embargoes and sanctions being imposed on both countries. EU restrictive measures can be imposed to further foreign and security policy, to uphold respect for human rights, democracy and the rule of law.

So why consider Iran or Russia as a potential market?

With the current protectionism stance in the US, together with developments in the EU with Brexit and the upcoming elections in the Netherlands, France and Germany, it is becoming more important for companies to seek out new and developing markets and opportunities to grow their business and limit their exposure to a dramatic change in trading terms imposed on a prime market such as the UK leaving the EU.

With a population of 80 million and a GDP of €372billion, Iran has great potential as a high-growth marketplace. Its economy is second in the Middle East behind rival Saudi Arabia. In 2016, imports from the EU included; agricultural products €728m, food and raw materials €781m, chemicals €1,829m, machinery €3,807m and textiles and clothing €75m.

Russia the world’ largest nation by area and with a population in excess of 140 million people, imported over €200billion worth of goods in 2016. The principle imports included; machinery, pharmaceuticals, medical instruments, steel/metal semi-finished products and consumer goods.

Since many of the EU sanctions on Iran were lifted by the signing of the Joint Comprehensive Plan of Action (JCPOA) which was implemented in January 2016, many EU companies have been taking advantage of the resulting trading opportunities. Some of the more high profile examples of this include; Siemens AG’s investments in the Iranian energy sector and rail network and Airbus signing a contract to supply aircraft to Iran Air.

What checks are needed?

While companies should not entirely be put off doing business in countries where sanctions exist, extra vigilance is required to ensure that they do not fall foul of control or licencing requirements as the penalties for non-compliance can be severe.

While it should be clear whether or not your product is “specially designed for military use” what may not be clear is if your product has both a civilian and a military version and therefore falls into the “dual use” regulations. Dual use items are listed under a number of categories including; Materials processing, electronics, computers, telecommunications and information security and navigation and avionics.

A comprehensive know your customer review needs to be performed. Many of the checks required here are common to the standard practice for anti-money laundering procedures and know your client risk analysis which most companies are familiar with. The current EU restrictive measures in place against Iran are contained in Council Regulation (EU) 2015/1861 and Implementing Regulation 2015/1862. If your customer raises end use concerns, i.e. listed as a denied party, requests unusual terms of business or any number of other red flags, you should consider if dealing with this customer will expose you to an end use risk. Following your due diligence you should be able to confidently say that you “did not know nor had reasonable cause to suspect” that you were dealing with a denied party.

An examination should also be carried out of the financial or economic sanctions are in place. Both Iran and Russia have been subject to economic sanctions in recent years. Therefore, while many of these sanctions have been lifted, it is important to discuss payment terms with your customer and agree this with your bank to ensure that they will accept payments from the named bank and currency. After all, you will want to get paid for providing your goods or services!

What US considerations are required?

It is also important to consider if US sanctions will have an impact on the deal. Common things to look out for here are; US subsidiary companies involved, key employees of US citizenship, sales agent or broker involved who is a US citizen, payment to be received in US dollars or if the product supplied contains any US origin materials. In the case of US origin materials a “de-minimis” rule often applies whereby a licence may not be required if the product contains less than 10% by value US materials.

As the legislation in relation to these issues is often long and complex and is subject to change, it is important to seek professional advice when determining if your product or market will be subject to control or licencing obligations.

 

For more information about our partnership with BDO Ireland click here.

BDO Ireland | | 0 comments