The economic essence of tolling operations


Под- секция 8. Международные экономические отношения

Kulynyak I.Ya.

Lviv Polytechnic National University


The economic essence of tolling operations


Not always the enterprise has enough capacity to produce required products from own raw materials, and therefore applies to service partners who are able to produce finished products. Crisis in the industry makes Ukraine also use such form of trade ties, as operations with customer-owned materials (tolling operations). In Ukraine, the mechanism of regulation of operations with customer-owned materials is governed by the Tax and Customs Codes of Ukraine, the Law “On Foreign Economic Activities” and other regulations.

According to the Tax Code of Ukraine [1] customer-owned materials are the raw materials, intermediates, components, energy, owned by one company (the customer) and transferred to another company (executor) to produce finished products, with further transfer or return of such products or part of their owner or on behalf of another person.

Tolling means recycling operations (recycling, enrichment or usage) with customer-owned materials (regardless of the number of customers and agents, as well as steps (operations)) to obtain the finished products for a fee. Tolling include operations in which customer-owned materials on a particular stage of recycling is not less than 20 percent of the total value of finished products [1].

Thus, tolling is a kind of interaction between companies in which the owner of the raw materials passes it to executor and, as a result, receives the finished products and covers the company the amount of costs incurred in recycling and consistent rate of profitability.

The participants of tolling operations, except customers and executors, can be extra intermediaries, suppliers, consultants in the course of business which not only cooperate but also compete with each other.

The tollinger is an enterprise-owner of raw materials, which sends it for recycling. In the role of the tollinger can be any enterprise, able to provide financing supplies of raw materials, which tries to profit from price difference of the final products and raw materials costs including the recycling.

In the economic literature there are two types of tolling: internal and external. Internal tolling involves the acquisition by foreign raw materials in Ukraine and external involves the import of raw materials from abroad. Overseas tolling operations are carried out with active and passive recycling. Active recycling means that the resources are provided by foreign partners (tollingers) to the country-recycler and passive means that the executors remake the raw materials for foreign customers [2, p. 245].

Tolling operations are very widely used in the metallurgy industry, as a result of the fact that raw-material bases and the centers of processing of raw materials, sometimes appear in a number of different countries. In the modern conditions of management tolling operations became widespread, which are essential not only among industrial enterprises (oil recycling, grain recycling, light and food production, including sugar and sunflower oil), but also in providing services, in building and trade organizations.

In Russia tolling operations are most actively used by aluminium and light industry companies, and all others whose business were tightly connected to rework of raw-materials with the purpose to release some type of final products. The tolling scheme purported that foreign agents, which were often affiliated with the owners of Russian plants, supply raw-materials and export finished production, while local plants formally do only processing works for the fixed income, which is the only thing taxable in Russia. Hereby, the following scheme allows to avoid application of any custom-duties and VAT on the imported raw-materials and products of its processing [3].

Depending on the assortment groups of customer-owned materials, the most common types of tolling schemes of the recycling on a give and take basis can be distinguished [4, p. 45]: recycling of excisable mineral raw materials; recycling of mineral, chemical and pharmaceutical raw materials; production of light industry, especially apparel products industry; production of food by recycling of agricultural produce.

Another case of tolling schemes is partial tolling, which is a pattern of activity in which the final consumer of the products is determined by the manufacturer and the international trading organization must supply certain finished products, which are produced from raw materials provided by its customers according to the contract with the manufacturer under certain conditions. Such a scheme takes place in two cases:

1) the presence of possibility to supply the raw materials at lower than market prices, but the lack of opportunities to sell the production, generated from these raw materials;

2) the reluctance of producers to operate on the basis of complete customer transactions because of the subjective reasons.

Payment for recycling of customer-owned materials can be done in several ways [5, p. 412]:

1) the part of the customer-owned materials (the contract for processing of customer-owned materials is such that a certain percentage of incoming raw materials from the customer, the executor (performer, recycler) receives as payment for recycling of other raw materials);

2) the part of the finished products (in the case when the calculations for obtaining the products, which yield consistent standards, contain a certain percentage of payment for services);

3) the cash (this method is used when the customer has no difficulties with the implementation of products, and the executor has them);

4) in combined way.

Transactions of tolling have their legal features underestimation of which may significantly affect the livelihoods of entire regions. The fact that tolling is conveniently carried out in the shadow economy transactions carried out in order to launder money should be taken into account. Tolling schemes require attention from the government and a legal settlement that would have excluded the possibility of destruction of both the entities and their falling into bondage.

In case of the use of tolling it is not needed to reduce its own production, but to gradually increase it. In the case of reducing its own production, the company-recycler may lose the domestic markets and brand. Tolling should be considered as a temporary measure for a gradual exit from the crisis.



1. Податковий кодекс України від 01.01.2011 р. URL: http://zakon2.rada.

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3. Tolling operations: Russia and Switzerland Still Make Fraternal Alliance. URL:

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5. Іваненко В. Особливості обліку операцій з давальницькою сировиною на промислових підприємствах / В. Іваненко // Економічний аналіз: Збірник наукових праць. – Тернопіль, 2010. – Вип. 7. – С. 411-413.