A new report by the European Court of Auditors reveals that inadequate customs controls make it easy for EU businesses to reduce or evade import duties, listing the UK on top of the list.
Some EU member states allow major loopholes for undervaluation in their customs controls, undermining the EU’s financial interests.
That’s the conclusion of the Luxembourg-based European Court of Auditors in a Special Report incorporating the findings of audits of the customs authorities in five EU member states: the United Kingdom, Spain, Italy, Poland, and Romania.
Inadequate controls make it easy for importers to reduce or completely evade the duties they would otherwise owe. This is done by under-reporting the value of the goods, declaring a false country of origin, or misclassifying the goods to obtain a lower rate of duty.
The report also cites structural weaknesses that undermine effective controls, for example, a lack of incentives for carrying out controls.
>> View the official EU Special Report 2017
The Court of Auditors were most critical of the United Kingdom. They found that the UK cleared large volumes of significantly undervalued Chinese goods, which were then transported to continental Europe.
This was confirmed by a joint operation of French Customs and the European Anti-Fraud Office (OLAF). Moreover, no value-added tax was paid in the member state of destination, exacerbating the effect of the fraud. The value declared on the falsified invoices was 5 to 10 times below the actual value. OLAF found that in the period between 2013 and 2016, the UK under-collected customs duties in the amount of nearly €2 billion.
The auditors believe that cheaters are attracted to HM Revenue and Customs because it does not require importers to provide guarantees.
“Customs duties make up 14% of the EU budget, or about €20 billion. Their evasion increases the customs gap and must be compensated by higher contributions by member states. The cost is ultimately borne by European taxpayers,” notes Pietro Russo, the member of the European Court of Auditors responsible for the report.
The report also cites structural weaknesses that undermine effective controls. Individual member states are not properly incentivized to carry out controls, for example. Quite the opposite: Those member states that carry out customs controls but do not succeed in recovering lost EU revenues actually risk negative financial consequences, while those that neglect such controls are not exposed to this risk in equal measure.
The auditors recommend that the EU Commission be presented with periodic estimates of the customs gap starting in 2019 and use these estimates to set operational targets for customs controls. The Commission should strengthen support to the national customs services, including a review of the appropriate rate of collection costs. The auditors also call for amendments to customs legislation to require that the consignor be listed on customs import declarations.
In other areas, the Court of Auditors gave the customs authorities a thumbs-up. Cooperation across borders in the EU has improved, as has the sharing of information with non-EU countries. Progress was also made in the uniform application of customs law. Special Report no. 19/2017 “Import procedures: shortcomings in the legal framework and an ineffective implementation impact the financial interests of the EU” is available for download from the Court of Auditors’ website (eca.europa.eu) in 23 EU languages.
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