By Igor Porfiljev
Trade tariffs can significantly impact the cost of importing and exporting investigational products and ancillary supplies for clinical trials. As such, it is important that companies consider harmonized tariff classification to ensure no money is left on the table.
The current tariff refers to the 1947 General Agreement on Tariffs and Trade (GATT), where governments of many countries work to boost economic recovery from previous war impact. The purpose of the tariff is simple – minimization of trade barriers. Correct classification of goods according to a tariff helps foreign trade members avoid duties overpayment. When referring to imported merchandise inventory owned by a legal entity, import duty payment hits the corporate profit and loss statement as Cost of Goods; import value-added tax (VAT), as indirect tax, hits cash flow. As a rule, clinical trial supply is owned by the sponsor, so any import duty or VAT overpayment increases the pass-through costs of the study.
It’s vital for companies to examine how tariff and non-tariff restrictions, import/export regulations, and modern technologies (such as the Internet of Things and wearables) bring new tariff positions to the traditional clinical trial supply structure. Project customs tariff planning should include such aspects as:
There are also different customs and fiscal unions that have emerged over the last 20 years. Consider the European Union and the Eurasian Economic Union. When importing in one country, distribution to the rest of countries within the Union is enabled. With this, companies can save money on brokerage services and main carriage to the Union territory as it is paid for once, rather than for multiple deliveries and brokerage in all the individual countries.
For the majority of countries, import duty for Investigational Medicinal Products (IMP) is up to 5 percent and, in some geographies, can be even higher. For ancillaries (e.g., medical equipment), import duty can vary from country to country.
As a standard procedure, import or export licenses from the local Ministry of Health should be obtained for non-tariff restrictions. Lack of import licenses could cause delays in activities including shipment planning and cost and patient visit dates. The license type and validity should also be accounted for. Licenses can be valid for the whole study, one shipment, one year or one investigational site.
Companies are increasingly leveraging new technologies in clinical trials, such as transmitting temperature sensors and wearable health monitoring devices. These technologies are introducing new tariff positions to the traditional clinical trial supply tariff list. The majority of these items are duty free (e.g., computer equipment and fitness tracking gadgets), but non-tariff measures such as country cryptography requirements and export control rules may apply.
A reduced import VAT rate is allowed for IMPs. This is important for planning pass-through costs of clinical studies. Certain criteria for labeling and other aspects may allow savings of 8-10 percent of the applicable import VAT rate, depending on the country list.
Organizations must also examine the potential consequences of classification mistakes, as well as the importance of effective two-way communication and retrospective results reviews with third-party logistics providers, customs brokers and authorities.
Classification mistakes can trigger disputes with customs authorities. The consequence of a dispute for an importer of records could be the adjustment of financial statements and additional taxation (e.g., corporate profits tax, VAT). Penalties and fines depend on the materiality level and issues such as voluntary self-disclosure. Importers may lose import privileges or find that each following shipment could be audited by the authorities, resulting in delays and additional costs.
To reduce the risk of an audit, organizations should consider periodical retrospective review of import and export entries with customs brokers. Samplings of entire entry records would undergo a full review based on value for customs or other materiality level. Proper trade compliance planning takes into account all tariff and non-tariff aspects of the study. With these measures, companies are well-equipped to keep costs under control.
Igor Porfiljev is a global trade compliance manager in PAREXEL’s Clinical Trial Supplies and Logistics business unit, based in Moscow, Russia. He has 17 years of experience in international trade, tax and finance, a Bachelor’s degree in Mechanics and Master’s degree in Foreign Trade and Investments.