Incoterms, what is it ?

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Incoterms, what is it ?

The “Incoterms” are set up by the International Chamber of Commerce. The term “Incoterms” means “Terms of International Trade” also translated “International Terms of Sale”. Commercial operations at the international level follow a very particular codification.

In the context of a purchase / sale contract, by distributing the obligations between the supplier and the buyer, the Incoterm aims to improve the economy of the players in international trade.

Why is codification of Incoterms existing ?

  • To clarify the responsibility of the buyer and the seller;
  • To determine the timing of the transfer of risk;
  • To distribute the costs between the buyer and the seller;
  • To clarify the applicable charges for customs formalities.

Note that for these 4 elements, made to specify the conditions of deliveries, there is a direct impact on the selling price, which also makes it possible to quantify the customs value on the importation. Incoterms can also influence the qualification of transactions in terms of VAT.

On January 1st, 2011, a reform changed this system. Indeed, following this was introduced new rules including the deletion of four terms in favor of two new terms.

These new Incoterms are divided into 2 distinct groups:

  • Terms applicable during sea and river transport;
  • Applicable terms regardless of the type of transport.

What are the tax consequences of Incoterms ?

The main consequence in terms of taxation concerns operations related to Incoterms EXW (Ex-works: at the factory with responsibility borne by the buyer) and DDP (Delivry Duty Paid). In these two types of situations, the seller as well as the buyer must be able to justify the transaction and the benefit of the regime that relates to it.

Benefit from ASD Group’s expertise in managing your customs formalities from A to Z. Contact one of our experts.

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