31 May 2024

Customs Representatives (Broker) in Russia: Rights, Duties, and Liability

May 31, 2024

BRACE Law Firm ©

Under Clause 44 of Article 2 of the EAEU Customs Code, a customs representative is a legal entity included in the register of customs representatives that performs customs operations on behalf of and as instructed by a declarant or other interested party.

Pursuant to Part 1 of Article 345 of Federal Law No. 289-FZ dated August 3, 2018, On Customs Regulation in the Russian Federation and on Amending Certain Legislative Acts of the Russian Federation (the "Law No. 289-FZ") or (the "Customs Regulation Law"), a customs representative is a Russian legal entity included in the register of customs representatives.

Requirements for Inclusion in the Register of Customs Representatives

Article 402 of the EAEU Customs Code defines the requirements for a legal entity seeking to operate as a customs representative to be included in the register of customs representatives, which include:

Maintaining a civil liability insurance policy for the customs representative covering risks that may arise from property damage to represented persons or breach of contracts with such persons, with the insurance amount determined by the legislation of the member states;
Providing security for the performance of duties of a legal entity operating in the customs sector in the prescribed amount (for legal entities whose scope of activity is limited to customs operations for goods not subject to export customs duties and placed under the export customs procedure, the amount is determined by the legislation of the member states);
Having no outstanding obligations to pay customs payments, special, antidumping, or countervailing duties, penalties, or interest on the date of application to the customs authority for inclusion in the register;
Complying with other requirements and conditions established by the legislation of the member states.

Decision of the Council of the Eurasian Economic Commission No. 64 dated September 15, 2017, On the Amount of Security for the Performance of Duties of a Customs Representative, establishes that the security required for inclusion in the register must be equivalent to at least 500,000 euros.

However, Part 3 of Article 347 of the Law No. 289-FZ stipulates that for a customs representative whose activity is limited to customs operations for goods not subject to export customs duties and placed under the export customs procedure, the security amount is 5,000,000 rubles.

Under the civil liability insurance contract submitted to meet the inclusion requirements, the insurance amount (the limit within which the insurer undertakes to compensate for damage to the property interests of affected persons for each insured event) must be at least 20,000,000 rubles.[1] The amount of the insurance payment is determined based on the damage caused but within the limits of the insurance amount.

Other conditions for including a legal entity in the register of customs representatives include:

The legal entity must not be:
- A state-owned treasury enterprise;
- An organization or state unitary enterprise specified in Part 1 of Article 274 of the Law No. 289-FZ;
- An organization in which an organization or state unitary enterprise specified in Part 1 of Article 274 of the Law No. 289-FZ is a direct or indirect participant (member);
The legal entity must have no effective and unfulfilled decisions in cases of administrative offenses under Article 16.2[2] of the CAO RF.

Additionally, the legislation of member states may require that a legal entity seeking inclusion in the register must have at least two employees on staff who hold documents confirming their compliance with the qualification requirements established by the legislation of the member states.

The application for inclusion in the register of customs representatives must contain: [3]

The applicant’s request for inclusion in the register of customs representatives;
Information on the name, legal form, location (mailing address and other contact details), and a list of separate structural units through which the applicant plans to operate as a customs representative, including their locations;
The Primary State Registration Number (OGRN);
The Taxpayer Identification Number (INN);
The Tax Registration Reason Code (KPP);
The KPP of each separate structural unit;
Information on the founders (participants) of the legal entity;
Information on any limitations on the scope of activity (e.g., customs operations for specific categories of goods, goods not subject to export customs duties under the export procedure, or operations within a specific region of a customs authority’s activity) or a statement that the activity will be conducted without such limitations;
Information on the security provided for the performance of duties of a legal entity in the customs sector, if provided before or simultaneously with the application;
Information on the applicant’s civil liability insurance contract(s);
Information on the head of the legal entity.

Order of the FTS of Russia No. 1902 dated November 23, 2018, On Approving Forms of the Application for Inclusion in the Register of Customs Representatives and the Application for Amending the Register of Customs Representatives, establishes the form, format, and structure of the application.

Rights of a Customs Representative

Article 404 of the EAEU Customs Code sets forth the rights of a customs representative, as follows:

When performing customs operations, a customs representative possesses the same rights as the person who authorizes it to represent their interests in relations with customs authorities.
In the course of its activities, a customs representative may demand from the represented person documents and information necessary for customs operations, including information containing commercial, banking, or other legally protected secrets, or other confidential information, and receive such documents and information within timeframes ensuring compliance with EAEU Customs Code requirements.
The legislation of member states may grant a customs representative the right to limit its scope of activity to customs operations for specific categories of goods, specific customs operations, or operations within a specific region.
The law prohibits granting exclusive rights or other individual advantages to specific customs representatives.

Part 2 of Article 345 of the Customs Regulation Law establishes the right of a customs representative to limit its scope of activity to specific categories of goods, goods not subject to export customs duties under the export procedure, and/or operations within a specific region of a customs authority's activity. This regulation aims to empower the customs representative to mitigate potential adverse consequences and conduct customs operations within a legal framework.

Duties of a Customs Representative (Broker)

The duties of a customs representative include:[4]

Complying with the requirements for inclusion in the register of customs representatives;
Submitting reports to customs authorities using information technology in accordance with the legislation of member states;
Ensuring that the representative and its employees do not disclose, use for personal purposes, or transfer to other persons information received from represented persons that constitutes state, commercial, banking, or other legally protected secrets, as well as other confidential information, except as provided by the legislation of member states;
Fulfilling the duty to pay customs duties, taxes, special, antidumping, and countervailing duties no later than the last day of the period specified in the notification sent by the customs authority;
Informing the customs authority that included it in the register of any changes to the information declared upon inclusion and providing supporting documents within five working days from the date of the change or the date the representative became aware of such change;
Complying with other duties established by the EAEU Customs Code and/or the legislation of member states on customs regulation.

The duties of a customs representative when performing customs operations are dictated by the requirements and conditions set forth in international treaties, acts in the field of customs regulation, and/or the legislation of member states. However, a customs representative is not responsible for complying with the conditions for using goods in accordance with customs procedures or other duties that, under international treaties and customs regulations, are imposed solely on the represented persons. Furthermore, a contract with the represented person cannot limit the duties of a customs representative to the customs authorities. These duties apply equally to all customs representatives.

A customs representative bears joint and several liability with the declarant for the payment of customs duties, taxes, special, antidumping, and countervailing duties when performing customs operations on behalf of the declarant, except when the performance of such a duty is related to:

Non-compliance with the conditions for using goods in accordance with the customs procedure under which the goods are placed;
Changes to the deadlines for paying customs duties and taxes;
Actions committed in violation of the purposes and conditions for granting benefits for the payment of customs duties and taxes and/or restrictions on the use and/or disposal of goods in connection with such benefits.

Additionally, the Customs Regulation Law requires customs representatives to:

Publish up-to-date information on the cost of their services in the customs sector on their official website;
Inform the federal executive body authorized to control and supervise customs matters about the publication of service costs by submitting reports;
Comply with the activity restrictions established in accordance with Part 2 of Article 346 of the Law No. 289-FZ.

Reporting by a Customs Representative (Customs Broker)

Order of the FTS of Russia No. 2038 dated December 13, 2018, On Approving the Report Form and the Procedure and Deadlines for Submitting Reports by a Customs Representative, defines the rules and deadlines for submitting reports to customs authorities.

A customs representative must submit reports on its activities to the FTS of Russia electronically using the approved form via the Foreign Trade Participant’s Personal Account information resource. The head of the legal entity or an authorized person must sign the report with an Enhanced Qualified Electronic Signature. Reports must be submitted annually by January 15 of the year following the reporting year.

Security for the Performance of Duties to Pay Customs Duties and Taxes

Article 55 of the Customs Regulation Law provides for security for the performance of the duty to pay customs duties and taxes. Such security is required in cases established by the EAEU Customs Code[5] and in the following instances:

Conditional release of goods;
Placing goods under the customs procedures of temporary admission (allowance) or temporary export;
Placing goods under the customs warehouse procedure if the goods, due to their large dimensions or special loading, unloading, and/or storage conditions, cannot be placed in a customs warehouse and will be stored in locations other than customs warehouses;
Temporary storage of goods:
- In premises, warehouses, open areas, and other territories of the goods recipient;
- In other locations determined by acts of the Government of the Russian Federation;
- In unloading and reloading (transshipment) areas within a sea (river) port as determined by the federal executive body authorized to formulate state policy and legal regulation in customs matters;
Granting a deferral or installment plan for the payment of taxes;
Filing a petition to stay the execution of a customs authority's decision in a customs matter aimed at collecting customs payments due in connection with its adoption, which has been appealed in the prescribed manner;
In other cases provided for by federal laws or acts of the Government of the Russian Federation.

The interaction between the customs authority and the customs broker on this matter is governed by Order of the Ministry of Finance of Russia No. 284n dated December 25, 2018, On Approving the Form of a Customs Representative's Request for Non-Provision of Security for the Performance of the Duty to Pay Customs Duties and Taxes, the Procedure for Filling Out the Request, the Form of the Customs Authority's Notification of the Request's Results, the Procedure for Filling Out the Notification, and the Procedure and Deadlines for Interaction Between the Customs Authority and the Customs Representative.

Exclusion from the Register of Customs Representatives

The grounds for excluding a customs representative from the register of customs representatives include:

Failure to fulfill the duties provided for in Subclauses 1 and 2 of Part 1 of Article 405 of the EAEU Customs Code;
Failure to fulfill or improper fulfillment of the duty provided for in Part 4 of Article 405 of the EAEU Customs Code within the period specified in the notification sent by the customs authority;
The customs representative’s application for exclusion from the register;
Liquidation of the legal entity included in the register;
Reorganization of the legal entity included in the register, except for cases established by the legislation of member states.[6]

Order of the FTS of Russia No. 2037 dated December 13, 2018, On Approving the Procedure for Actions by the FTS of Russia to Exclude Legal Entities from the Register of Customs Representatives, defines the relevant procedures. The decision to exclude a legal entity from the register is made:

Within three working days from the date of the customs representative’s failure to perform the prescribed duties;
Within one working day from the date of failure to comply with the requirements for inclusion in the register;
Within one working day from the date the customs authority receives notification of the liquidation or reorganization of the legal entity.

Agreement with a Customs Representative (Broker)

Relations between a customs representative and declarants or other interested persons are based on a contract.[7] In most cases, these relations are based on a customs representative service agreement concluded directly between the customs representative and the declarant, or with a forwarder if, under a freight forwarding agreement, the declarant instructed the forwarder to conclude a contract with a customs representative.[8]

A standard customs broker service agreement typically contains the following sections:

A preamble specifying the number and date of the certificate of inclusion in the register of customs representatives;
The subject of the contract and the list of services provided;
The rights and duties of the parties;
The customs representative’s remuneration and payment procedure;
Conditions for the customs representative’s execution of the client’s instructions;
Confidentiality;
Liability of the parties;
Anti-corruption clause;
Force majeure;
Dispute resolution, applicable law, and jurisdiction;
Effective date, term, and termination of the contract;
Final provisions;
Addresses, bank details, and signatures of the parties.

A customs representative may not refuse to conclude a contract with a person it represents if it has the capacity to provide the service or perform the work, except:

If performing such a contract would fall outside its limited scope of activity;
If the customs representative has sufficient grounds to believe that the actions (inaction) of the declarant or other interested person are unlawful and lead to criminal or administrative liability in the customs sector.

A customs representative may not show preference to one person over another regarding the conclusion of a contract, except for providing benefits regarding price and other contract terms for specific categories of represented persons.

The customs representative performs customs operations[9] on behalf of the declarant based on a service agreement, the terms of which are determined at the parties' discretion.[10]

Additionally, a contract of agency for customs operations may be concluded,[11] which is regulated by Chapter 49 of the Civil Code. Under Article 971 of the Civil Code, an agent undertakes to perform specific legal actions on behalf and at the expense of the principal. Rights and duties under a transaction performed by an agent arise directly for the principal.

The following risks may arise when interacting with a customs broker, and the contract should address them to mitigate adverse consequences:

Clear formulation of the customs representative’s duties;
Liability of the customs representative not only for breach of contract but also for non-compliance with customs legislation;
A provision for the reimbursement of additional expenses arising due to the customs representative’s actions at its own expense, etc.

Liability of a Customs Representative (Broker)

One requirement for inclusion in the register is the absence of effective and unfulfilled decisions in cases under Article 16.2 of the CAO RF, implying that a customs representative can be held administratively liable under this article for:

Non-declaration of goods in the prescribed form;
Declaring incorrect information about the EAEU TN VED classification code during customs declaration;[12]
Declaring incorrect information or submitting invalid documents[13] if such information or documents served or could have served as a basis for non-compliance with established prohibitions and restrictions;
Providing the customs authority with incorrect information regarding the number of cargo spaces, their marking, name, gross weight, and/or volume of goods, etc.

In addition to liability under Article 16.2 of the CAO RF, a customs representative, acting on behalf of and as instructed by a declarant or other interested person, may be held administratively liable for the following offenses:

Providing the customs authority[14] with incorrect information[15] regarding the number of cargo spaces, their marking, name, gross weight, and/or volume of goods upon arrival in or departure from the EAEU customs territory, or when placing goods under the customs transit procedure or in a temporary storage warehouse, by submitting invalid documents or using counterfeit or improper identification means;[16]
Failure to comply with the deadlines for filing a full customs declaration in case of temporary periodic declaration, a final declaration for goods in unassembled or disassembled form, or a customs declaration and/or necessary documents and information when releasing goods before filing a customs declaration;[17]
Filing a customs declaration in violation of established deadlines[18] in cases where declaration occurs after the actual export of goods;[19]
Failure to submit documents and information[20] necessary for customs control within the prescribed period;[21]
Non-compliance with the deadline for filing a customs declaration for goods that were instruments, means of commission, or objects of an administrative offense or crime;[22]
Failure by the customs representative to fulfill the duty to store documents[23] necessary for customs control, the storage of which is mandatory;[24]
Submitting invalid documents for the release of goods before filing a customs declaration, if the information therein affects the customs authority's decision to release the goods;[25]
Performance of customs operations on behalf of a declarant[26] or other interested persons by a customs representative included in the register based on invalid documents or one that has been excluded from the register;[27]
Failure to report or late reporting to the customs authority regarding changes to the information specified in the application for inclusion in the register;[28]
Failure to fulfill the established duty to pay customs payments;[29]
Failure to submit or late submission of reports to the customs authority, or submitting reports containing incorrect information.[30]

It is important to note that under Part 4 of Article 405 of the EAEU Customs Code, when performing customs operations on behalf of a declarant, the customs representative bears joint and several liability with such declarant for the payment of customs duties, taxes, special, antidumping, and countervailing duties in the full amount due. The definition of joint and several liability (obligation) is reflected in Russian civil legislation[31] and arises if provided for by contract or law, particularly when the subject of the obligation is indivisible. Exceptions to the joint and several liability of a customs representative are provided for in Part 5 of Article 405 of the EAEU Customs Code and include:

Non-compliance with the conditions for using goods in accordance with the customs procedure under which the goods are placed;
Changes to the deadlines for paying customs duties and taxes in accordance with Chapter 8 of the EAEU Customs Code;
Actions committed in violation of the purposes and conditions for granting benefits for the payment of customs duties and taxes and/or restrictions on the use and/or disposal of goods in connection with such benefits.

Furthermore, the legislation of member states may establish other cases where the duty to pay customs duties, taxes, special, antidumping, and countervailing duties, arising jointly and severally with the declarant, is not subject to performance by the customs representative.[32]

Consequently, in the event of failure to properly pay customs duties and taxes, the customs authority collects them from declarants and/or customs representatives as persons bearing joint liability with the declarants.

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References

Part 2 of Article 347 of the Law No. 289-FZ.
Article 16.2 of the CAO RF, Non-Declaration or False Declaration of Goods.
Article 349 of the Customs Regulation Law.
Clause 1 of Article 405 of the EAEU Customs Code.
Clause 1 of Article 62 of the EAEU Customs Code.
Clause 1 of Article 403 of the EAEU Customs Code.
Clause 2 of Article 401 of the EAEU Customs Code.
Part 3 of Article 346 of the Customs Regulation Law.
Letter of the Ministry of Finance of Russia No. 27-01-25/103380 dated December 17, 2021.
Part 4 of Article 421 of the Civil Code.
Resolution of the Arbitration Court of the Urals District No. F09-5105/23 dated September 6, 2023, in Case No. A60-40843/2022.
Resolution of the Arbitration Court of the Moscow District No. F05-26075/2023 dated November 24, 2023, in Case No. A40-141607/2022.
Resolution of the Arbitration Court of the East Siberian District No. F02-1333/2024 dated April 24, 2024, in Case No. A33-20880/2023.
Resolution of the Arbitration Court of the North-Western District No. F07-14150/2023 dated November 14, 2023, in Case No. A56-121438/2022.
Clause 29 of the Resolution of the Plenum of the Supreme Court of the Russian Federation No. 18 dated October 24, 2006.
Part 3 of Article 16.1 of the CAO RF.
Part 1 of Article 16.12 of the CAO RF.
Decision of the Arbitration Court of the Samara Region dated September 14, 2023, in Case No. A55-18672/2023.
Part 2 of Article 16.12 of the CAO RF.
Resolution of the Arbitration Court of the Volga-Vyatka District No. F01-6971/2023 dated December 4, 2023, in Case No. A28-11415/2022.
Part 3 of Article 16.12 of the CAO RF.
Part 4 of Article 16.12 of the CAO RF.
Decision of the Arbitration Court of the Primorsky Territory dated March 31, 2020, in Case No. A51-1912/2020.
Part 5 of Article 16.12 of the CAO RF.
Article 16.17 of the CAO RF.
Resolution of the Plenum of the Supreme Court of the Russian Federation No. 18 dated October 24, 2006.
Part 1 of Article 16.23 of the CAO RF.
Part 3 of Article 16.23 of the CAO RF.
Article 16.22 of the CAO RF.
Article 16.15 of the CAO RF.
Part 1 of Article 322 of the Civil Code.
Part 6 of Article 405 of the EAEU Customs Code.