Customs Fraud May Lead to a €2 Billion Bill for the UK

Dear Friends,

We are writing to let you know about an interesting story involving potential customs valuation fraud in the UK that could have meaningful implications for importers, as well as for Brexit.

It is being widely-reported this week that the European Union Anti-Fraud Office (commonly known as “OLAF” for the French — Office Européen de Lutte Antifraude) claims that the United Kingdom owes the European Commission €2 billion (~$2.1 billion) in lost customs revenue.  The claim is based on an allegation that HM Revenue & Customs failed to adequately address the widespread and deliberate undervaluation of imported apparel and footwear (i.e., articles with high duty rates) during the period 2013-2016.  OLAF’s investigation found that the fraud was committed by organized crime groups, who used false/undervalued invoices to enter goods through the UK for wider distribution throughout the EU.  The claim alleges that, while other member states took action to combat the fraud, HMRC did not, despite several warnings from OLAF.  The HMRC’s failure to stop this intentional undervaluation at the border resulted in a loss of €2 billion in customs duties, as well as several billion more in uncollected VAT in various member states.  OLAF has also claimed that the fraud is likely to be continuing, HMRC has still not done enough to address the problem.  OLAF has reportedly recommended that the European Commission use its powers to recover the €2 billion in lost customs duties from the UK.   HMRC is contesting the allegations.  More information about this story can be found here, here and here.

This story will have implications for anyone importing apparel, footwear or other dutiable items into the UK.  One would expect that the OLAF claim will lead to increased scrutiny of such imports by HMRC.  Importers of these articles can also likely expect increased audit activity.  This issue will also likely complicate the UK’s withdrawal from the EU (i.e., Brexit).  The UK is hoping to negotiate a favorable trading arrangement with the EU post-withdrawal, and the claim that the UK has not tackled blatant customs fraud, to the detriment of other EU member states, will not help that effort. 

We hope you find this helpful.  If you have any questions about these issues, or what you can do to prepare for greater scrutiny of your imports into the UK, please let us know.

Best regards,
Ted

 

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Customs Valuation Implications of Year End Transfer Price Adjustments

Dear Friends:

Just a quick reminder for those of you working at multinational companies which operate on a calendar year basis – do not forget to ask your tax colleagues whether any retroactive transfer pricing adjustments were made at, or before, year end.

If such adjustments were made (whether upward or downward), please be sure to consider the customs valuation implications here in the United States and elsewhere.  The failure to declare upward transfer pricing adjustments is becoming an increasingly common enforcement issue in many jurisdictions (largely because the issue is so easy to identify and often involves significant amounts/penalties); whereas downward adjustments could lead to a refund of customs duties, taxes and fees in some jurisdictions (including the US, the EU and, based on some recent developments, now Canada).  A quick note to your tax colleagues now could save a potential headache down the line.

As part of our customs compliance assessment process, we have developed a questionnaire tailored to these issues for sending to your in-house tax colleagues.  If you think the questionnaire would be helpful to you, just let me know.

Best regards,

Ted