On 15 November 2023, the European Public Prosecutor’s Office (“EPPO”) uncovered a EUR 200M customs and VAT fraud scheme. This is yet another case of the EPPO, launched in 1 June 2021, as the first new supra-national prosecution authority in the EU. The EPPO has the power to investigate, prosecute and bring to judgment crimes against the EU budget, such as fraud, corruption or serious cross border fraud. This can also include cases on circumvention of anti-dumping duties (see our recent blogpost here). Notably, participation of EU Member States in EPPO is for now optional, with Member States such as Denmark, Hungary, Ireland, Poland and Sweden not participating (so far).
In this case from the EPPO, multiple locations were raided in Germany and the Netherlands to tackle an allegedly criminal organization that put in place a complex system to undervalue and evade custom duties and VAT. The supposed scheme involved importing high quantities of goods, such as textiles, shoes and small electronic items from China to EU countries using fake invoices. Furthermore, an exemption associated with an EU importation procedure called “Customs Procedure 42” was reportedly abused. Under this procedure, goods can be imported into an EU Member State exempt from import VAT, if the same goods are shipped to another EU Member State right after importation. The goods at hand were in fact not actually shipped to another EU Member State after importation, and shell companies were used with forged documents and false information on the goods and transport documents.
We note that abuse of Customs Procedure 42 was also the cause of one of the largest investigation’s by the European Anti-Fraud Office (or OLAF) that eventually resulted in a ground-breaking case between the European Commission and the United Kingdom under case number C-213/19. In its Impact Assessment Report for the new customs reform, the European Commission also indicated this procedure as being prone to fraud. This assessment already led to changes in this procedure in the recent Action Plan of the Commission to avoid such fraud, resulting in a modification of Council Regulation 904/2010 in 2018 (see our recent blogpost about these changes here).