Because the Netherlands is one of the main European gateways for goods coming from outside the EU, the European Public Prosecutor’s Office (EPPO) has a key focus: investigating whether there is customs duty and VAT evasion in e-commerce.
It is often thought that the EPPO detects international VAT fraud. True, but the EPPO also focuses on customs-related offences, such as alleged fraud in customs valuation or the application of an Article 23 licence. My expectation is that by 2025, the number of investigations will continue to increase, as the EPPO gains momentum.
Investigating EPPO: the application of the article 23 licence
When a trader has been granted an Article 23 licence, VAT on imports does not have to be paid directly on the import declaration. The VAT due is accounted for on the domestic VAT return of the person to whom the goods are destined. Because that VAT can usually be deducted again on the same return, nothing is paid on balance. This is because the VAT due on the same return is offset against the deductible VAT for exactly the same amount.
If the person carrying out the importation in accordance with the provisions of the DWU is an entrepreneur, the application of Section 23 of the OB Act requires that:
(i) that entrepreneur pays the turnover tax that has become due on the next turnover tax return, and (ii) that entrepreneur has either procured the goods in the course of his business activities from a third country or uses them in the course of his business activities when entering the Netherlands.
Several investigations into the use of the permit have been launched in recent times. In such cases, the contention will be that the permit was incorrectly applied, or that the permit was not applicable. If Section 23 of the Turnover Tax Act may not be applied, and Section 23 is an exception to Section 22 of the Turnover Tax Act, the obligation to pay turnover tax arises directly from Section 22 of the Turnover Tax Act. In both cases, the allegation of (deliberate) incorrect sales tax returns can be brought in as suspicion.
Customs is in charge of levying and collecting sales tax in this matter, in case Section 23 of the Turnover Tax Act does not apply. In such cases, Customs is authorised to collect sales tax after the fact through a UTB (invitation to pay). In addition, there will also be a desire to revoke the Section 23 permit.
It is important to realise that not only a UTB but also the decision to revoke the licence is subject to objection and appeal. Both decisions are appealable orders. This means that both the UTB and the revocation decision can be submitted to an independent tax court.
Investigations EPPO: determining customs value
Many times the customs value will be determined using the transaction value method (Article 70 DWU). Article 140 of the UDWU provides that when the customs authorities have reasonable doubts whether the declared transaction value corresponds to the total amount paid or payable as referred to in Article 70 DWU, they may ask the declarant for additional information. Only if the doubts are not dispelled by the additional information submitted, the customs authorities may decide that the value of the goods cannot be established in accordance with Article 70(1) of the Code.
All in all, Customs will not want to accept the primary and used valuation method, namely the transaction value of the imported goods, as the basis for determining the customs value. If none of the methods mentioned in Articles 70 and 74(2) of the DWU can be applied, in accordance with the provisions of Article 74(3) of the DWU, the customs value should be determined on the basis of data available in the customs territory of the Union, using reasonable means. The primary consideration here should be whether an application of Articles 70 and 74(2) of the DWU is possible with some degree of flexibility. Article 144(2) of the UDWU provides that if the customs value cannot be determined by flexible application of the regular valuation methods, other appropriate methods should be used. However, Customs should justify the rejection of the valuation method used by the importer and why an alternative valuation method is chosen.
It remains a moot point in such matters what the underlying reason for this doubt is and what role the EPPO plays in it. Customs can request a lot of information to verify the substantiation of the customs value. This could include third-party communications such as e-mails, WhatsApp and WeChat messages. These requests can be made while at the same time a criminal investigation by the EPPO is going on in the background.
Seek assistance in time
The EPPO is focusing this year on cross-border VAT fraud and import duties. Our national system involves joint deliberation between supervisors Tax and Customs Administration and the Public Prosecution Service on how suspected offences are disposed of. The Netherlands has the option of administrative settlement by the supervisor and criminal investigation by the FIOD and prosecution by the Public Prosecution Service. The EPPO does not have this option; only a criminal law approach is possible.
Even in cases where a criminal investigation by the EPPO is ongoing, the obligation to provide information for tax purposes remains in principle. The question also remains how OLAF – which is not an investigative body – has gathered evidence in accordance with formal and European rules and whether defence rights have been respected such as the right to be heard or access to the file. Especially since customs valuation of goods is complex and open to debate. OLAF and Customs often rely on the Transaction Price (section 70 DWU), but there may be legitimate reasons why the value declared by the importer differs.
Since the declaration made is central to both tax and criminal law, it is very important that individuals seek assistance in these complex situations. Only then are interests and rights effectively represented and can the government be answered.
More information on this topic or a no-obligation appointment? Feel free to contact Ron Jeronimus (jeronimus@hertoghsadvocaten.nl)
This text has been translated using a translation tool and may contain errors or inaccuracies.