27.2.2007   

EN

Official Journal of the European Union

C 44/1

I-IV

1-13

1-4

5-13

14-18

14-15

16-18

19-66

20-25

20-23

24-25

26-27

28-54

28-49

50-54

55-66

55-62

63-66

67-74

69

70-72

73-74

DG BUDG

Budget Directorate-General

DG TAXUD

Taxation and Customs Union Directorate-General

EC

European Communities

EEC

European Economic Community

EU

European Union

EWS

Early warning system

MCC

Minimum common core

NCTS

New computerised transit system

OJ

Official Journal of the European Union

OLAF

European Antifraud Office

I.

Between 1990 and 1994 the transit system was affected by fraudulent activities which caused an estimated revenue loss of 320 million ecus to the Community budget. Computerisation of transit procedures, the reform of the legal base, and enhanced physical checks based on common risk analysis were recommended by the European Parliament, by the Council, and by the European Court of Auditors.

II.

In response to these recommendations, the Commission presented an ‘Action plan for transit in Europe’ in 1997. In 2001 it put in place a revised legal framework and until the end of 2005 coordinated the implementation of a new computerised transit system (NCTS), designed to exchange electronic messages between the customs offices of all the Member States.

III.

The Court examined the application of the new legislation and the implementation of NCTS in 11 Member States, focusing on clearance of transits, collection of any customs duties on them and fraud prevention. The main findings were as follows:

IV.

A lack of data on fraud and deficient risk management in the Member States call for coordinated action at European level. The Commission should have access to detailed NCTS information for risk analysis purposes and on the basis of best practice should be able to promote strategies for targeted physical checks on goods in transit.

1.

Customs transit simplifies customs formalities and facilitates the movement of goods throughout the territory of the Community, by temporarily suspending the duties and other charges on goods imported into the Community until they reach their final destination. Actual customs formalities are shifted from the border to the place of final destination.

2.

Community transit applies to:

3.

The main risk of Community transit is that non-Community goods are unlawfully removed from customs supervision and diverted to the domestic market without payment of customs duties and other taxes, especially value added tax and excise duties.

4.

Given the suspensive and temporary nature of a transit, customs authorities tend to regard control of transits as low priority. In order to cover the financial risks, transits are usually secured by a guarantee assuring the payment of duties, taxes and other charges. The guarantee can be either an individual guarantee covering a single transit operation or a comprehensive guarantee covering a number of transit operations (1).

5.

In the early 1990s, increasing fraud in transit was reported. Estimates of losses to the Community budget between 1990 and 1994 (2) amounted to 320 million ecus, before taking account of subsequent clawback from Member States, with even bigger losses of national taxes. At the time, the Council (3) and the European Parliament Temporary Committee of Inquiry into the Community Transit System (4) recognised computerisation and legal reform of Community transit as key elements for fighting fraud, a view which was supported by the Court in its Annual Report for 1994 (5).

6.

Until the system was computerised, Community transit declarations were made out on paper. The originals of the declarations were kept at the office of departure and the copies accompanied the consignment through to the customs office of destination. The latter then had to return a document to the office of departure as notification that the consignment had arrived and had to indicate whether or not any irregularities had been detected. The procedure was slow and involved many risks.

7.

The Commission therefore presented the ‘Action plan for transit in Europe’ (6), in 1997, together with a list of measures aiming to manage the risks of the transit system and to reduce its vulnerability to fraud. The measures were concerned with the implementation of computerised transit, streamlining of the transit procedure, a reinforcement of control activities at all levels, and lastly, enhanced cooperation between different customs administrations and between customs and traders. At the same time it initiated a revision of the transit legislation.

8.

In 1999, the legal basis for the NCTS (new computerised transit system) project was adopted. NCTS aimed to replace the existing paper-based Community transit procedure by a computer-based exchange of electronic messages between the customs offices involved, and at a later stage, between traders and customs.

9.

In the fight against transit fraud, NCTS was to serve a double purpose, as it would:

10.

Diagram 1 shows a standard NCTS transit procedure.

11.

In 2001, in parallel with the computerisation, the Commission presented a reform of the legal base for the transit system (7) introducing new provisions which aimed, inter alia, to:

12.

NCTS was implemented in several phases. The ‘core business’ (9) was achieved by 30 June 2003 in EU-15 and the Commission then continued to provide assistance to the implementation of NCTS in the accession countries. The subsequent phases included computerised handling of guarantees and enquiries and were completed in January 2006.

13.

Since 1 July 2005 Community transit declarations must, as a general rule, be lodged electronically (10). Commission statistics show a rise in the number of NCTS transit movements, from around 5,5 million in 2004 to more than 7,5 million in 2005.

14.

The objective of the Court’s audit was to obtain assurance that the Member States were applying the revised legal provisions correctly and that the new procedures for transit had been well coordinated by the Commission and correctly implemented by the Member States in a way which protected the EU's financial interests effectively.

15.

A second objective was to analyse the implementation of the measures recommended by the European Parliament, the Council and the Court, and more specifically, the measures envisaged in the Commission's action plan. The emphasis here was on review of the new system’s vulnerability to fraud and how this is followed up by the Commission services.

16.

A questionnaire was sent to all Member States to collect recent transit-related data. Between May 2005 and January 2006 audit visits were performed in 11 Member States which account for almost 80 % of NCTS transits (11).

17.

These audits covered:

A total of 620 files and 26 transit declarations were examined during the audit.

18.

The role of the Commission services was also analysed, especially the coordination and management work done by Taxation and Customs Union Directorate-General (DG TAXUD), the control activities carried out by Budget Directorate-General (DG BUDG) in relation to transit, and OLAF involvement in preventing and fighting fraud.

19.

Annex I gives an overview of the main weaknesses observed in the countries visited.

20.

The Commission has coordinated the implementation of the NCTS project in the Member States and put considerable effort into establishing assistance and monitoring tools. The Commission also developed the standard NCTS application MCC (Minimum Common Core), and is responsible for its maintenance. MCC is used by 15 Member States, the other 10 Member States having chosen to develop their own national transit applications.

21.

Work has largely been outsourced using the standard tendering procedures. In 2005 the Commission's internal audit service reviewed the organisation, planning and management of the NCTS project and found them very satisfactory. On the other hand, it criticised the fact that no operational agreement existed between the Commission and the Member States regarding the management of critical situations affecting availability and continuity of NCTS.

22.

Transit computerisation is required by the legislation, as a general aim of Community Customs Policy (12). Commission services have therefore emphasised their role as coordinator of the NCTS project whereas the actual monitoring of NCTS implementation is Member States’ responsibility.

23.

As part of their coordination activities Commission services have made regular visits to Member States to provide assistance and technical support.

24.

Tests and checking performed by the Commission have not been able to prevent some IT control environment problems.

25.

Five of the Member States visited, four of them using MCC, experienced serious compatibility problems when trying to integrate NCTS into their existing national IT environment, e.g. in order to check that every completed transit is followed by another customs procedure, or to use existing risk profiles. Four of them eventually preferred to maintain NCTS as a stand-alone system and did not interface it with their national customs IT systems.

26.

DG TAXUD ensures that Community customs law is uniformly applied by national administrations. DG BUDG carries out regular inspections on traditional own resources, during which compliance with the applicable customs provisions is also checked. DG BUDG also cooperates closely with DG TAXUD on customs policy questions arising from these inspections.

27.

Traditional own resources inspections specifically focusing on transit were not made between 2001 and 2005, as the Commission had decided to await the full implementation of NCTS before embarking upon any extensive examination. Nevertheless, the implementation of the core business element of NCTS was operational in June 2003 (see paragraph 12) and the major elements of the legal reform were effective in 2001. Transit is the main subject in DG BUDG's 2006 inspection programme.

28.

Following the reform of the legal base (see paragraph 11), the Commission specified details of the transit procedures in a handbook agreed by national administrations and available in 19 Community languages, called the Transit Manual (13).

29.

Member States were still not applying the revised legal provisions correctly: cases of divergence from the provisions in force (some of a formal nature) were found in 392 of the 620 files reviewed during the audit.

30.

Economic operators in the European Union most commonly use comprehensive guarantees and the status of authorised consignor/consignee as simplifications of transit procedures. Article 373 of the provisions implementing the Community Customs Code specifies the general conditions governing persons applying for these simplifications (see Annex II).

31.

Using a comprehensive guarantee makes it possible to cover numerous transit operations with one instrument. The guarantee is applicable up to an average amount of customs duties and charges (the reference amount), which must be reviewed annually by the customs office concerned (14).

32.

Having the status of an authorised consignor with comprehensive guarantee status allows transit operations to be started without the goods being presented at customs. Similarly, an authorised consignee can end a transit procedure without presenting the goods to customs.

33.

If a trader wants to benefit from a reduction of the guarantee or a guarantee waiver or wants to transport sensitive goods under the transit system, the reliability criteria applicable are stricter. Box 1 sets out the criteria which applicants for comprehensive guarantees covering normal and sensitive goods have to meet (15). Criteria for reduction of comprehensive guarantee or guarantee waiver

34.

Apart from the annual review of the reference amount, customs authorities are not obliged to carry out controls after authorisation. The holder of an authorisation is, however, obliged to indicate actively any factor arising which may influence its continuation or content (16).

Box 1

Criteria for reduction of comprehensive guarantee or guarantee waiver

35.

In six Member States, Customs could not deliver all the evidence to show that the conditions required for authorised consignor/consignee status had been checked prior to the authorisation. In five of them, Customs had not carried out verifications after authorisation to check whether the beneficiary still met the requirements.

36.

As regards the use of comprehensive guarantees, the situation gave cause for concern: in nine Member States, Customs did not have sufficient records proving that the beneficiaries met the required conditions when the authorisation was granted. In four Member States Customs accepted traders’ calculations of reference amounts, instead of carrying out the prescribed annual review. In one Member State, traders continued to benefit from guarantee waivers or comprehensive guarantees with reduced amounts, even when customs authorities had started enforced recovery proceedings against them.

37.

If a transit is not completed by the deadline, enquiries have to be started by the departure country in order to determine whether the transit ended correctly and whether a customs debt has been incurred. The revised provisions implementing the Community Customs Code introduced a considerable shortening of the deadlines for notification of the principal (20) and for the start of enquiries when computerised procedures are used.

38.

Notification to the principal and the start of enquiry proceedings now (21) have to be carried out simultaneously, immediately after the deadline for presentation at destination has expired, if the customs office of destination has not sent the arrival message (22). This requirement was not respected in any of the Member States visited.

39.

In general, national rules have a tolerance of two weeks before enquiry proceedings are started.

40.

However, 10 of the 11 Member States visited did not respect their own rules and started enquiries with delays well in excess of two weeks. In some Member States traders did not cooperate properly with Customs, which resulted in delays in clearance which in turn could potentially lead to late recovery of duties.

41.

In its annual report on the financial year 1994 the Court pointed out that the recovery procedures should be strengthened by focusing on the principal’s obligations and recommended a stronger and more harmonised penalty system.

42.

Until the introduction of computerised enquiry handling, the departure country of the transit sent a paper enquiry notice (TC 20) to the country of destination, asking for the specific information needed (23). The customs authorities of the Member State of destination were then required to respond to these enquiry notices without delay (24). In nine of the Member States audited, customs authorities reacted late to enquiry notices, or did not communicate the necessary information. In seven of these Member States investigation activities started with delays of several months, as the information forwarded often left unclear whether duties had ultimately been collected. These deficiencies led to late collection of duties.

43.

Most Member States visited expected that the introduction of the NCTS enquiry handling module (25) would solve such problems of communication. This could not be assessed by the Court’s audit, as the module had only recently been implemented.

44.

Finalised enquiries usually provide the information needed to establish the existence of a customs debt and determine which country has to collect the duties. In case of doubt the revised customs law lays down that the debt must be considered as incurred in the country of departure or entry at the latest 10 months after the goods were placed under a transit procedure (26).

45.

The previous legal provisions dealing with the recovery procedure had already caused application problems in two Member States. The Commission took action against these countries in the European Court of Justice and won the cases (27).

46.

Member States interpreted and applied the new provisions in different ways. In ten of the eleven Member States visited, the 10-month deadline was generally not respected, often with considerable delays. In two Member States, Customs awaited the elapse of the 10-month period, although the necessary conditions for the establishment of the debt had been fulfilled long before this deadline. In one of the EU-10, 18 months after accession, almost no recovery action had started for any such cases at the customs offices visited.

47.

Community regulations do not specify a precise time limit for the start of recovery proceedings in countries of destination of a transit. However, as soon as customs authorities learn that a customs debt has been incurred in their country following a non-completed transit and they can determine the debtor and the amount of duties, they have a maximum of two weeks to enter the debt in the accounts (28).

48.

In the Member States visited such cases were rarely handled speedily, so delaying collection of own resources. In three Member States, consignees of goods had themselves informed the customs authorities and asked for duties to be collected, but the authorities started recoveries only after delays of several months.

49.

As already highlighted by the Court in its Annual Report on the financial year 1994 and its Special Report No 8/99 on securities and guarantees (29), Member States reported that the value and commodity code were not always mandatory information on transit declarations under Community regulations and that this often caused delays in recoveries. In two Member States, however, customs authorities required traders to provide such information before starting a transit.

50.

As with all customs debts discovered after the event the Community Customs Code (30) stipulates that where debts are due on non-completed transit movements these must be entered in the accounts within two days of the date on which the amount of duty and the debtor become known. This time limit may be extended to 14 days in certain cases provided for in the Customs Code (31).

51.

In 10 of the 11 Member States visited it was noted that account entries had been made late, after the 14-day deadline. The delays were due to inadequate enquiry procedures. In five Member States account entries were affected by other delays, because of the complexity of recovery procedures. Of the 194 recovery files checked during the audit, 110 were found to have late entries in the accounts.

52.

Member States must keep detailed accounts according to the own resources regulation (32). They must aggregate the data arising from individual account entries in the A account, and make the total amounts of duty established, less collection costs, available to the Commission in the second month following the month in which the entitlement was established. As an exception, duty that remains unpaid and unsecured, or is secured but under appeal, need not be made available until it is actually collected. If Member States exercise this option, the duty concerned shall instead be entered in a separate account (the B account) (33).

53.

Member States follow different practices for accounting for own resources owed for recoveries after non-completed transits. In one Member State duties on non-completed transits covered by an individual guarantee were entered in the B accounts. Three Member States considered that the actual amount covered by comprehensive guarantees is unknown at the moment when the recovery note is issued and that therefore no amount can be entered in the A account. These Member States entered the full amount of the duties in the B account, i.e. they treated these amounts as if no guarantee had been provided. The same practice was found at customs offices in two further Member States.

54.

In order to eliminate divergent interpretations the Commission stipulated that secured duties be entered in the A account, and others in the B account. In the case of comprehensive guarantees Member States did not always follow the Commission's interpretation. As a consequence, the Commission started proceedings before the European Court of Justice concerning the proper accounting treatment of secured duties.

55.

NCTS impedes certain forms of fraud, such as the use of forged or false stamps or guarantee certificates, and allows the enquiry process to be speeded up in cases where transits are not completed. However, computerisation cannot prevent misdescription or intentional false declarations that seek to abuse the system.

56.

An assessment of the effectiveness of the reform of the transit system, in terms of reducing transit fraud, would require reliable and complete data on fraud at EU level. The audit showed, however, that the reliability and completeness of the available main sources of data on fraud and irregularities in transit at EU level cannot be assured.

57.

The Commission carries out continuous analysis of non-completed NCTS transit movements. The data available showed a reduction by half between 2004 (2,5 %) and 2005 (1,2 %). However, this analysis of NCTS transits ignores those taking place on the territory of a single Member State (34), although such transits account for a considerable number of all NCTS movements.

58.

The OWNRES database contains data on cases of fraud and irregularities relating to own resources and involving amounts in excess of 10 000 euro communicated to the Commission (DG BUDG) by Member States under the own resources regulation (35).

59.

Despite the Commission's efforts to improve the quality of the OWNRES data, it is still not adequate. Nevertheless the OWNRES data are the only source used in the recent Commission annual reports on the fight against fraud and show, in contrast to other sources, an increase in the number and value of cases of fraud and irregularities reported for the transit area between 2001 (year of the legal reform) and 2005. Further measures will be necessary to establish a reliable source of information for analysis of fraud in the various Community customs procedures.

60.

The early warning system (EWS) was introduced in 1992 using the concept of sensitive goods (see paragraph 11). The practical operation of the EWS is similar to NCTS: the office of departure sends a prior arrival notification of transits referring to sensitive goods to the office of destination and the office(s) of transit, as appropriate, and to OLAF.

61.

According to OLAF the percentage of non-arrival communications as notified by Member States in the years 2004 and 2005 was 20 times lower than in the first quarter of 1998 alone.

62.

However, because of the introduction of NCTS and the similarity of the information to be put onto the two systems, Member States apparently consider that NCTS is sufficient and have stopped inputting data to the EWS. OLAF, however, has no access to the data contained in NCTS transit declarations. A revision of the administrative arrangements was adopted in January 2006 in order to provide OLAF with access to data concerning movements of sensitive goods from 2007 onwards.

63.

A proper balance between trade facilitation and effective protection of the Community's financial interests calls for appropriate risk management and risk-based checking of transits.

64.

The Court found that transit risk analysis was still rudimentary in many Member States. Only one country applied random selection by the IT system in order to maintain an uncertainty factor for all traders. Only three of the eleven Member States visited applied automated risk analysis integrated into NCTS with specific risk profiles for transit. Customs authorities in these three Member States considered the fact that the commodity code was not compulsory for transit declarations was a serious obstacle to the implementation of effective checks on transits. The Court’s Special Report No 8/99 pointed out that checks by Community customs authorities were hampered by the absence of provisions requiring information on the nature and value of goods to be included in the single administrative document.

65.

Identification of risks and checks on goods still depend on the personal initiative of individual customs officers. Most of the Member States visited considered checks on transit consignments as low priority, partly because of the scarcity of information on transit declarations. In five Member States the Court found particularly low rates of physical checks on transit consignments (around 1 %), while almost no checks were made on authorised consignors/consignees in seven of the eleven Member States visited.

66.

NCTS provides the Commission with statistical data on the number and status of transits and the countries involved, but not with goods or trader-related data that might allow more refined analysis. Moreover, the Commission services have not so far carried out analyses of transit fraud patterns, undertaken intelligence activities in the same area, nor yet developed transit-specific risk analysis tools.

67.

The Commission has put in place the key elements of the action plan for transit and in particular has computerised the transit procedure and concluded a reform of the legal base (effective in 2001).

68.

The Court’s audit work on Community transit has confirmed the good quality of NCTS implementation, even though some technical problems still persist. It has also identified certain shortcomings in the application of legal provisions on transit and related provisions on traditional own resources. At both Community and national level, deficiencies were also found in the measures designed to counteract fraud in transit.

69.

The Commission has successfully coordinated the implementation of the NCTS project in the Member States. However the IT environment in some Member States has not allowed the system to operate optimally (see paragraphs 20 to 25).

The Commission should:

70.

As of the end of 2005, the Commission had not carried out any specific inspection activity on transit in order to assess whether the legal reform concluded in 2001 was being implemented effectively (see paragraphs 26 and 27).

71.

Member States often did not apply the revised provisions correctly. The Community customs regulations provide that transit procedure simplifications may only be authorised for reliable traders who meet specific criteria. The audit detected a lack of checks on compliance with these criteria — this could potentially harm the Community's financial interests (see paragraphs 30 to 36). The enquiry procedure was found to be cumbersome and Member States had neither applied the regulations in force, nor shown the necessary diligence once an enquiry had been launched. Implementation of the new NCTS procedures is too recent for their impact to be measured (see paragraphs 37 to 43). Lastly, recovery proceedings were often started late, with the result that traditional own resources were not collected or made available at the proper time (see paragraphs 44 to 49).

72.

The late entering of non-completed transits in the traditional own resources accounts was linked to variations in the accounting procedures applied or, quite simply, to incorrect application of the regulations, particularly as regards guarantees (see paragraphs 50 to 54).

The Commission should consider the shortcomings detected by the Court’s audit when it drafts implementing rules on authorised economic operator status (36).As regards enquiry procedures, the Commission should:

73.

The sources of information available to the Commission regarding transit fraud are still not reliable enough to allow an assessment of the part played by the legal reform and the NCTS project in terms of fraud reduction and analysis of the cases presumed to follow it (see paragraphs 55 to 62).

74.

Commission services have not yet carried out analyses of transit fraud patterns nor developed transit-specific risk analysis tools. Systematic risk management for transit is rudimentary or non-existent in many Member States and only a few of them have risk profiles integrated into NCTS. The number of physical checks on transit consignments is very low in some Member States, and in some they are non-existent (see paragraphs 63 to 66).

The Commission should take measures to improve the reliability of sources of information on fraud, and should make better use of them by developing risk management strategies.The Commission should consider promoting a reasonable rate of targeted physical checks on transit consignments and should also consider the possibility of building automated risk profiles specifically for transit, as part of the development of the common risk management framework (37).