What happens if it turns out that the rules were so unclear that many judges have to make decisions, different courts provide different interpretations, and preliminary questions need to be asked about terms on which classification depends? We believe this constitutes a breach of the principle of legal certainty and that the collection of a customs debt should be waived.
1. Practical Experience
If you think the introduction suggests this is a very theoretical discussion, you’re wrong. In our practice, there are dozens of situations each year where unclear rules apply. This includes the classification of goods, the application of preferential origin, whether a certain element should be added for determining customs value, and even whether the regular or extended time limit for additional assessments applies. This is not about fraud or a clear misjudgment by a declarant but about legislation that turns out to be unclear.
An example of such a case is the classification of ship hulls. For several years, these hulls – with a respectable length between 90 and 135 meters – were declared as ship hulls of sea going vessels. Customs accepted this classification, even after a physical inspection. There was even a tariff information provided by a Rotterdam Customs officer confirming that the ships for which the hulls were intended were classified as seagoing ships. However, at some point, Dutch Customs changed their position. Suddenly, these hulls were no longer considered for seagoing ships and customs duty had to be paid. The issue revolved around whether or not these were ‘seagoing’ ships. We will not mention all the the details of the legal process, but it took until Christmas 2021 there was definitive clarity on the declarations from 2009. After the Noord-Holland District Court in 2013 and the Amsterdam Court of Appeal in 2015 ruled against my client’s classification opinion, the Supreme Court ruled in 2017 that the Court of Appeal’s judgment was incorrect and that wrong criteria had been used. During the ‘renewed’ review by the Amsterdam Court of Appeal, the court determined that the rules were insufficiently clear, so it referred preliminary questions to the Court of Justice of the European Union (CJEU) about the scope of the term ‘for navigation on the high seas.’ The CJEU answered these questions in 2020. Ultimately, 16 judges had to deliberate on the classification.
2. Case law of the Court of Justice (EU)
In customs procedures before national courts, the principle of legal certainty does not seem to play a major role. Only a limited number of rulings address this principle. Nonetheless, the case law of the Court of Justice of the EU (CJEU) shows that this principle is (or should be) crucial in customs duty assessment.
Almost 40 years ago, the CJEU ruled in the Deutsche Milchkontor case on the principle of legal certainty in relation to EC State aid measures. 25 years ago, the CJEU specifically addressed the principle within customs law in the case of Van Es Douane Agenten (C-143/93). This concerned the transition from the ‘old’ common customs tariff to the current Combined Nomenclature. The CJEU reminded that the “principle of legal certainty is a fundamental principle of Community law” and that this principle “requires in particular that rules imposing charges on a taxpayer be clear and precise so that he may be able to ascertain unequivocally what his rights and obligations are and take steps accordingly”. The CJEU also states that the principle demands that a legal subject can unequivocally know his rights and obligations and can make arrangements accordingly.
Several other rulings emphasize the importance of the proper application of the principle of legal certainty. We refer to the Bundesverband Güterkraftverkehr und Logistik (2003) and Plantanol (2009) rulings. In 2015, the CJEU concluded in the Veloserviss case that customs authorities must also respect the principle of legal certainty when revising origin in an audit. The CJEU also ruled that legal situations and relations must be foreseeable and that a taxpayer should not remain uncertain about their rights and obligations towards tax or customs authorities for an indefinite period. This ruling also indicates that the legal position must be clear not only before making a declaration but also afterward.
3. Principle of legal certainty According to the Amsterdam Court of Appeal
Considering the above rulings, it can be concluded that the principle of legal certainty has many facets and entails numerous conditions. We have been – and still are – of the opinion that in the case of the classification dispute over the hulls of (sea)ships, it is impossible to conclude that the criteria for classification were foreseeable and that the parties involved could determine their position clearly in advance.
That is also why, in the procedure before the Amsterdam Court of Appeal in 2020, we argued that, aside from the classification question, an additional assessment should be avoided because the principle of legal certainty was violated. However, the Court of Appeal ruled that this was not the case. Strangely, the Court of Appeal concluded that a breach of the principle of legal certainty only occurs “if the legislation is defective or entirely absent.” This seems to be an incomplete consideration, especially since the CJEU rulings indicate that the principle encompasses much more. It is therefore not surprising that we have filed an appeal with the Supreme Court on behalf of our client. But even the Supreme Court did react concerning the principle of legal certainty.
4. The Principle of legal certainty in practice
All these rulings are significant, but the practical implications are what truly matter. For this reason, we have summarized the various considerations of the CJEU as follows:
The principle of legal certainty is a general and fundamental principle of Union law that requires a regulation imposing obligations on the taxpayer to be clear and precise. The taxpayer must be able to unequivocally know their rights and obligations and make arrangements accordingly. In other words, in the context of customs law, the taxpayer must know their legal position before making a customs declaration. This means that the legal rules, such as the legislation and related regulations concerning the classification of goods, must be sufficiently clear and precise, making their application foreseeable to the party involved. The party must be able to accurately determine the scope of their obligations in advance.
In a (judicial) procedure afterward, it must be assessed whether the party involved could precisely know their legal position and whether they could determine the extent of obligations and assessment bases with accuracy. This is particularly relevant in the context of an audit by customs authorities leading to an additional assessment. The principle also requires that the taxpayer should not remain uncertain about their rights and obligations towards tax or customs authorities for an indefinite period.
There are various situations where serious questions can be raised about whether the principle of legal certainty has been adequately observed. The classification of ships – where the criteria were insufficiently clear – is not the only example. Many other cases show conflicting positions between authorities of different member states or even within a single member state. It is not uncommon for the European Commission to publish a classification regulation making an arbitrary choice. Reports from committee meetings reveal that many different and conflicting positions are taken, with only one being chosen as legally correct. In areas such as origin or customs value, some elements or criteria are unclear, leading to prolonged litigation to achieve clarity. In such cases, we believe a breach of the principle of legal certainty can indeed be argued.
Various formalities have also seen differing and conflicting positions over time. Examples include the extended assessment period in the Netherlands (three or five years) or how special arrangement permits (such as for inward processing or end-use procedure) should be applied. An issue that still needs to be clarified is the consequence of a breach of the principle of legal certainty. Does this mean that no additional assessment can take place at all, or are there circumstances where a breach, while occurring, does not necessarily have to have consequences? Some parallel can be drawn with the right to defense. The future will reveal more.
5. Conclusion and follow-up
It should be clear that this is not the last publication on the principle of legal certainty. In various situations, it can be argued that an additional assessment might be justified—such as when an incorrect commodity code is used—but that actually carrying out the assessment violates the principle of legal certainty. Not every situation lends itself to this argument, but there are several cases where the principle of legal certainty should be considered more seriously in relation to additional assessments.
Our office
will continue to litigate these issues in the future. If you think that an
additional assessment might be contrary to the principle of legal certainty and
would like to discuss our perspective, please feel free to contact Bart Boersma.