For a long time, Dutch Customs has taken the position that the five-year period can be applied by default in case of an error(s) in the customs declaration. The Dutch State Secretary announced on 22 February 2023 that this is undesirable and should be changed. Later, an amendment to the law was announced on Prinsjesdag 2023, from whence it follows that the five-year term will indeed no longer apply as the standard period.
1. Recovery period: the legal framework
Because Customs wishes to interrupt the logistics
chain as little as possible, authorities have many opportunities to check
retrospectively. The Union Customs Code (article 103 DWU) stipulates that
Customs can impose a customs debt, the invitation to pay, retrospectively.
However, this must then take place within three years after the customs debt is
incurred. The three-year period can be extended if there is an act that was
liable to give rise to criminal court proceedings at the time it was committed.
The extended recovery period in that case is five to ten years. The national
legislation of the member states will determine, which period actually applies.
In the Netherlands, the extended recovery period is
five years. This is stipulated in Article 7:7 General Customs Act (ADW).
Article 7:7 ADW stipulates "When the customs debt has arisen as a result
of an act which, had it been committed in the Netherlands, would be liable to
criminal prosecution, the assessment notice may take place within five years
after the customs debt was incurred."
The content of this article has changed, however, with the entry into force of the DWU from 1 May 2016. Before 1 May 2016, Article 7:7 ADW still had a second paragraph. That second paragraph stated, "The first paragraph shall not apply to persons whose acts or omissions were not aimed at evading import duties."
The second paragraph ensured that the five-year period would not be applied to each minor mistake. This is because Dutch (customs) criminal law has established that even the minor error is an offence. However, as a result of the lapse of paragraph 2, every inaccuracy in the customs declaration, no matter how small or large, can lead to a extended five-year period instead of the regular recovery period of three years.
2. Dutch Customs’ position incorrect
At least ... that is the explanation of Dutch Customs. In our opinion, this view is incorrect.
The UCC does not at all indicate that the extended recovery period must be applied by default if a declaration is incorrect. It is, however, the way in which the inspector currently applies the recovery period. We consider such an approach contrary to the law and the intention of the law. After all, the legislator did not intend that after 1 May 2016, the extended recovery period should be applied in (almost) all cases.
3. Secretary of state: situation undesirable and has to change
This issue – applying the extended recovery period by default – has been receiving lots of political attention for some time now. The State Secretary reported in the 'state of affairs letter' dated 4 July 2022:
The business community has expressed concerns about the application of the extended recovery period and the Ministry of Finance has been in discussions with the business community about the extended recovery period. In close consultation, the matter, including the community’s suggested solution, has been examined.
The Secretary of State recently has provided clarity. On 22 February 2023, the State Secretary informed that the current situation is undesirable. The State Secretary admitted that the current national legislation leads to the fact that in almost all cases – where there is an incorrect or incomplete customs declaration – the extended recovery period can be applied. As a result, the regular recovery period of three years, as stated in the Union Customs Code, is rarely if ever applied in The Netherlands.
Because the foregoing creates an undesirable situation, the State Secretary intends to amend part of the sanction system in the General Customs Law, so that the regular recovery period of three years can be applied in regular situations. The aim was to bring this change into effect on 1 January 2024.
4. Legislative amendment from 1 July 2024
After many months had passed, the tax plans for the year 2024 were presented on Prinsjesdag 2023. The tax plan includes the amendment to the customs legislation. It follows from the plans that situations that where an unconscious error was made (i.e. not intentional), this situation will no longer be a criminal act as of 1 July 2024. The intention is then that enforcement of this error will only take place with an administrative fine. As a result, the extended recovery period of article 7:7 ADW does not (or no longer) apply so that – as has always been intended – the regular recovery period applies. Only in case of an intentional error, the extended recovery period of five years can still be applied.
Although this bill has many advantages in particular – not least that the five-year period is applied much more selectively – declarants must bear in mind that there is still a possibility that an administrative fine will be imposed. For this purpose, a new provision is being included in the General Customs Law (Article 9:1a) which allows an administrative fine to be imposed. Depending on the situation, this fine amounts to a maximum of EUR 1,377 or EUR 5,514. An administrative fine also means that if a party concerned does not agree with it, an objection (and appeal) must be lodged.
The proposed (positive) changes will not apply immediately. The new provisions will apply only from 1 July 2024. Until then, Customs can apparently still apply unwanted and incorrect legislation.
5. Transitional provisions
Besides the fact that the change will only be introduced on 1 July 2024, the legislator has introduced another transitional provision allowing the inspector to apply the extended recovery period even longer. For returns accepted between 1 July 2019 and 1 July 2021, the extended recovery period can continue to be applied after 1 July 2024 (until 1 July 2026).
The bill states: ''The amendments have - without a transitional measure - so-called immediate effect, i.e. the amendments then also apply to all situations already existing on 1 July 2024 in which the extended post-clearance recovery period may already have been applied. For customs declarations accepted between 1 July 2019 and 1 July 2021 and data transmissions made during that period, this could lead to inequality. If the criminally actionable act was established before 1 July 2024, an extended post-clearance period of five years will apply. Whereas if in respect of the same customs declarations and supplies, the new provisions would apply from 1 July 2024, no extended post-clearance period would apply. This disparity could result in import duties for that period having to be refunded because there is no longer an extended post-clearance period for the period in question. These refunds would be charged to the treasury because the relevant import duties would have to be remitted to the EC.''
As a result of this transitional provision, a declarant may therefore still face the extended post-clearance recovery period until 1 July 2026, while the State Secretary has confirmed that this is undesirable. The interests of business have been completely lost from sight in this regard. Indeed, the legislative amendment clearly states that this transitional provision is based on the "risk of repayments and additional remittances charged to the State Treasury".
6. ''May' rather than 'must'
We are grieved that the business community continues to suffer from incorrect and undesirable provisions for so long and therefore believe that this approach cannot be accepted. Naturally, we will draw attention to this in the Customs Business Consultation (ODB). All the more relevant here is that applying the extended post-clearance period is not a duty but an option. After all, article 7:7 ADW does not state that post-clearance recovery must be made over a period of five years, but that post-clearance recovery can be made over a period of 5 years. The lack of an obligation should still lead Customs – especially with the insight of the Secretary of State and the change in the law – to a flexible application of the current provisions.
If you want to know more about this subject, feel free to contact us.