The post-clearance recovery of customs duties time-barred; or not?

Customs law is, more than other fiscal areas of interest, mainly based on European and internationally established rules. For the European Union, the most important customs legislation as of 1 May 2016 can be found in three regulations, including the so-called Customs Code of the Union (hereinafter: UCC)[1]. At the time, these regulations replaced the so-called Community Customs Code (hereinafter: CCC)[2] and the associated implementing regulation.

Limitation period and suspension of the period

The UCC provides that the limitation period for a customs debt is normally three years (Article 103 (1) UCC). This means that customs has a period of three years to recover an incurred customs debt (in practice three years after goods have been imported into the EU). The limitation period was laid down in the CCC in art. 221, paragraph 3 CCC. Even then, this period was three years.

Imposing of customs duties takes place by sending a tax assessment.

The UCC contains a provision that did not appear in the CCC. This provision means that before a tax assessment is imposed, customs must notify the debtor of its intention to impose this assessment. In doing so, the customs must indicate the underlying grounds (Article 22, paragraph 6 in conjunction with Article 29 UCC).The limitation period is then suspended from that moment until the end of the period during which the customs debtor is given the opportunity to make his position known (Article 103 (3), preamble and part b UCC in conjunction with Article 124 (1) UCC). This period is normally 30 days. Effectively, customs then has 3 years plus 30 days to impose a tax assessment.

The CCC did not stipulate that the debtor had to be informed of that intention before the imposition of a tax assessment.

Preliminary rulings from the Supreme Court to the Court of Justice of the EU

The question is whether for a customs debt that arose before 1 May 2016, due to the transition from the CCC to the UCC, the rules for limitation of Article 221 CCC or those of Article 124 UCC apply. And whether Article 22, paragraph 6 of the UCC could have the effect of suspending the current limitation period, whereby the final date on which customs could impose a tax assessment is postponed ('stretched') to after the date on which the customs debt under the CCC time-barred.

In addition, the question is whether the possible application of Articles 103 and 124 UCC is contrary to the principle of legal certainty or the principle of protection of legitimate expectations.

Because this concerns the interpretation of European (customs) legislation, the Supreme Court submitted preliminary questions to the Court of Justice of the EU (hereinafter: CJEU) on 20 January 2020[3].

Facts in the preliminary ruling proceedings

In the present proceedings, Jumbocarry Trading GmbH (hereinafter: 'Jumbocarry') filed a declaration on 4 July 2013 for the release for free circulation of porcelain goods stating Bangladesh as the country of origin. This resulted in a preferential customs tariff of 0%.

Subsequently, customs informed Jumbocarry on June 1, 2016 of the intention to impose a tax assessment. According to the inspector, the certificate of origin was false and so Jumbocarry still had to pay 12% customs duty. The interested party was given the opportunity to express its position on this within 30 days.

On July 18, 2016, the inspector issued a tax assessment. Jumbocarry then takes the position in the proceedings against the tax assessment that the customs debt was time-barred because three years had elapsed since it incurred (on 4 July 2013).

Both the Noord-Holland District Court and the Amsterdam Court of Appeal have previously ruled in favor of Jumbocarry.[4]

Advisory opinion CJEU

Advocate general (hereinafter: AG) Campos Sánchez-Bordona has recently delivered his advisory opinion in anticipation of the judgment of the CJEU[5].

The AG first discusses two aspects that arise from questions that the Court of Appeal previously put to the parties in the preliminary ruling proceedings and that might render the interpretation of the above-mentioned CCC and UCC provisions to which the questions relate superfluous.

Extension of the limitation period due to an act prosecutable?

As explained above, the limitation period was and is normally three years after the incurrence of a customs debt. At the time, Article 221 CCC provided that this limitation period could be extended if the facts underlying the customs debt were liable to criminal prosecution. In the Netherlands, the extended limitation period was (and is) 5 years.

According to the AG, everything seems to indicate that the extended period is at issue in this case, because the inspector stated that there were false certificates of origin. If the Supreme Court could (still) confirm this, then the limitation period would not have expired in any case and answers to the questions referred for a preliminary ruling could not be given.

It does not appear from the procedural documents that the question whether in the present case there is a prosecutable act in the previous (Dutch) proceedings before the court and the court of appeal was discussed at all, so that in my opinion, during an appeal in cassation before the Supreme Court cannot (yet) be investigated whether criminally prosecutable acts have been carried out[6].

Moreover, Dutch customs legislation at the time stipulated that the limitation period could only be extended if the actions or omissions of the customs debtor were aimed at evading import duties[7]. Even if there were false origin certificates, the procedure has not yet established that the action of the interested party was aimed at the evasion of import duties.

The first aspect to which the AG refers, that is to say whether the extended limitation period could apply in this case, should therefore in my view not play a role in the Dutch proceedings.

Also suspension under the CCC?

The AG then points out that although the prior notification of the customs debt was not explicitly included in the CCC, the case law of the CJEU already showed at the time that this prior notification was already mandatory at that time[8].

Therefore, according to the AG, by analogy with the current provisions in the UCC, such a (prior) notification can also be read in the provision of Article 221 CCC and the period is therefore suspended, also under this provision.

This reasoning is a step too far for me. The Court of Justice may only interpret EU legislation, but may not supplement it. The period of limitation is substantive law that, although open to interpretation and / or further explanation, may not be given an expanding or restrictive effect. The AG's reasoning would, in my opinion, extend the substantive law on the period of limitation inadmissible. It is clear to me that Article 221 CCC (exclusively) concerned the notification of the customs debt - that is, the tax assessment itself (and not the prior notification). Moreover, at the time, Article 221 CCC only regulated a suspension of the limitation period for the duration of the appeal procedure. This is very different from the suspension of the period in connection with a prior notification of the tax assessment.

Answers to preliminary questions

After an extensive analysis of the two aspects mentioned above, the AG then proceeds to answer the preliminary questions of the Supreme Court.

The AG comes to the conclusion on the basis of previous jurisprudence that article 221 CCC must be regarded as a substantive rule. This therefore also applies to the corresponding provision in the UCC (Article 103 UCC). This means that, due to their material nature, the provisions of the UCC cannot be applied to customs debts incurred before the entry into force of the UCC[9].

The prohibition on the application of new substantive rules to facts that took place before the entry into force of those rules, however - according to the AG - only applies to legal positions that were definitely acquired before the entry into force. Since on the date that Articles 103 and 124 UCC became applicable - that is, on May 1, 2016 - the three-year limitation period had not yet expired, the legal status of the customs debtor (Jumbocarry) was not yet definitively acquired. And so the AG concludes that the articles from the UCC can be applied[10].

This is inconsistent with my sense of justice. The rules of the game should not be changed halfway through the game. In my opinion, the moment of import (i.e. the moment when the customs debt is incurred) should determine the question of which rules apply - including the rules on the limitation period.

Finally, according to the AG, the application of Articles 103 and 124 UCC is not contrary to the principle of legal certainty or the principle of legitimate expectations for several reasons. One of the reasons would be that the introduction of article 103 UCC did not in fact entail any change from the previous legal situation based on previous case law of the CJEU (see in this regard the second aspect discussed above regarding the interpretation of Article 221 CCC and the comments attached to it).

The AG also notes that any diligent customs broker could be familiar with the CJEU's interpretation of the (temporal) applicability of procedural and substantive rules with regard to future consequences of legal positions not yet definitively acquired. According to the AG, the case law is constant and goes back to 1981. Of course a customs broker can be expected to act with due care, but that this also means that he could be familiar with this complex matter as to whether or not applying the new or old provisions is going too far in my opinion. The mere fact that the Supreme Court felt compelled to ask questions for a preliminary ruling indicates that this matter is far from simple. In addition, the (two) Dutch courts previously ruled in favor of Jumbocarry.

Judgment of the Court of Justice

We now have to wait for the final judgment of the CJEU. The procedure is followed with interest by many importers in the Netherlands, because, where possible, they submitted the limitation period argument at the time in ongoing objection and appeal procedures and are therefore dependent on the decision by the CJEU. As far as I am concerned, there are at least enough arguments that argue in favor of a different view than that of the AG.