Indirect taxation on 3D printing – A new challenge for the European Union

IFA 2015

 by Andreia Barbosa, PhD candidate at UMINHO

3D printing (or rapid prototyping) is a form of additive manufacturing technology through which a three-dimensional model (height, depth and width, maxime, embossed) is created by successive layers of material. Think of the production of a computer mouse. The traditional production of this property implies that, in the first instance, the respective components are separately produced and subsequently assembled, giving rise to the mouse. Differently, through 3D printing the mouse for the computer will be printed as a whole, layer by layer – making the assembly process obsolete – and with the possibility of the product being customized, according to the model that has been developed.

That said, it is easy to conclude that in the case of models for 3D printing there is no corporeality to which we refer, so that, then, there will be no merchandise, which will only assume this quality when it is actually printed. That is to say, the 3D printing model, which is the subject of an international transaction, will not be regarded as a ‘good’ for customs purposes. Consequently, as customs duties constitute charges imposed on goods on the ground that they have crossed a customs line, no customs duties may be levied by the transmission of the model to be printed (which will be carried out electronically).

Regarding 3D printing, the debate over the terms of its taxation is still recent. However, in this regard, we can make some considerations. Therefore, given the difficulties inherent in the matter, and in the case of a constituent iure, it seems to me that the respective legal and tax qualification by means of figures whose contours are sufficiently familiar and malleable may be an important first step to clarify the terms in which the taxation may eventually be made.

In these terms, does the transmission of a model and subsequent 3D printing correspond to a transfer of goods or a provision of services? Note that this issue does not lose meaning because it has been concluded that the model for 3D printing is not a commodity. The sense of the issue is supported by the fact that one is looking at the whole procedure associated with 3D printing, which goes from the creation and development of the model, through the respective sending and arrival at its printing. It is intended, therefore, to legally and taxably qualify the process of transition from incorporeality to corporeity. In my view, the transmission of a model and subsequent impression corresponds to a transfer of goods and not to a supply of services. It is an understanding based on the idea that the development of the model and the 3D printing itself constitute inseparable operations. The model is created with the purpose of being printed and from this impression a good, a commodity arises. In that regard, the Court of Justice of the European Union has already ruled in its judgment in Case C-88/09 Graphic Procédé, of 11 Feb. 2010, which states that “where an operation consists of a set of elements and acts, account must be taken of all the circumstances in which the transaction in question is carried out in order to determine whether, on the one hand, two or more separate benefits or a single benefit are present and, on the other, whether in the latter case, that single supply must be classified as supply of goods or services”. In particular, “each transaction must normally be regarded as distinct and independent and, on the other hand, the operation consisting of a single economic provision must not be artificially decomposed in order not to alter the functionality of the VAT system, which is in the presence of a single supply where two or more elements or acts supplied by the taxable person to the customer are so closely connected that they form an objective and indivisible economic supply whose decomposition would be artificial.”

Finally, in order to determine whether the single complex operation is to be regarded as a transfer of goods or a supply of services, ‘its dominant elements’ must be identified. However, in the case of 3D printing, there are at least two operations to consider: the creation of the model to be printed and the printing itself. It seems to me that the two operations are necessary and closely linked together and cannot be considered as separate operations. In addition, the end is the availability in 3D of a product previously thought and created according to the characteristics intended and previously defined (materials, colours, size…), all these elements and acts by means of which the product is personalized are prior to printing and are only a means for the designer of the model to provide it under the best conditions – in the same sense, even with regard to the printing of photographs (see the Portuguese tax and customs authority document number process 13432).

Accordingly, 3D printing is based on a transfer of goods, pursuant Article 14(1) of Directive 2006/112/EC, according to which goods are delivered in transferring the power to dispose of tangible property as owner. In this sense, the sale of a model to be printed and its printing represent a transmission of a good, which should be taxed in the place where the printing occurred because it is the place where the whole operation is actually carried out. It should be noted that in so doing – to the effect that the creation, transmission and printing of a 3D model constitutes a transfer of goods – does not affect the above consideration as no customs duties can be levied. In fact, even if it is considered that there is a transmission of a good, the truth is that in sending the model there is no physical flow of the goods.

On the other hand, even if it were considered that the relevant transaction for the purpose of taxation would be only the actual printing of the model previously created and shipped, the practical difficulties associated with the requirement of customs duties on imports would call into question the advantages which could result. In particular, for example, in what way would 3D goods be controlled, especially in cases where the printing is carried out by private individuals, in their own homes? The establishment of an obligation to declare concrete impressions could be a solution, but the feasibility and expectation of compliance are reduced, and may collide with an important guiding principle of legal solutions: the principle of practicability.

However, even if customs taxation ca not be enforced, it does not mean that taxation does not leave everything at all when goods are not involved, as in 3D printing. And so it seems to me as the concerns underlying the levying of customs duties do not cease to exist simply because the form of production is changed and must continue to be safeguarded. In fact, with the phenomenon of globalization, customs duties have been accused of being a factor restricting international trade, and for this reason, and as we have seen, the object of a tendency towards “elimination”. However, customs duties continue to be levied because, apart from not being possible to deny the weight they have on revenue collection, they are given relevant extra-fiscal purposes. According to the European Court of Auditors’ report of December 2017, customs duties accounted for 14% of the European Union’s budget in 2016 – around € 20 million. Without the existence of revenues, for example, it is not possible (or, at least, it will be more difficult) to equate the allocation of tax incentives to the import of certain goods as a way of reviving declining industries. On the other hand, the levying of customs duties allows, by way of example, to protect domestic industries against competition from imported products. Moreover, the protectionist character tends to accentuate in times of economic crisis and customs duties are particularly important in underdeveloped or closed economies, where the revenues collected through the collection of customs duties assume an important significance.

Thus, as long as barriers to trade are necessary, taxation will continue to be legally and economically justified. This taxation may be made in one of the following ways: (i) by adapting the legal regime of customs duties to the new commercial reality, including in the concept of “goods” intangible goods for their conversion into corporeal goods; (ii) through another tax, already created and whose rules of incidence are already capable of covering new commercial realities; (iii) through a new tax levy specifically created to cover new commercial realities. It should be noted that I argue the maintenance of a tax levy and not of any other distinct legal entity because it is considered that the collection of an amount, in this context, will always return to the figure of the tax.

Pictures credits: 3D printing… by Kärlis Dambräns.

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