The EU Commission proposed to implement a common approach to customs penalties for violations of customs law across all EU Member States. A copy of the proposed Directive can be found here. This matter came in front of the EU Parliament at the beginning of January 2015. The proposed Directive sets out:
• A common list of acts that constitute a breach of customs rules;
• A scale of penalties (ranging from 1% to 30% of the value of the goods);
• Mitigating factors; and
• Time limits for pursuing breaches.
EU Customs’ legislation has been set out in a single legal act which should be applied consistently throughout all 28 Member States of the EU. These rules set out:
• How customs declarations must be made;
• What information must be submitted to customs and when;
• How to determine the elements setting your duty costs (classification, customs valuation, origin);
• What reliefs apply, the conditions to be met and application process; and
• Authorised Economic Operator (AEO) provisions.
However, the consequences of violating these common provisions vary at national level. Consequently, the enforcement of customs legislation follows 28 different sets of legal rules and different legal or administrative traditions. Such sanctions differ in nature and severity including fines, imprisonment, confiscation of goods, temporary or permanent disqualification from customs duty reliefs or regimes etc.
The UK penalties are set out in the Finance Act 2003 and delegated legislation. The Finance Act sets out two categories of penalties, namely:
• Civil evasion penalties which can be up to the value of the duty the person sought to evade; or
• Contravention of rules penalties setting out prescribed sums of up to £2,500 for contraventions of the customs rules (strict liability) (The Customs (Contravention of Relevant Rules) Regulations 2003).
The Finance Act also sets out grounds for mitigating penalties, the right of review & appeal etc. The Customs & Excise Management Act 1979 also retains possible criminal prosecution for violation of customs law and although these are only used in the most serious of occasions, their continued existence causes all sorts of problems from a Money Laundering Regulation perspective.
The UK penalties are amongst the more lenient of those across Europe and so the proposed harmonisation scale set out in the proposal is likely to increase customs compliance risks faced by UK businesses. This comes at a time when the UK government is seeking to repatriate some powers exercised at European level and cut business red tape.
On the other hand, the new customs code which comes in to effect in 2016 provides for greater pan European operating opportunities such as centralised customs clearance for all imports from one member state. Harmonisation of penalties may be seen as a precursor to these opportunities and to discourage distortion of trade by companies locating operations on the basis of penalty risk. Companies operating in more than one member state are also likely to welcome changes that improve consistency and transparency.
AEO status is becoming more important for businesses with specific benefits available under the new customs code. Different interpretations of what constitutes “compliant and trustworthy” economic operators, who are allowed to benefit from EU wide facilitations and simplifications may also be resolved by the introduction of common rules on violations.
We are working closely with many of our clients to improve systems to meet customs compliance, senior accounting officer compliance, Customs Freight Simplified Procedures (needed for customs warehousing and many other duty reliefs) and AEO requirements. These systems improvements are likely to become increasingly important if the proposed Directive becomes law.
Please contact us if you would like to discuss how we can help improve your customs processes, practice and controls.