Key Facts
- •Customs duty classification of an underwater composite cable used in the Seagreen offshore windfarm project.
- •Appellant (Nexans) argued for classification under Community Code 85 44 70 00 10 or 85 44 70 00 90 (0% duty).
- •Respondents (HMRC) classified the cable under Community Code 85 44 60 90 00 (2% duty).
- •The cable comprises three power cores and a fibre optic element with 48 single-mode fibres.
- •The cable performs two functions: electricity conduction and data transmission/monitoring.
Legal Principles
Customs duty classification is determined by the UK Tariff, based on the Combined Nomenclature (CN) and Harmonised System (HS).
Taxation (Cross-border Trade) Act 2018, Customs Tariff (Establishment) (EU Exit) Regulations 2020, EU Regulation 2658/87
General Interpretive Rules (GIRs) are applied sequentially to classify goods.
Goods Classification Table Rules of Interpretation
GIR 1: Classification is determined by the terms of the headings and any relative Section or Chapter Notes.
GIR 1
GIR 3: If goods are classifiable under two or more headings, preference is given to the most specific description; otherwise, classification is based on the material or component giving the goods their essential character; finally, the last numerical heading is used.
GIR 3
Note 3 to Section XVI: Composite machines are classified based on their principal function.
Notes to Section XVI of the UK Tariff
The decisive criterion for classification is the objective characteristics and properties of the goods, but intended use can be considered if inherent and assessable from objective characteristics.
Case law including Build-A-Bear Workshop UK Holdings Ltd v HMRC, [2022] EWCA Civ 825; JCM Europe (UK) Ltd v HMRC (Case C-760/19)
In determining principal function, consider what consumers would consider principal or ancillary, based on objective characteristics.
Case law including British Sky Broadcasting Group plc v HMRC (Case C-288/09); Hauptzollamt Hannover v Amazon EU Sarl (Case C-58/14)
Essential character is determined holistically, considering constituent elements, bulk, quantity, weight, value, and the dispensable component test, but also considering the purpose or principal function.
Case law including Belkin Limited v HMRC, [2022] UKUT 244 (TCC); Sportex GmbH & Co. v Oberfinanzdirektion Hamburg (Case C-253/87)
Outcomes
Appeal allowed.
The cable has two equally important and independent functions (electricity conduction and data transmission), neither of which can be deemed the principal function or to provide the essential character. Therefore, classification under GIR 3(c) applies, leading to Community Code 85 44 70 00 90.