COVID-19: European Commission grants relief from import duties and VAT exemption on importation for goods needed to combat the effects of the pandemic

The goods able to benefit from this relief must meet the following requirements:

1. The goods must be imported for release for free circulation by (or on behalf of) state organizations including public bodies and other bodies governed by public law and organizations approved by the competent authorities in the member states.

2. The goods must be distributed free of charge or made available to the persons affected by, at risk from, or involved in combating, the outbreak of the disease.

3. After they have been imported, the goods may not be used, lent, hired out or transferred, for purposes other than those determining the exemption, unless the benefits that were obtained are returned by paying VAT and tariff duties, which will be determined by reference to the nature and value of the goods at that time. For these purposes, the conditions and requirements set out in Regulation 1186/2009 and in Directive 2009\132 will apply.

4. The exemption is also allowed for importations of these products made by (or on behalf of) disaster relief agencies, in order to meet their needs during the period they provide disaster relief to the persons mentioned above (persons affected by, at risk from, or involved in combatting, the outbreak of the disease).

The grant of these exemptions is backdated to January 30, 2020, the date the WHO declared the COVID-19 outbreak a public health emergency and for a six-month period (namely, until July 31, 2020).

Member states will have to inform the Commission before November 30, 2020 of the organizations they have approved for the importation of these types of goods with exemption, the nature and quantities of the various goods admitted free of import duties and exempt from VAT and the measures taken to ensure compliance with the requirement mentioned in point 3) above.

Although it was necessary for the European Commission to adopt this decision, the legislation authorized the affected member states to implement it on a temporary basis, without prejudice to the beneficiary’s obligation to return these benefits it they were not ultimately approved by the Commission.

On this basis, the Customs and Excise and Special Taxes Department has published information notices on the possibility of claiming these reliefs and exemptions and the requirements for claiming them.

Firstly, Notice NI 6/2020 (here) allowed these reliefs to be claimed, but only for importations made by public entities or authorized private bodies of a charitable or philanthropic nature (see our alert on this notice); specifying the procedure for requesting it on the customs declaration, together with the need to have an administrative authorization by the competent provincial or local tax office of the State Tax Agency for the importer’s tax domicile.  Additionally, the importation had to be accompanied by an undertaking by the importer to pay the duties, if the Commission Decision was not adopted.

Although these types of importations benefiting from duty relief or VAT exemption on a temporary basis are subject to the provision of the relevant guarantees, under article 89 of the Union Customs Code, these guarantees were not required for bodies governed by public law.

In the subsequent Notice NI/GA 11/2020 (here) the scope of the relief was broadened, by allowing it for the importation of medical supplies by any operator, if the importation is made for subsequent donation of the acquired supplies (see our alert in this second notice).

To ensure that the relief is only claimed for importations of supplies to be used for donation, the operator is required to provide proof (i) of the subsequent donation and (ii) that the supplies were actually received by the donee. Moreover, the recipient entity must have an administrative authorization permitting it to acquire the goods with exemption (which will be issued by the competent provincial or local tax office of the State Tax Agency for the importer’s tax domicile).

To quicken procedures and therefore speed up the importation of these supplies, the following is clarified:

a) It will not be necessary to file the documents mentioned (the administrative authorization and the guarantee of receipt of the supplies by the intended recipient) when the goods are dispatched, they can instead be filed later (no specific time period is specified for this). In these cases, it must be stated on the declarations that they are “simplified declarations due to lack of documents”.

It is nevertheless necessary to enter properly the keys and codes that the Customs Department mentions in its notice. Additionally, when preparing the declaration it must be stated that the VAT exemption and duty relief are being requested, for which box 37.1 of the SAD must be used.

b) Commercial shipments are subject to control by the Border Inspection services (and require their authorization).

It is specified, however, that because the Spanish Medicinal Products and Medical Devices Agency (AEMPS) determines that donations of medical supplies (except for ventilators and test kits) to public entities or bodies in the health sector are not subject to prior authorization, the need to apply for this authorization may be avoided if a document is obtained (firmed by a health institution or public entity receiving the goods), specifying the use that will be made of the goods; which will have to be attached to the customs declaration.

If the importers are private entities, the relevant guarantee needs to be provided.

Together with these notices, a FAQ document has been published to resolve any doubts arising in the practical application of these measures (see here).

Because the information supplied to date by the Customs and Excise and Special Taxes Department came before the Commission Decision, which was made public on April 3, 2020, it will be necessary to follow up on the compliance of the procedures established by that Department to claim this exemption; and to review the impact on importations already made earlier (and the potential solutions for obtaining the appropriate refunds).

Moreover, it has been made necessary to keep track of any non-consumable goods that, after the outbreak, may be put to other uses, to confirm the exemptions or, otherwise, adjust the exemptions claimed.

The provisions and measures described in this article only relate to the duty relief and VAT exemption on importations of goods that are going to be used to soften the effects of the public health crisis.  Nothing, however, has been specified in relation to the potential costs that these donations may imply in respect of VAT for the donors, either because they cannot be deducted on purchases of goods to be used for donation, or because of the existence of transactions treated as supplies of goods (self-supplies) when they are supplied free of charge.  In fact, one of the notices discussed in this Alert specifically mentions that the taxable event may arise on donations of goods and equipment.  There is, therefore, an urgent need, in our opinion, to prepare an amendment to the legislation (backdated to January 30 in line with the EU provisions on importation) eliminating any restriction on the right to deduction and determining that these donations are not taxable as a self-supply.  Besides achieving the adoption of a measure related to basic necessity and usefulness, this would also avoid a difference in treatment between the imported equipment and those obtained on the local or EU market.

Our firm offers services to all our clients to resolve any issues and provide advice on any actions that may be necessary in this particularly complex area.