This step requires a lot of attention and accuracy in execution of document. There is a transfer of risks of accidental goods loss, its acceptance and transfer of ownership from the Seller to the Buyer.
A lot of things happen to the goods from the moment of sale until the moment, when the Buyer receives it:
In order not to write a lot in a foreign trade contract prescribing in it numerous rights,obligations, responsibilities, risks of the parties, in 1936 the International Chamber of Commerce published the standard terms of delivery called Incoterms.
Incoterms is a systematic collection of standard conditions for the goods delivery from the Seller to the Buyer. The scope of Incoterms includes only specific aspects of contracts for the international sale of goods, these rules do not regulate the transfer of the ownership, types and terms of payment. This document regulates such issues as: risk distribution and the time of its transfer from the Seller to the Buyer for damage and loss of goods; the type of vehicle for goods delivery to the Buyer; fulfillment of customs formalities, obligations of the Seller and the Buyer related to the delivery.
The moment of risk transfer from the Seller to the Buyer is determined by the delivery basis in accordance with Incoterms specified in the foreign trade contract. 11 standard bases for the goods delivery are provided in Incoterms.
The terms are adjusted and improved by the experts of the International Chamber of Commerce every 10-12 years in order to adapt Incoterms to actively changing logistics processes and requirements of commercial practice. The new Incoterms 2020 rules took legal force on January 1, 2020.
Acceptance of the goods in quantity and quality provided for by a foreign trade contract may include several points:
Delivery and acceptance of goods in terms of quantity and quality may not coincide in time and be issued with different documents. Therefore, the terms of delivery and acceptance of goods by quantity (checking the delivered number of seats, weight, volume or other units of measurement) and by quality (compliance of the quality indicators with the terms of the contract) can be set out separately in the contract. Moreover, it is recommended to specify in the contract the procedure for quantity/quality checking, whether a full or sample inspection is carried out, by what method samples are taken for analysis, etc.
It is very important to separate the preliminary inspection (inspection, testing) of the goods and its final acceptance.
The terms of delivery and acceptance are correlated with other sections of the contract, for example, with the basic terms of delivery and payment terms. In many cases, with the help of delivery basis the time of delivery by the Seller and the goods acceptance by the Buyer are determines. In practice, the interpretation of the terms of delivery and acceptance is widely used. It is different from Incoterms and significantly expanded in a number of parameters.
The definition of the delivery terms and goods acceptance significantly affects the terms of payment, it will be shown below. Therefore, it is logical to state the delivery terms and the goods acceptance and then the terms of payment.
It is advisable to distinguish between preliminary inspection and final delivery-acceptance of goods by quality/quantity indicating which documents confirm the results of acceptance. The inspection is carried out in relation to the quality, and the quantity is checked in other ways. The inspection can be carried out not only by an independent expert organization, but also by the parties. The claim clause is usually set out broadly in a separate clause of the contract. Usually, each party is interested in having the goods delivered and accepted in their country. It is advantageous for the seller to identify the place of departure as a specific place of delivery, and the Buyer identify the place of destination as a specific place of delivery. According to Incoterms, the Seller is obliged to check the quality of the goods including conducting the necessary external inspection and testing, as well as the packaging condition and the applied marking correctness in all cases, even if it is not stipulated in the contract. This procedure begins in the process of goods manufacturing and ends at the finished products warehouse before the shipment.
If the exporter is not a manufacturer of the supplied goods or services, but he purchases them under a contract from a Russian supplier, such contract must be drawn up legally-acceptable and contain certain articles regarding the accepting goods or services procedure. Otherwise, if the goods do not comply with the terms of the foreign trade contract, it will be extremely difficult to present such inconsistencies to the supplier.
Participants in foreign economic activity often confuse the moment when the risk of loss or damage to the goods passes from the Seller to the Buyer, as well as the distribution of their obligations related to the goods delivery determined in accordance with the Incoterms delivery basis specified in the foreign trade contract with the moment when the ownership of the goods passes from the Seller to the Buyer.
Incoterms define only the Seller and the Buyer obligations for the goods delivery and the moment when the risk of loss or damage to the goods passes from the Seller to the Buyer. At the same time, Incoterms do not regulate delivery time, payment terms, the moment of ownership transferfrom the Seller to the Buyer or the consequences of violating the terms of a foreign trade contract.
Incorrect determination of the ownership transfer moment can lead to a situation, when the Buyer or Seller bears costs and risks and he is not the goods owner. All this leads to errors in accounting the contract value of goods, exchange rate differences arising from changes in exchange rates, transport costs, value added tax, etc. Such errors occur when foreign trade participants include customs payments, delivery costs, and other costs associated with the purchasing in the actual cost of goods, and the ownership has not yet passed to them. As a result, it leads to an underestimation of taxable profit, and if such errors are detected by the tax authorities, it leads to the penalty and fines accrual.
If the moment of the ownership transfer from the Seller to the Buyer is not defined in the foreign trade contract, it is necessary to be guided by the law determined by the parties agreement. According to paragraph 2 of Article 1210 of the Civil Code of the Russian Federation the parties agreement on the choice of the applicable law must be directly expressed or must definitely follow from the terms of the contract or the totality of the circumstances. As a general rule, the Seller is recognized as the party that receive the implementation which is crucial for the content of the contract.
If the foreign trade contract does not specify when the ownership transfer takes place, this right arises from the moment when the Seller transfers the goods to the carrier acting in his interests.
As a result of the transaction completion the Seller and the Buyer must sign documents indicating the following facts:
As a rule, the document indicating the transfer of the risks of accidental loss or loss of goods is a carriage document (bill of lading, railway bill of lading, sea bill of lading) confirming the goods transfer from the Seller or his freight forwarder to the Buyer or his freight forwarder.
Other documents and conditions such as a goods consignment note, a statement of release and acceptance and others may indicate the fact of the transfer of risks. Such documents and conditions must be fixed in the foreign trade contract.
The moment of ownership transfer must be fixed by a foreign trade contract. As a rule, this moment is associated with the occurrence of some event in a foreign trade transaction, for example, the 100% payment, the transfer of the goods by the Seller to the Buyer’s carrier, the goods acceptance by the Buyer, the customs declaration release and other events by agreement of the parties.
The document confirming the transfer of ownership may be a document issued as a result of the occurrence of such an event, for example, an act with an invoice or an additional document signed by the Seller and the Buyer in such situation.
The terms of delivery and acceptance of the goods provided by the foreign trade contract must include a list of documents signed as a result of such acceptance.
As a rule, it is a certificate of acceptance, but specialized expert organizations may be involved in this process when it is necessary.
The state has established a zero-rated VAT for suppliers of goods and services abroad. Zero-rated VAT confirmation for export implies a certain risk for business.
