Customs classification of multifunctional machines
07 December 2016
Recent customs classification success
In this PwC led customs classification case Brother Industries UK Limited and Brother UK limited won a long running dispute with HMRC concerning the correct customs classification of multifunctional machines which could print, scan, photocopy and (in some instances) fax (“MFMs”). The period of dispute was limited to imports made in 2005 and 2006. After this date, it was accepted that all MFMs should be classified with a duty rate of 0%. HMRC were contending that the correct duty rate to be applied was 6%.
The case has obvious interest to other suppliers of MFMs, but it also contains helpful analysis of the approach to be taken when applying the general interpretation rules (GIR’s), which are used to help determine the correct customs classification of a product.
The first rule, GIR 1, asks what the principal use of the product is. In the Brother case, the Tribunal concluded that the MFM's that did not contain a fax module were principally used via a connection to a network computer and should attract a duty rate of 0%.
The Tribunal concluded that the MFMs with a fax module could not be classified by applying GIR1 because they were not principally used when connected to a computer.
The next relevant GIR for the Tribunal to consider was GIR 3, which considers the essential character of the product. In considering the essential character of the machines by reference to their component parts the Tribunal concluded that the essential character of the MFMs was to put marks on paper (i.e. to print). This meant that all of the remaining MFMs were also classified with a 0% duty rate.
The Tribunal set out a helpful analysis of the similarities and differences between the “principal use” test in GIR 1 and the “essential character” test in GIR 3 which has wider application in considering customs classification issues.
It will remain to be seen if HMRC will appeal.
New classification simplification from 1 January 2017
In related news and relevant to current imports of MFMs, some changes are being made to the Harmonized System and subsequently to the EU Combined Nomenclature from January 1st 2017. These changes include the simplified classification of MFMs, all of which now carry a 0% duty rate.
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