This article deals with situations when products with 0 value should be sent to customers. This is not related about returns or exchanges!
Merchants need to send a "free" items to the customers. Whatever the reason, for most they are part of normal day-to-day business:
- Promotions ("buy one get two");
- Redeeming of collected points from previous sales (if point system based on previous purchases is present in the shop);
- Free samples sent to influencers;
-
Free items added to bundles;
Not all the above situations are the same, for example, influencer items should be treated differently.
In general, legally you are allowed as part of your daily business to provide discount to your customers, whatever the underlying reason for the discount is. And, you can apply 100 percent discount within the concept of this approach. After all, it is your business!
But it is not that easy and clear when the discounted items pass through customs. EU national customs approach to valuation is from the Union customs code. They apply the concept of "customs value" on zero valued products, which does not correspond with the requirements set by VAT regulations. Clearly, there is no problem, if you gave a 50 percent discount and the item still has value and it was purchased with money and with a proof of sale. That amount for the product will be provided for customs' "consideration", which is another term on valuation of goods for tax purposes.
It all starts being more complicated if the value of the item is 0, and often such situations automatically trigger customs risk management system.
We stated above that legally it is ok to provide a discount as part of the ongoing business, even if the discount is 100 percent. Unfortunately, the customs officer does not know how your business is run and what is normal for your business, and, they do not want to learn anything about your business. More often than not, parcels with 0 value products will be stopped and investigated. The outcome might be different, ranging from the inquiry to the customer to the outright assessment charge levied on the item and made payable by the end-customer.
So what can you, as a merchant do to ensure that your parcel with 0 value item is not stopped, your business is run smoothly and your customers are satisfied?
In essence, you need to prove to the customs that whatever is included in the parcel is supplied for a consideration, i.e., it is the part of your normal ongoing business. This is especially important since products that are not sold for consideration cannot be delivered under IOSS rules.
There are a number of workarounds, each has to be considered in connection to how your store is setup and what is the underlying reason for the 0 value item in the parcel.
1. Exchanged items.
Do not send the exchange items as 0 value items to your cross border buyers. To handle exchange situations you need to cancel the original order, claim the VAT and then make a new order with full due VAT charged. Read this manual if you want to make an exchange: Managing Returns, Discounts and Double payment of VAT.
2. Influencer items
This solution applies to merchants sending free products to influencers to promote and advertise their goods. In these situations, if the products are sent cross-border and there is no clear sales order placed in the shop we suggest that you make a draft order and include the heavily discounted purchase value of the items for customs valuation purposes. You do not need to collect the payment from your influencer, but taxes are still to be paid on the nominal purchase price of the items that go cross-border. Make sure that you manually mark such order as paid in your shop, EAS will collect the order and process it as usual.
2. "Buy one, get one free" situations. Free items added to bundles.
The best way to cope with promotions like that is to create bundles in your shop that contain more than one piece of the same item. Bundle can be then priced at the price of a single item and managed as a separate item in your inventory. This is not always possible but it creates a clear situation when you show the actual value of all sold items.
Another way of handling these situations is to manually adjust or spread the value to the products in the logistics solution that you use. As such you can distribute the received consideration to all products in your shipping solution when you arrange for shipment.
3. Redeeming of collection points
The best way to safeguard customs issues with situations when you redeem collected points is not to allow 100 percent of the item value to be discounted by the points. In most e-commerce environments you can actually limit the maximum discount percentage redeemable by the collected points. That way you will still be able to maintain the some value for the items.
If you cannot limit the redeem percentage you may want to consider actually showing the purchase cost as the customs value.
In general, when in doubt, the customs have the right to request confirmation of the items value and can, based on the open market approach, change the items customs value from taxation purposes. It does not happen often and almost never in situations with IOSS parcels, but the national customs have the possibility to exercise that right. If that happens your best defence is providing the underlying order printout and the payment confirmation. Unfortunately the customs do not ask the Merchants , they direct the questions to the parcel recipients - your customers, who start asking you to provide additional documents. From our experience sales order confirmation satisfies the customs in the overwhelming number of cases.