Some customs and trade aspects in the Life Sciences industry

By Martine Chin Oldenziel, Goran Danilovic


Economic operators in the life sciences industry can face numerous issues when bringing and trading life sciences products in the European Union ("EU"). These will relate also to some of the following general customs, VAT and licensing aspects that may arise and might be worthwhile looking further into as these may lead to (new) insights, opportunities, compliance gaps and initiatives:

  • What is the acting role (e.g. operator, user, intermediary, importer, exporter, etc.) of the company enabling the trade of life sciences products in the EU?
  • Is the trade of the involved life sciences products controlled by EU and/or national legislation? Is the company to hold a licence? How can the company apply for such licence?
    • For example, in relation to certain drug precursors (i.e. substances being frequently used in the illicit manufacture of narcotic drugs and psychotropic substances), a company must obtain a licence before it may possess, manufacture, produce, process, trade, distribute, broker, supply, import, export or place these on the EU market.
  • Can the company act as the 'importer of record' (IOR) or 'exporter of record' (EOR) for customs purposes of the controlled life sciences products (including substances)? Are there possibilities to make use of 'customs representation' and, if so, what form of customs representation is most suitable and (possibly) risk free for the company?
  • Does the company need an 'EORI' registration? Where and how can the EORI number be obtained?
    • The EORI registration is an unique identification number that companies, acting as economic operators in the EU, are required to use when performing customs activities and exchanging data with national customs authorities of different EU Member States.
  • What are the applicable customs 'classification', 'origin' and 'value' of the life sciences product(s) to be customs declared upon importation into the EU? And, what if the products are imported in bundles and intended to be sold in sets in EU?
    • The correct customs classification, origin and value of a good are of importance in view of submitting an accurate import declaration at the time of importation. In addition, the determined customs classification and origin of a good determine the applicability of customs duty, customs duty preferences (based on EU's Free Trade Agreements) and restrictions such as quotas, anti-dumping or countervailing duties.
    • In view of declaring the applicable customs value of a good upon its importation into the EU, it may be worth reviewing whether any due royalties are or should be included (at all) in the customs value, for example the royalty paid to the patent holder under the trademark licence agreement in view of goods being imported under cross-border sales contracts.
  • Is it necessary, advantageous or effective to request a 'BTI', 'BOI' or a customs valuation decision regarding the importation of the life sciences product (considering the underlying business model, supply chain, inter-company transactions, agreements, transfer pricing, etc.)?
    • Binding Tariff Information – BTI – and Binding Origin Information – BOI – are rulings issued by the customs authorities of the EU Member States providing legal certainty in relation to the customs classification respectively customs origin of the good.
    • A customs valuation decision or ruling from the competent authorities of an EU Member State can provide legal certainty with regard to the use of the method of valuation to determine the customs value and (eventual) declared customs value of the good upon importation into EU.
  • Which specific (simplified) customs procedure (e.g. customs warehousing, processing under customs control - PCC, inward processing relief - IPR, end-use relief, etc.) is most suitable, cost effective (e.g. suspension of any due levies upon importation into the EU) and efficient in view of the underlying supply chain and business model?
    • In the Netherlands, several customs warehousing arrangements are available by means of which the levying and payment of import duties and/or VAT can be suspended or delayed resulting in a cash-flow advantage. Moreover, the customs warehouse arrangements can be useful when goods are to be re-exported (in which case import duty and/or import VAT may not be payable at all). Each of the different types of customs warehouses has its individual advantages and is subject to certain administrative requirements.
    • Benefit can also be gained by placing goods under PCC arrangements for further processing in the EU. This requires meeting certain conditions and may result into a nil import duty burden when declaring the eventual processed good to free circulation of the EU.
  • Does the company need to register for VAT purposes in country of importation and trade of the products?
  • What kind of levies need to be taken into account and may be payable when importing the products into the EU:
    • import duties (i.e. applicable tariff rate depends on the customs classification and the origin of the good to be imported into the EU);
    • licence or registration fee(s); and/or
    • VAT on importation (i.e. transaction tax levied at the moment of importing the good into the EU)?
      • Although the VAT systems of the EU Member States are harmonised with the EU VAT Directive, the EU Member States are free to determine their VAT rates. Thus, different rates of VAT apply in different EU Member States, i.e. ranging from 15% to 27% VAT rate. In addition, the EU Member States have also the discretion to apply reduced VAT rates in their national VAT system upon fulfilment of certain conditions. For example, the EU VAT Directive provides that EU Member States can use a reduced rate for deliveries of certain pharmaceutical products and medical equipment intended for disabled person(s). In some EU Member States the reduced tariff can even be linked to the customs classification of the life sciences product. For example, Germany applies its VAT reduced treatment to certain medical equipment depending on the applicable customs classification of the good. In that regard, although a BTI is not binding in relation to the application of such a reduced VAT rate, it can support and serve as a good indicator of the possible VAT reduced treatment available in the concerned EU Member State(s).
      • Furthermore, for the life sciences sector, application of a reduced VAT rate may provide for an effectively lower purchase price for customers considering that VAT will for most customers (e.g., hospitals) constitute a cost (due to the fact that medical services are often exempted from VAT and therefore can in principle not deduct input VAT) or, on the other hand, create higher sales margins.
  • Is there a possibility to defer any due VAT upon importation (e.g. by means of applying for a VAT deferment licence) of the goods into the EU?
    • In the Netherlands, by obtaining a so-called VAT deferment licence, the actual payment of import VAT upon physical importation of goods can be deferred and reported through means of the required periodic VAT return, creating a cash-flow advantage.
  • What are the compliance thresholds of the overall legislative and/or licensing requirements to be met by the company in view of the life sciences products? How can the company implement a compliance framework (including import/intra-EU/export procedures, mechanisms, roles and responsibilities) within its administrative organisation for internal and external control purposes in order to be compliant in view of trade in life sciences products and meet the underlying applicable legislative and/or licensing requirements?
    • Lack of compliance and/or infringement of the applicable legislative and/or licensing requirements may lead to severe penalties and, in some EU Member States, be regarded as a criminal offence subject to criminal prosecution of the company, involved employees, managers and/or board of directors.

Where pharmaceutical, life systems technology, bio medical or other companies active in the life sciences industry intend to import, supply intra-EU or export life sciences products such as medical devices, kits, samples, parts or substances (e.g. drug precursors), the above aspects need to be taken into account depending on the (envisaged) supply chain and business model in place.



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Goran Danilovic


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