GT Alert

Customs Raises Unexpectedly High Duty Assessments on LCD Monitor Imports

Additional tax assessments again reveal the Netherlands to be the odd one out in the EU.

May 2005

Since early 2004 fierce discussion has ensued between the Dutch Customs authorities and the business sector in connection with the import duties payable on LCD monitor imports. The question has been whether imported LCD monitors should be subject to import duties of 14% or none at all. In the spring 2004 the Netherlands became the first EU member state to impose a 14% tax. As a result companies no longer traded and imported via the Netherlands. The State Secretary for Finance eventually intervened in November 2004. In this manner he endeavoured to create a situation which would put the Netherlands back on the map as a country for the future importation of LCD monitors and other electronic products.

The Dutch Customs authorities have completely unexpectedly introduced importation criteria – newly published in November 2004 – and levies on LCD monitors with retrospective effect on all such products which were imported through the Netherlands by importers and logistical service providers in the period from 2002 to 2004. These highly unexpected additional tax assessments have dealt a heavy blow to those involved. This situation is in marked contrast to the other EU countries, which have not issued additional assessments. In particular, the actions of the Dutch Customs authorities have created a great deal of uncertainty and confusion. The relevant market players, which include a large number of foreign companies based in the Netherlands, are increasingly wondering whether it is advisable to continue importing their products, which are destined for various EU markets, through the Netherlands.

In addition to the financial losses suffered by these importers and logistical service providers, this is seriously threatening the Netherlands’ position as a base and transit country for the consumer electronics industry. Last year and now again the Netherlands was and is again the odd man out in the EU with a policy which may be described as unpredictable. Other EU member states have not issued any additional import duty assessments, with the result that any company which has routed its imports through the Netherlands in recent years, is worse off than importers in, for example, Germany or Belgium.

‘In legal terms these companies are in a strong position,’ says Erik de Bie, the head of the European International Trade, Customs and Value Added Tax practice, of Greenberg Traurig LLP, attorneys and tax lawyers in Amsterdam. ‘There are sound legal means through which these additional assessments can be nullified but the business sector is naturally not waiting for a move to the courts.’

In 2004 major difficulties arose in relation to the importation of LCD and plasma monitors into the European Union. The question was whether they should be regarded as television or video monitors, on the one hand or computer monitors, on the other. In view of the fact that the difference could amount to import duties of 14%, the value of a monitor is relatively high and the profit margins are small, this is an exceedingly important issue for importers. The greatest problem was not so much that import duties were payable but that different rates were being applied in respect of identical monitors in various EU member states. For example, no import duties have been levied in Germany for a long time, while importers have been required to pay 14% when importing the same monitors into the Netherlands. Once import duty returns are filed and any duties payable have been remitted, these goods can be freely transported and sold in the EU.

Fewer and fewer monitors through the Netherlands

It comes as no surprise that fewer and fewer monitors were imported through the Netherlands in 2004 and that imports largely shifted to Germany. As a result of growing pressure from the business sector, written parliamentary questions addressed to the State Secretary for Finance and the fact that the European Commission had failed to clarify how LCD monitors should be dealt with, Wijn, the State Secretary for Finance, intervened at the end of 2004. He issued specific criteria which needed to be satisfied, if an LCD monitor was to be classified as a computer monitor. He wanted to create a level playing field. All companies would know where they stood, if they were importing monitors through the Netherlands. Obviously, these criteria had negative implications for certain companies but at any rate there was once again a clear direction that could be detected in the policy pursued by the Dutch Customs authorities.

Erik de Bie continues: ‘Naturally, it is still strange that national regulations have been promulgated, whereas it is really a question which should be dealt with at the EU level. This is because such national policy makes it possible for different import duty rates to be applied in respect of identical goods in the various EU countries. It is thus a serious breach of the EU principle that there should only be one external tariff.’

In spite of the State Secretary’s intention to create a level playing field for future imports, it would appear that the Dutch Customs authorities are seizing on the classification discussion and the State Secretary’s criteria to re-examine those LCD monitors which have been imported through the Netherlands in the past three years. Customs will be issuing additional tax assessments in so far as any LCD monitor which was imported and declared to Customs as a computer monitor in 2002, fails to comply with the criteria for such monitors issued in November 2004. They will be required to pay import duties of 14% instead of none at all. This will produce considerable costs for the business sector.

Additional tax assessments only produce negative results

There are sound legal arguments why the Dutch Customs authorities cannot apply this modified interpretation with retroactive effect. An application to the Dutch or European courts may be expected to lead to the nullification of numerous assessments. However, apart from the legal aspects of the matter, the big question is what the Dutch Customs authorities actually wish to achieve through these assessments. After all, the EU has not adopted the criteria issued by the State Secretary, Wijn. Recent EU legislation governing the classification of LCD monitors does not apply with retrospective effect. No EU instructions have been issued to proceed with the issue of additional tax assessments on a large scale.

As Erik de Bie says, ‘It raises the question as to why the Dutch government nevertheless wishes to create expenses for businesses which are economically active in the Netherlands. Equally important is the question why Customs is again out of step with the other Customs authorities in the EU. It also makes little sense in financial terms in view of the fact that the bulk of the import duties collected by the Dutch Customs authorities have to be remitted to the EU. The Dutch government therefore does not have any direct financial interest in such actions.’

According to Erik de Bie, Customs will only achieve the following two results: extensive costs for the business sector and confirmation of the poor reputation which the Netherlands already has amongst LCD monitor importers. With regard to the expenses, the additional tax assessments will be debited to the importers’ profits and they will obviously no longer be able to pass them on to the end users of these monitors. The bulk of LCD monitors are imported by large international companies, which also manufacture and distribute many other products in addition to monitors. In view of present and future developments in the electronics industry it is not inconceivable that new discussions will ensue about the classification of goods for Customs purposes.

© 2005 Greenberg Traurig

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