Tax and customs consequences of the EU–Mercosur Trade Agreement:

On the 16 of January 2026, EU and Mercosur sign a historic and ambitious partnerships. Shortly after the European Parliament voted narrowly to refer the recently signed free trade agreement between the European Union and the Mercosur bloc of South American countries (Argentina, Brazil, Paraguay and Uruguay) to the Court of Justice of the European Union for legal review, temporarily postponing its ratification. The referral reflects institutional concerns regarding treaty compatibility, regulatory autonomy, and compliance with EU constitutional principles and a constant tension between economics and law as the treaty was meant to represent a relief from US tariffs. While procedural in nature, the decision has effectively paused the entry into force of what would constitute one of the largest preferential trade agreements worldwide, althrough it is remain to be seen that the outcome of the treaty shall be in the present we will reflect the tax implications related to the EU-Mercosur agreement.

Commercial Treaties and International Tax Treaties: Distinct Legal Instruments

Commercial treaties such as the EU–Mercosur Agreement are instruments of trade liberalization. Their primary function is to regulate cross-border trade in goods and services through tariff reductions, tariff-rate quotas, rules of origin, technical standards, and dispute settlement mechanisms. Their objective is economic integration through the removal of trade barriers.

International tax treaties, by contrast, are designed to allocate taxing rights between jurisdictions. They address the elimination of double taxation, the prevention of tax evasion, and legal certainty in cross-border income taxation. These treaties regulate permanent establishment thresholds, withholding tax rates, transfer pricing adjustments, and administrative cooperation. While both types of treaties influence cross-border activity, they operate in legally distinct spheres.

The EU–Mercosur Agreement does not amend bilateral tax treaties nor does it create new taxing rights. Nevertheless, by reshaping trade flows, supply chains, and investment patterns, it generates indirect but significant tax consequences that merit careful analysis.

How the EU–Mercosur Tariff Rules Work in Practice – and Why They Matter for Tax

The EU–Mercosur Interim Agreement does not announce tariff reductions through broad political statements. Instead, it establishes a clear operational mechanism that businesses, customs teams, and tax advisers must apply in practice. At the core of the system is Article 2.4 (Reduction and Elimination of Customs Duties).

This provision obliges each Party to reduce or eliminate customs duties on originating goods strictly in accordance with Annex 2-A. In practical terms, this means that companies cannot rely on general percentages or policy summaries. The applicable duty rate must always be verified at the tariff-line level in Annex 2-A, using the relevant Harmonized System code.

For tax and customs planning, Article 2.4(4) is particularly important. It confirms that the starting point for all reductions is the base rate listed in Annex 2-A. That base rate determines both the speed and the extent of tariff elimination. As duties decrease year by year, the customs value on which import VAT is calculated also decreases, directly reducing indirect tax costs on imports.

The Agreement also introduces a strong non-regression rule. Under Article 2.4(6), once the Agreement enters into force, neither the EU nor Mercosur countries may introduce new customs duties or increase existing ones on originating goods. For businesses, this creates predictability and pricing certainty. From a tax perspective, it stabilizes the indirect tax base and reduces the risk of unexpected cost increases in long-term supply contracts.

Article 2.4(3) addresses a common practical risk: tariff reclassification. If a Party creates a new tariff line, the customs duty applied to that new line must be equal to or lower than the duty applicable under the original tariff line listed in Annex 2-A. This provision prevents authorities from using technical classification changes to reintroduce higher duties and protects the negotiated tariff benefits relied upon in tax and pricing models.

Beyond imports, the Agreement also restricts fiscal measures on exports. The provisions on Duties, Taxes and Other Fees and Charges on Exports, read together with Annex 2-B, prohibit export duties or similar charges, subject to limited transitional exceptions. In practice, this reduces the risk of export-side fiscal leakage that could otherwise undermine cross-border value chains.

In addition, the rules on Fees and Other Charges on Imports and Exports, aligned with Article VIII of GATT 1994, ensure that administrative fees are limited to the cost of services rendered. They cannot be calculated on an ad valorem basis or used as disguised taxation. For companies, this means that customs-related charges should not operate as hidden indirect taxes.

From a practical standpoint, the EU–Mercosur Agreement creates legally enforceable tariff reductions through Article 2.4 and Annex 2-A, not through political commitments. Businesses must therefore integrate tariff schedules into their tax and pricing models, ensure compliance with rules of origin, and align customs values with transfer pricing positions. The result is not only lower tariffs, but a reshaped indirect tax landscape that requires proactive management rather than passive compliance.

Rules of Origin and Preferential Treatment

Preferential tariff treatment under the Agreement is conditional upon compliance with the Protocol on Rules of Origin, annexed to the Interim Agreement. This protocol establishes the substantive and procedural criteria that goods must satisfy to qualify as originating products. From a normative perspective, these provisions are indispensable, as failure to meet origin requirements results in the loss of preferential tariff rates and the application of standard MFN duties.

The rules of origin therefore operate as a gatekeeper mechanism for tariff benefits and have direct implications for customs compliance, documentation, and supply-chain structuring.

Tax Advisory Takeaways

From a tax advisory perspective, the EU–Mercosur Agreement illustrates how trade instruments can materially affect tax outcomes despite not constituting tax treaties. The progressive elimination of customs duties will directly influence import VAT bases and excise calculations, requiring businesses to revisit pricing models and indirect tax forecasts. As tariffs decrease, tax authorities may increasingly scrutinize whether reductions in customs values are coherently reflected in transfer pricing documentation and income tax positions, particularly in intra-group transactions.

The expansion of cross-border trade flows between the EU and Mercosur also heightens permanent establishment risk. Increased commercial presence, logistics functions, or distribution activities may inadvertently create taxable nexus in one or both jurisdictions. In parallel, greater transaction volumes may amplify exposure to double taxation disputes under existing bilateral tax treaties, especially where customs valuation and transfer pricing methodologies diverge.

Finally, the agreement’s facilitation of investment and supply-chain restructuring underscores the need for integrated planning. Preferential tariff treatment can generate meaningful efficiencies only if rules of origin are properly managed and aligned with broader corporate and tax structures. Failure to do so may result in the loss of trade benefits, customs reassessments, or indirect tax penalties.

How MCORE LAW Help?

At MCORE LAW, we support clients navigating the tax consequences of international trade agreements and cross-border expansion. Our advisory services focus on aligning customs and tax strategies, assessing indirect tax exposure arising from tariff liberalization, and managing transfer pricing and permanent establishment risks in evolving trade environments. We work closely with businesses and investors to design legally robust structures that capture commercial benefits while maintaining tax compliance and certainty across jurisdictions.