Traceability in Russia and the EAEU: A Guide to Compliance and Operations

 

April 30, 2023

BRACE Law Firm ©

 

Digitalization increasingly affects various sectors of the economy, leading to the transformation of existing procedures and management models at both national and supranational levels. The primary priorities for digitalization are the digital traceability of the movement of goods and services, and digital trade.

The digital agenda — including measures to create mechanisms for traceability, labeling, and a single window in foreign trade — facilitates the development of the Integrated Information System of the Eurasian Economic Union. [1]

In an effort to create conditions that prevent the use of various schemes to evade customs and tax payments, the member states of the EAEU signed the Agreement on the Mechanism for Traceability of Goods Imported into the Customs Territory of the Eurasian Economic Union (the "Traceability Agreement"). Under this agreement, traceability is defined as the “organization of records of goods subject to traceability and operations related to the circulation of such goods using national traceability systems.” Accordingly, a national traceability system is an information system that ensures the collection, recording, and storage of information regarding traceable goods and operations related to their circulation.

The Russian Federation ratified the Traceability Agreement via Federal Law No. 386-FZ dated December 2, 2019, On the Ratification of the Agreement on the Mechanism for Traceability of Goods Imported into the Customs Territory of the Eurasian Economic Union, and it has been in effect since December 13, 2019.

Traceable Goods in the EAEU

Traceability applies to the following goods imported into the customs territory of the Union:

• Goods placed under the customs procedure of release for internal consumption;
• Goods not placed under the customs procedure of release for internal consumption that have been confiscated or otherwise converted into state ownership (revenue);
• Goods not placed under the customs procedure of release for internal consumption upon which a court-ordered foreclosure has been executed to pay customs duties, taxes, or special, antidumping, and countervailing duties;
• Goods detained by customs authorities and not claimed within the established timeframes by persons possessing authority over such goods. [2]

The circumstances under which goods become subject to traceability are determined by the legislation of the EAEU member states. [3] However, the Traceability Agreement does not apply to:

• Goods obtained (resulting) from processing operations within the EAEU customs territory or processing operations for internal consumption (processing products, waste, and residues) and placed under the customs procedure of release for internal consumption;
• Goods manufactured (obtained) from foreign goods placed under the free customs zone procedure, or goods manufactured from both foreign goods under the free customs zone procedure and EAEU goods, and placed under the customs procedure of release for internal consumption;
• Goods manufactured (obtained) from foreign goods placed under the free warehouse procedure, or goods manufactured from both foreign goods under the free warehouse procedure and EAEU goods, and placed under the customs procedure of release for internal consumption;
• Goods imported, acquired, transferred, or alienated by individuals for personal, family, or other purposes not related to entrepreneurial activity;
• Goods intended for the official use of diplomatic missions, consular offices, representative offices of states to international organizations, or international organizations and their representative offices located in the EAEU territory that enjoy privileges and/or immunities under international treaties.

The exchange of information regarding traceable goods between the authorized bodies of EAEU member states is carried out based on EEC Board Decision No. 29 dated February 22, 2022, On Approval of the Rules for Implementing the General Process “Ensuring the Exchange of Information on Traceable Goods and Operations Related to Their Circulation Between the Authorized Bodies of EAEU Member States.” Information interaction in this regard is conducted in accordance with the relevant decision of the EEC Board. [4]

The interaction between state authorities, EAEU organizations, and the Eurasian Economic Commission when implementing the Traceability Agreement is governed by EEC Board Decision No. 72 dated June 29, 2021 (the "Decision No. 72"). To monitor compliance with the Agreement, the Commission may request information regarding its implementation from state authorities and member state organizations. These bodies and organizations must provide the requested information to the Commission within 30 calendar days of receiving the request.

The rules and timeframes for including and storing information in national traceability systems regarding traceable goods imported into the EAEU are regulated by EEC Council Decision No. 3 dated January 21, 2022.

Which Goods Are Traceable?

The National Traceability System for goods (the "NSPT") in the Russian Federation began to form with the entry into force of Federal Law No. 371-FZ dated November 9, 2020, On Amending Parts One and Two of the Tax Code of the Russian Federation and the Law of the Russian Federation On Tax Authorities of the Russian Federation, as well as Government Decree No. 1108 dated July 1, 2021, On Approval of the Regulation on the National Traceability System for Goods (the "Decree No. 1108"). The Ministry of Finance of Russia coordinates the implementation of the traceability mechanism for goods imported into the EAEU. [5] Given the electronic document flow required for the NSPT, its software and hardware must ensure:

• Continuous 24/7 operation of the NSPT, except for breaks for scheduled maintenance and technological work;
• Information exchange between the NSPT and other information systems;
• Protection of information contained in the NSPT in accordance with the requirements approved by the Federal Service for Technical and Export Control for protecting non-state-secret information in state information systems.

Under Decree No. 1108, traceability applies to goods specified in the list (e.g., refrigerators, freezers, bulldozers, graders, washing machines, monitors, projectors, etc.) when one of the following conditions is met:

• The goods were imported into the territory of the Russian Federation and other territories under its jurisdiction and released under the customs procedure of release for internal consumption;
• The goods were imported into the territory of the Russian Federation and were not placed under the customs procedure of release for internal consumption due to confiscation or conversion into the ownership (revenue) of the Russian Federation by other means;
• The goods were imported into the territory of the Russian Federation and were not placed under the customs procedure of release for internal consumption due to a court-ordered foreclosure for the payment of customs duties, taxes, or special, antidumping, and countervailing duties;
• The goods were detained by customs authorities under the EAEU Customs Code and were not claimed within the established timeframe by authorized persons;
• The goods were imported into the territory of the Russian Federation from EAEU member states, excluding goods placed under the customs transit procedure;
• The goods were previously imported into the territory of the Russian Federation and are physically located there on the date the government act approving the list takes effect.

The provisions of Decree No. 1108 on traceability do not apply to:

• Goods obtained (resulting) from processing operations within the Russian Federation or processing for internal consumption (processing products, waste, and residues) placed under the customs procedure of release for internal consumption;
• Goods manufactured (obtained) from foreign goods placed under the free customs zone procedure;
• Goods manufactured from foreign goods under the free customs zone procedure and Russian goods, and placed under the customs procedure of release for internal consumption;
• Goods manufactured from foreign goods placed under the free warehouse procedure;
• Goods manufactured from foreign goods under the free warehouse procedure and Russian goods, and placed under the customs procedure for internal consumption;
• Traceable goods intended for the official use of diplomatic missions, consular offices, or international organizations enjoying privileges and immunities under international treaties of the Russian Federation;
• Goods alienated to individuals for personal, family, household, or other needs not related to entrepreneurial activity, as well as to taxpayers of the professional income tax;
• Goods, the information about operations with which constitutes a state secret.

When importing traceable goods acquired in another EAEU member state into the territory of the Russian Federation, circulation participants must notify the FAS Russia of the import within five business days from the date the goods are recorded. The import notification is submitted in electronic form via telecommunications channels through an electronic document flow operator. Based on the notification, the FAS Russia assigns a Batch Registration Number for traceable goods (the "RNPT") no later than the next calendar day after receiving the notification and informs the participant of this number. The RNPT is an identifier used for traceability purposes and consists of one of the following:

• A number generated by the participant from the data in the customs declaration (the registration number of the declaration and the item number of the traceable good);
• A number generated by the participant from the data in the application for release of goods before filing a customs declaration;
• A number assigned by the FAS Russia based on documents submitted by the participant.

The recommended format for the receipt of the Batch Registration Number assignment is defined by FAS Russia Letter No. EA-4-15/6594@ dated May 14, 2021.

A notification of the movement of traceable goods from the territory of the Russian Federation to another EAEU member state is completed based on a supporting document. A supporting document is defined as an invoice, a universal transfer document, or another primary accounting document issued for the traceable good by a legal entity, a representative office of a foreign organization, or an individual entrepreneur registered in the Russian Federation who has transferred the ownership rights to the traceable goods.

The list of goods subject to traceability was approved by Government Decree No. 1110 dated July 1, 2021.

Such goods include:

• Refrigerators, freezers, and other electric or other types of refrigerating or freezing equipment; heat pumps;
• Forklift trucks and other work trucks fitted with lifting or handling equipment;
• Bulldozers with fixed or rotating blades, graders, levelers, mechanical shovels, excavators, shovel loaders, tamping machines, and road rollers, self-propelled;
• Washing machines, household or laundry-type, including machines which both wash and dry;
• Monitors and projectors, not incorporating television reception apparatus;
• Reception apparatus for television, whether or not incorporating radio-broadcast receivers or sound or video recording or reproducing apparatus;
• Industrial vehicles, self-propelled, not fitted with lifting or handling equipment, of the type used in factories, warehouses, dock areas, or airports for short-distance transport of goods;
• Tractors of the type used on railway station platforms;
• Baby carriages;
• Child safety seats (with a metal frame) designed for use in motor vehicles;
• Child safety seats (with a plastic frame) designed for use in motor vehicles.

The use of goods for production purposes (for example, as fixed assets) does not exclude the possibility of their subsequent sale. Therefore, all goods owned by an economic entity that correspond to the EAEU TN VED codes specified in the list are subject to traceability. [6]

Furthermore, the criteria for selecting specific types of goods for inclusion in the traceability list under Article 6.2 of the Law of the Russian Federation No. 943-1 On Tax Authorities of the Russian Federation are defined by Government Decree No. 1109 dated July 1, 2021. Goods are included in the traceability list in the Russian Federation if they meet the following criteria:

• Non-tariff or technical regulation measures, or sanitary, veterinary-sanitary, and quarantine phytosanitary measures, have been established for the goods under EAEU law or Russian legislation;
• The goods are not subject to recording in existing state information systems that ensure the traceability of goods.

When moving traceable goods due to their sale from or to the territory of the Russian Federation (or other territories under its jurisdiction) to or from an EAEU member state, circulation participants must notify the FAS Russia of such movement within five business days of the shipment date. The reporting forms and procedures are defined by FAS Russia Order No. ED-7-15/645@ dated July 8, 2021.

The procedure for electronic document flow operators to submit invoices, universal transfer documents, and universal corrective documents containing traceability details is established by FAS Russia Order No. ED-7-15/636@ dated July 8, 2022. [7] Specialized software must be used for electronic document flow, as regulated by the relevant FAS order.[8]

In the event of a reorganization through the merger of one legal entity into another, the successor inherits the rights and obligations of the merged entity, and the successor must submit two reports on operations with traceable goods to the tax authority.[9]

The FAS Russia website provides a special service to verify whether a product is traceable. This search can be performed using:

• The TN VED code;
• The product name;
• The customs declaration number. [10]

This service is used when purchasing traceable goods to avoid risks associated with the incorrect entry of traceability details during operations.

Reporting on Operations with Traceable Goods

Circulation participants must submit a report on operations with traceable goods performed during the reporting period to the tax authority at the location of the organization (or the residence of the individual entrepreneur). This must be done no later than the 25th day of the month following the expired reporting period (quarter), but only if operations with traceable goods occurred during that period.

The report is submitted in electronic form via telecommunications channels through an electronic document flow operator. The submission of reports and documents containing traceability details in electronic form requires the mandatory use of an Enhanced Qualified Electronic Signature (UK(E)P) in accordance with the Federal Law On Electronic Signatures. [11]

The report must be completed in accordance with the procedure approved by the FAS Russia. [12] Tax authorities ensure the storage of all sent and received reports and documents for at least 10 years, while electronic document flow operators and circulation participants must store them for at least 5 years.

If a participant discovers that information was omitted, was incomplete, or contained errors in a submitted report, they must make the necessary changes and submit a corrective report no later than the next business day after the discovery.

The tax authorities may refuse to accept a report or document in electronic form if:

• The report was sent to a tax authority other than the one at the organization's location or the individual entrepreneur's residence;
• The report was not signed with the participant's UK(E)P;
• The report does not comply with the format approved by the FAS Russia.

Grounds for Termination of Traceability

Traceability of goods terminates in the following cases:

• The good is excluded from the list;
• The goods are removed from circulation for reasons other than sale, resulting in the termination of ownership (e.g., burial, neutralization, disposal, destruction, or total loss due to force majeure; confiscation; or transfer to production/processing, including as tolling raw materials or components for manufacturing new goods);
• The sale or free transfer of ownership to individuals for personal, family, or household use not related to entrepreneurial activity, or to taxpayers of the professional income tax;
• The export of traceable goods from the Russian Federation under the customs procedure of export (re-export);
• The export of traceable goods from the Russian Federation to another EAEU member state;
• The sale of traceable goods to diplomatic missions, consular offices, or international organizations for their official use;
• A shortage of traceable goods identified by the participant during an inventory. [13]

Withdrawal from circulation terminates the traceability path in the Russian Federation. Reasons for withdrawal include processing, disposal, export, etc. Processing is defined as operations where the processed good becomes an inseparable part of the finished product or where the EAEU TN VED code changes at the level of at least one of the first four digits. [14]

The transfer of traceable goods for repair (including warranty repair) does not terminate traceability, as it is not considered a transfer to production or processing. Consequently, this operation and the return of the repaired good to the owner are not reflected in the report on operations with traceable goods. [15]

For a seller, the sale of a good to an individual for personal use terminates traceability. However, the purchase of a good by an accountable person on behalf of an organization does not terminate traceability. [16] If the accountable person does not declare themselves as a representative of the organization (i.e., has no power of attorney), the purchase is formalized under the rules for retail sale agreements.

Combining goods into a set (kit) — for example, including a monitor in a workstation — does not terminate the monitor's traceability. This is because no processing occurs, the monitor's original physical characteristics do not change, and it does not become an inseparable part of other property. [17]

It should be noted that under Decree No. 1108, the regulation does not apply to goods whose operations constitute a state secret. [18]

Resumption of Traceability

In the course of business, it may be necessary to return goods to the traceability system. Traceability is resumed in the following cases:

• The return of unused (unprocessed) goods from production/processing;
• The return of traceable goods by individuals to the seller (if they were previously sold for personal/family use), or the return of such goods by professional income tax taxpayers;
• The discovery of goods during an inventory for which a shortage was previously recorded.

Errors in Traceability Management

As traceability is a relatively new obligation for entrepreneurs, the FAS Russia has identified common errors following the first reporting campaigns: [19]

• Failure to report the sale of traceable goods in quarterly reporting;
• Failure to include traceability details in invoices;
• Unjustified inclusion of information about operations with traceable goods in the report;
• Issuing a primary invoice instead of a corrective invoice upon a return in the absence of a new supply agreement.

Liability for Violations of Traceability Regulations

Amendments regarding violations of traceability legislation were planned for inclusion in the CAO RF via a draft federal law. [20] However, to support business and increase the stability of the Russian economy, the FAS Russia and the Ministry of Finance proposed postponing the entry into force of the liability provisions until January 1, 2024.

Accordingly, the bill was removed from the Government's 2022 legislative plan and included in the 2023 revision. [21]

Regardless of the current lack of administrative liability, participants must comply with traceability regulations, as goods remain subject to traceability from the moment of import until they are withdrawn from circulation.

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References

[1] Decision of the Supreme Eurasian Economic Council No. 12 dated October 11, 2017, On the Main Directions for Implementing the Digital Agenda of the Eurasian Economic Union until 2025.

[2] Agreement on the Mechanism for Traceability of Goods Imported into the Customs Territory of the Eurasian Economic Union. Concluded in Nur-Sultan on May 29, 2019.

[3] Clause 2 of Article 2 of the Traceability Agreement.

[4] Clause 3 of Article 2 of the Traceability Agreement.

[5] Decision of the EEC Board No. 30 dated February 22, 2022.

[6] Government Decree No. 1256 dated July 24, 2021.

[7] FAS Russia Letter No. EA-4-15/6469@ dated May 12, 2021.

[8] FAS Russia Order No. ED-7-26/546@ dated June 8, 2021, On Approval of Requirements for the Electronic Document Flow Operator.

[9] FAS Russia Order No. ED-7-26/1205@ dated December 15, 2022.

[10] FAS Russia Letter No. EA-4-15/13823@ dated October 14, 2022.

[11] FAS Russia Letter No. EA-4-15/11700@ dated August 19, 2021.

[12] Federal Law No. 63-FZ dated April 6, 2011, On Electronic Signatures.

[13] FAS Russia Order No. ED-7-15/645@ dated July 8, 2021.

[14] Clause 4 of Decree No. 1108.

[15] Ministry of Finance Letter No. 27-01-22/67650 dated August 23, 2021.

[16] FAS Russia Letter No. SD-4-15/10449@ dated July 26, 2021.

[17] Ministry of Finance Letter No. 27-01-22/67650 dated August 23, 2021.

[18] FAS Russia Letter No. EA-4-26/1125@ dated February 1, 2022.

[19] FAS Russia Letter No. EA-4-15/12233@ dated August 30, 2021.

[20] FAS Russia Letter No. EA-4-15/527@ dated January 20, 2022, On Results of the Analysis of the National Traceability System.

[21] Draft ID 02/04/07-21/00117901.

[22] Deadlines for Liability for Traceability Violations Postponed to 2024 // FAS Russia: Official Website. 2022.