What is the cost of non-compliance? EU Customs Penalties

Are you importing into different EU countries? If you do, your level of exposure to Customs risk varies greatly. In the EU, customs penalties do not form part of the Union legislation on customs. Although customs legislation is harmonised, penalties for non compliance are left to each Member State.

The Union Customs Code (UCC) contains an obligation for Members States to provide for penalties for non-compliance. These penalties have to be “effective, proportionate and dissuasive”. However, Member States have the choice of sanctions to impose for infringement.

To keep track of these domestic rules, we can turn to a report from the EU Commission. The UCC includes the obligation for Member States to notify the Commission of their penalty’s regimes, their national provisions in force and their modifications. This article we’ll give an overview of the most recent report from the EU Commission and the situation of the customs systems of penalties in Member States.

EU customs penalty system

All Member States impose penalties in the field of customs. However, the system of penalties for customs infringement is drawn from each country legal tradition, culture and national legislation. In some countries the penalties are drawn from their national legislation, in others, the legislator introduced specific provision for the UCC.

There are many differences in customs penalties between EU countries, however the major difference is that some countries impose administrative penalties while others have criminal penalties. As a result, there are significant differences in the severity of the penalties, the amounts of the fines or the terms of imprisonment between countries. Furthermore, each country system of penalty evolves in line with its domestic legislation.

Legal Framework for EU customs penalties

Customs penalties are framed in the EU treaty and the Union Customs Code (UCC)

• TEU art 4(30) requires that Member States take all necessary measures to ensure fulfilment of obligations arising out of the Treaties or resulting from the acts of the institutions of the Union.
• UCC art 42(3) Member States have the obligation to “notify the Commission, within 180 days from the date of the application of this Article, as determined in accordance with Article 288(2), of the national provisions in force, as envisaged in paragraph 1 of this Article and shall notify without delay of any subsequent amendment affecting those provisions”.
• UCC art 42(1) imposes an obligation on Member States to provide for penalties for failure to comply with the customs legislation. In the absence of harmonisation of the EU legislation relating to customs penalties, Member States enjoy a discretion to choose the penalties that seem appropriate to them, with the principles of proportionality, effectiveness and dissuasiveness in mind. The case law is very clear on this matter, the Court of Justice recalled several times the discretion of Member States in terms of choice of penalties, but also the framework within which Member States can exercise their power.

Administrative vs Criminal Customs penalties

From a legal perspective, a criminal court imposes criminal penalties while an administrative body (usually the customs authorities) deals with administrative penalties. An important element when Member States deal with administrative penalties is the right to appeal defined in the UCC as opposed to the right to appeal in criminal procedures.

• Countries with both criminal and administrative penalties: Austria, Greece, Estonia, Finland, Germany, Ireland, Hungary, Lithuania, Latvia, the Netherlands, Portugal, Slovenia, Spain, Sweden.
• Countries with only criminal penalties: Belgium, Cyprus, France, Luxembourg, Malta, Poland, Italy.
• Countries with administrative penalties: Czech Republic and Croatia.
• Countries with mostly administrative penalties: Romania, Bulgaria, Slovakia

Negligence vs Intent

Member States can choose to consider the principle of negligence or intent to determine the type of sanction. In most Member States, a distinction is made between intentional and negligent breaches of customs legislation except Czech Republic and Croatia. In these countries, negligence or intent is not considered for evaluation of the infringement, however these countries apply mostly administrative penalties.

Type of penalties

Penalties across Member States can take the form of financial, imprisonment or other types such as confiscation of goods, removal of an authorisation as follows:

• Administrative and or criminal fines: All 27 Member States
• Both Criminal and Administrative penalties (this implies administrative fines, fines of criminal nature, imprisonment): Austria, Greece, Estonia, Finland, Germany, Ireland, Hungary, Lithuania, Latvia, the Netherlands, Portugal, Slovenia, Spain, Sweden.
• Criminal fines or imprisonment: Belgium, Cyprus, France, Luxembourg, Malta, Poland. Denmark
• Administrative fines: Czech Republic, Croatia, Romania, Bulgaria, Slovakia.
• Confiscation of goods: Austria, Bulgaria, Belgium, Cyprus, Denmark, Estonia, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, Portugal, Romania, Slovakia, Slovenia, Spain, Czech Republic
• Interdiction to exercise commercial activity: Belgium, Estonia, Finland, Germany, Hungary, Lithuania, Luxembourg, Poland, Portugal, Romania, Slovakia, Slovenia, Czech Republic, Spain
• Judicial winding up order: Cyprus, Finland, Hungary, Belgium, Estonia, Lithuania, Luxembourg, Portugal, Romania, Slovakia, Slovenia
• Withdrawal of authorisations: Cyprus, Denmark, Estonia, Finland, Hungary, Italy, Belgium, Lithuania, Luxembourg, Poland, Slovakia, Slovenia

Settlement

A settlement procedure provides a framework for negotiating with the authorities to avoid criminal proceedings or a legal procedure. It offers the possibility to settle, usually by implying admission of guilt and the payment of a penalty.

Settlement is available in: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Germany, Greece, Estonia, France, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Slovakia, Spain.

Level of penalties

The amount of the financial penalties and the years of imprisonment which may be imposed for non-compliance is an area of significant divergence across the EU.

• Fixed fine: Spain from 200 euros to 600.000 euros
• Percentage of the evaded duties or of the value of goods. Highest percentage: Spain up to 600%.
• Daily fines: a per day fine based on the offender’s daily personal income. For instance, in Denmark day fines range from 1.000 DKK to 100.000 DKK, regardless of income. Day fines are used in 7 countries.
• Imprisonment: the time varies from a minimum of 1 to 30 days (in Estonia) to 10 years (in Romania).

Mitigating or Aggravating Factors

Mitigating factors can help in reducing the penalty imposed where aggravating factors increase the severity of the sanction. Both principles are applied widely across the EU. The difference comes from the types of factors with 19 different mitigating factors and 17 different aggravating factors across Member States.

The most common aggravating factors are:

• Organised crime: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, the Netherlands, Poland, Portugal, Romania, Slovenia, Slovakia.
• Recidivism: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovenia, Slovakia, Spain.
• Fraudulent intent: Austria, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, Germany, Greece, Hungary, Luxembourg, the Netherland, Poland, Portugal, Slovenia, Slovakia.
• Amount of evaded duties: Austria, Belgium, Cyprus, Czech Republic, Denmark, Germany, Greece, Finland, Hungary, Italy, Luxembourg, The Netherlands, Poland, Portugal, Slovenia, Spain.
• Status of the offender: Cyprus, Denmark, Estonia, Germany, Czech Republic, Hungary, Malta, Portugal, Slovakia. 
• Use of violence: Austria, Germany, Estonia, Italy, Czech Republic, Poland, Portugal, Romania, Lithuania, Latvia.

The most common mitigating factors are:

• Cooperation with customs: Austria, Cyprus, Estonia, Czech Republic, Finland, Germany, Latvia, Lithuania, Romania.
• Negligence: Cyprus, Denmark, Greece, Czech Republic, Luxembourg, the Netherlands, Bulgaria, Finland, Germany, Portugal, Slovenia and Hungary, Malta.
• Immediate payment: Austria, Bulgaria, Cyprus, Czech Republic, Estonia, Germany, Hungary, Latvia, Lithuania, Romania, Slovenia.
• Severity of the infringement: Bulgaria, Cyprus, Czech Republic, Germany, Hungary, Romania, the Netherlands, Slovenia.
• Good faith: Cyprus, Finland, Czech Republic, Germany, Hungary, Italy, Latvia Slovenia.

Time Limit

All EU countries apply time limit, however using different methods.

Time limit for initiating a procedure

This is a time limitation after which customs authorities are prevented from starting a procedure to impose a penalty for a customs infringement. All EU countries except Cyprus have such a time limit.

• Up to 5 years: Austria, Belgium, Greece, Finland, France, Croatia, Hungary, Latvia, the Netherlands, Poland, Portugal and Slovakia
• Between 5 and 10 years: Czech Republic, Denmark, Ireland, Italy, Luxembourg, Malta, Romania, Spain and Slovenia.
• Over 10 years: Germany, Lithuania and Sweden.

Time limit for the execution of the penalty

Once the decision of a penalty is adopted, the penalty should be enforced without delay. Again, there are differences between countries.

• No time limit: Ireland, Malta, and Latvia.
• Under 1 year: Czech Republic.
• Between 1 to 20 or 25 years: Belgium, Estonia, Finland, Germany, Hungary, Lithuania, Greece, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia and Spain.

Areas in which EU penalties are not applied

Penalties might not be applied either in general or according to the specific situation, this is the case in two areas:

UCC art 108: Non-payment of import or export duties by the person liable to pay within the period prescribed. 11 countries (Austria, Croatia, Cyprus, Estonia, Finland, Denmark, Latvia, Poland, Portugal, Spain, Sweden) did not adopt penalties for this infringement but it is subject to enforcement measures.

UCC art 135(2), 244(1) and 245: Free Zone do not exist in certain Member States (Austria, Belgium, Finland, the Netherlands, Sweden, Ireland , Slovakia) so they have not adopted penalties in this respect.

EU-wide customs penalties

The EU has been exploring the harmonisation of the system for penalties since 2000. This topic has been the subject of research and debate. There is a recognition that the differences of treatment of non-compliance across Member States can create legal uncertainty for businesses. It could also result in trade diversions to benefit from less stringent regimes, resulting in distortions of competition within the internal market. Ultimately, this could weaken the policy enforcement and the revenue collection.