In its 1 March 2023 judgement (General Court - case T‑324/21), the Court of Justice of the EU (CJEU) applied a specific anti-abuse provision pursuant to Article 33 of the Union Customs Code - Delegated Act (UCC-DA). More specifically, it ruled that the relocation of a manufacturing operation, even genuine, does not confer (non-preferential) origin to the manufactured goods if it appears that the principal or main purpose of the relocation operation is to avoid the application of EU commercial policy measures. Although this particular judgment deals with non-preferential origin, the reasoning is also relevant for preferential origin.
Goods originating from third countries (non-EU Member States) are subject to tariff and non-tariff measures (e.g., import restrictions based on quantity). A key factor in determining which measures apply, next to classification and valuation, is the origin of goods.
The origin of goods refers to the country where the goods were manufactured. In other words, it is the good’s nationality. There are two type of origin, preferential and non-preferential origin. The origin of goods is important since goods from certain (third) countries or territories may be given preferential (privileged) treatment. This means that a reduced or zero rate of customs duty applies to goods originating from those preferential countries or territories.
Determining the origin of goods is a complex matter. In this context, there is a mechanism that can create legal certainty in terms of origin, namely the use of BOI decisions. This is a formal and binding ruling that certifies the origin of goods.
Pursuant to Article 33 UCC-DA (a specific anti-avoidance provision), (nonpreferential) origin cannot be granted if the processing or working operation carried out in another country or territory is not economically justified. The Court of Justice clarified the application of Article 33 UCC-DA.
The present case involved a US company that, further to a sudden increase of EU import duties on specific goods originating from the United States, relocated its production to Thailand. The reality of this relocation is not disputed.
The Court concluded, however, that the relocation operation, in the case at hand, was not economically justified. According to the Court, “Article 33 UCCDA must be interpreted as meaning that if, on the basis of the available facts, it appears that the principal or dominant purpose of a relocation operation was to avoid the application of EU commercial policy measures, then that operation must be considered incapable, as a matter of principle, of being economically justified.” The court reached that decision based on the following facts:
The CJEU re-asserted the principle that origin can only be defined as the country where the last substantial, economically justified processing or working took place.
Even if a relocation actually occurs and processing or working operations are therefore carried out in another country, this does not mean that the origin of the manufactured goods is consequently changed, if it appears that the main objective of the operation is of a fiscal nature and, more specifically in this context, if it consists in avoiding the application of EU policy measures. To determine the main purpose of the relocation, it is necessary to look at the primary motives as presented at the time the decision to relocate was made (not those presented later).
Companies looking to re-organise their supply chains must take economic objectives influencing the origin decision into consideration (together with a potential increase in duty costs).
Next to that, the judgment demonstrates the importance of proper documentation. It is essential to document economic motives (other than tax motives) in case of supply chain re-engineering prior to a decision to relocate.
Annick is head of the Tax Dispute Resolution team of lawyers at Deloitte Legal. She specialises in Belgian and international tax law and focuses on tax risk management, criminal law in tax matters, tax litigation and tax recovery. She also acts as a lawyer in tax proceedings before the Court of Cassation and the Court of Justice. She is a recommended lawyer in the Legal 500 guide.
Alexander is a member of the Tax Dispute Resolution Team. He advises national and international companies on all aspects of customs and global trade law. He has extensive experience on handling disputes with the customs authorities, governing bodies and institutions at national, European and international level. He advises on complex customs matters, including on classification, origin, value, antidumping duties, countervailing duties, etc. Recognised by the International Tax Review as Tax Controversy Leader in Belgium.