This article was first published in December 2020 by Daily Cargo News.
Just when we thought that the most complex thing affecting our trade relationship with the European Union (EU) was how Brexit was going to be effected (and yes we still don’t know what is going on there by the way) and how the free trade agreement was going to be completed, other developments are quickly coming into play which may make the position even more complicated.
A possible new carbon tax at the border
Firstly, it seems clearer that the EU is moving closer to the introduction of a “carbon tax” on imports from countries that do not meet requirements on carbon reduction. That position came into focus again earlier in September when the EU announced its intention for larger carbon emission cuts of 55% by 2030 for its member countries to be supported by a carbon border adjustment tax to affect imports from countries such as India, China and Australia which have carbon price-free jurisdictions. That would be imposed on imported items including Australian raw materials and energy imports.
The movement of the EU to augment its focus on carbon-free emissions has recently been reflected in a commitment for at least one–third of its COVID– 19 rescue package to be spent on decarbonisation the promotion of green technologies. Other countries in the EU have also separately made additional commitments.
The issue has even made local news with reports in The Age newspaper describing how our federal government and opposition representatives with responsibility for agriculture spoke in support of reducing emissions but expressed confidence the issue would not affect trade talks and would not adversely affect our agricultural exports by way of additional import duties or express commitments to emissions controls.
New e-commerce taxes
The second exciting EU development relates to the new proposed laws to impose a value-added tax (VAT) on business to consumer e-commerce taxes on sales of consumer goods which will follow on with the form of similar taxes recently imposed on low-value e-commerce transactions for consumer goods in Australia and New Zealand which were previously free of Goods and Services Tax (GST). These new EU taxes are in addition to the earlier, more limited imposition of VAT in the EU on the cross-border provision of broadcasting, broadcasting and electronic services which has had similarities to the Netflix Tax imposed by Australia on such electronic transactions before it moved to impose GST on the e-commerce sales of low-value consumer goods.
Some readers will recall the significant controversy in Australia at the time of the proposed imposition of the GST on e-commerce sales of low-value goods. This included inquiries by the Senate and the Productivity Commission before the decision was taken not only to impose the GST on those low-value transactions but the obligation to impose and remit the GST on the vendor of the goods including overseas distribution platforms such as the largest e-commerce portals.
As events have proven, the Australian Tax Office has collected significantly more GST from this measure than anticipated and it does not seem to have had any adverse effect on Australia’s demand for low–value goods by e-commerce.
While the EU concepts may have similarities to measures adopted in Australia and New Zealand, the new EU imposition of VAT on such e-commerce sales of consumer goods is done by way of different provisions.
On 30 September 2020, the Commission published explanatory notes on the new VAT e-commerce rules. They contain extensive explanations and clarifications on these new rules including practical examples on how to apply the rules if you are a supplier or an electronic interface (e.g. marketplace, platform) involved in e-commerce transactions.
These explanatory notes are meant to help online businesses and in particular small to medium enterprises to understand their VAT obligations arising from cross-border supplies to consumers in the EU. At the same time, the EU confirmed the proposed commencement would now be on 1 July 2021 instead of 1 January 2021 to give additional time to implement the proposed regime.
Overview of the package
The VAT e-commerce package will facilitate cross-border trade, combat VAT fraud and
ensure fair competition for EU businesses. The new rules include:
- Improvements of the current Mini One Stop Shop (MOSS) that imposes VAT on business-to-consumer transactions.
- Special provisions where applicable to supplies of goods facilitated by electronic interfaces.
- Extension of the scope of the MOSS, turning it into a one-stop-shop, to business-to-consumer supplies of services other than Telecommunication, broadcasting & electronic services, intra-EU distance sales of goods, certain domestic supplies of goods facilitated by an electronic interface and distance sales of goods imported from third countries and third territories in consignments of an intrinsic value of maximum EUR 150.
Negotiations on the EU Free Trade Agreement (FTA)
These issues take place against the backdrop of Australia’s negotiations with the EU, which appear to be well advanced, although Australia is somewhat behind New Zealand in its negotiations which seems to regularly be the case. Of course, a number of parties have expressed direct interest such as the position of the Export Council of Australia1.
To the forefront of parties’ interests is the extent to which the EU is seeking to preserve geographical indicators (GI) for EU goods coming into Australia and attempting to preserve those for EU products. We have already seen examples of such protections, like protecting champagne in favour of the Australian version now being known as sparkling wine where the EU protects the champagne appellation for goods from champagne located in the EU. It is certainly a protection that it will seek to expand to other goods such as cheese and related products.
The EU has already announced its position on certain GIs in its FTA negotiations with NZ. Again, the Department of Foreign Affairs and Trade (DFAT) has provided a useful summary of the EU status on GIs on its website. This sets out the GI names that members of the EU have sought to preserve and which are of concern to Australian importers. It may now require these importers to negotiate for direct access to GIs or develop acceptable equivalent terms in the meantime to protect those Australian imports.
Clearly, while GIs are significant issues there a number of other issues still be negotiated, such as the position of the EU on imposing a carbon tax on Australian goods. Whether Australia will concede to reduce import duty on EU vehicles (even including luxury car tax) to “level the playing field” with Australian vehicles imports and the documentation which will be required to claim originating goods status, whether that be by way of official documentation issued by third parties or by way of certificates issued by the parties themselves.
Among those important issues is the management of the passage of goods through third countries between Australia and the EU. In other FTAs, a problem has arisen when goods go through other countries that are not parties to the FTA where there are severe limitations are placed on what can and can be done to the goods passing through the third parties failing which they could lose their vital “originating status”.
While early completion of the FTA is perhaps too much to expect, it is important that parties continue monitoring developments and engaging with DFAT and their industry associations to ensure that their specific interests are raised and recorded. After all, it would hardly be a party if the views of the relevant parties aren’t in the room as negotiations progress. As has often been quoted, “history is written by those who turn up”.
Our Customs and Trade team are well placed to advise you on all aspects of Australian and international trade and e-commerce.
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