Remain alert to possible breaches of the EU principle of respect for the right of defence

Since 1 May 2016, EU customs legislation has included explicit provisions on the right to be heard before the customs authorities take a decision that would adversely affect  the person concerned. This may be a decision of the customs authorities based on an application, or a decision without an application. Customs must inform the interested party of the intended unfavorable decision communicating the grounds for it. The person concerned must then be given the opportunity to express his point of view so that this view can be taken into account in the decision-making process. This is an extremely important right that should contribute to the quality and accuracy of decision-making by the customs authorities. In this blog Arjan Wolkers discusses the defence principle. In practice it is important to remain alert regarding the principle of respect for the right of defence  by customs. It appears not always self-evident that the  principle is respected.

The right to be heard prior to an adverse decision

The right to be heard in advance is codified in Article 22(6) of the Union Customs Code (UCC)[1] which states that before a decision that would adversely affect the person concerned is taken the customs authorities must communicate the intended decision stating the ground for it and give the opportunity to respond. Pursuant to Article 29 of the UCC, this also applies to decisions of the customs authorities that are not applied for, such as the notification of an (additional) customs debt.

In concrete terms, this means that the customs authorities, if they intend to impose an (additional) assessment for customs duties and other levies such as VAT or excise duties, must inform the customs debtor on what grounds they base this (intended) decision. The debtor is then given the opportunity to respond within a certain period of time (as a rule 30 days) and will (of course) try to get the customs authorities to change their mind. Article 22(6) in conjunction with Article 29 UCC is thus the codification of the Union law principle of respect of the right of defence, as it developed in case law of the Court of Justice[2] under the Community Customs Code[3] (CCC).

Direct reliance on the defence principle

Even before the EU customs legislation had explicit provisions on the right to be heard prior to adverse decisions of the customs authorities, customs debtors frequently appealed directly to the national courts for a breach of the defence principle. In practice, a customs debtor was sent a customs claim without first being informed by the authorities. In that case, no opportunity was offered to submit a point of view before the adverse decision was taken. The customs claim would then already be a fact and the person concerned had to resort to the appeal procedure[4] to have the claim annulled.   

There are several cases in case law where the debtor successfully invoked the violation of the Union law  defence principle and in which the customs claim was annulled by the court.

Different-outcome criterion

In general, the court applied the so-called 'different outcome test'[5]. Based on this test, violation of the principle of defence would only result in the annulment of the customs claim that had been imposed without prior notice and without the opportunity to respond, if, had it not been for such an irregularity, the procedure might have had a different outcome. In other words: the court investigated whether the customs debtor could have provided any input during the preliminary procedure that was relevant for the determination of the claim and in respect of which it could not be ruled out that this input would have resulted in a decision-making  with a different outcome. If that was the case, the claim was annulled. On the other hand, in the opposite case, where the court ruled that the different-outcome criterion had not been met, no annulment of the contested decision would follow.  

The court assessed each case based on the specific factual and legal circumstances of the case. If, for example, a debtor put forward a legal argument, it was examined whether this argument was so valid that it could have led to a different outcome[6]. But what also played a role was whether the person concerned could have argued that the customs inspector should have valued and interpreted the facts differently, so that he could not have come to the decision that was taken.[7] In a specific case at the Dutch Supreme Court, the fact that the inspector had offered a settlement during the phase of the administrative appeal also led to the conclusion that it could not be ruled out that the inspector's decision-making process could have led to a different outcome if he had complied with the obligation to send a notice in advance. Therefore, the claim was annulled after all[8].

Remain alert to possible violations of the defence principle

Again, the defence principle is now embedded in EU customs legislation. Explicit provisions on the right to be heard prior to an imminent adverse decision are included in the UCC. As a rule, a preliminary procedure takes place and a violation of the principle of defence is less likely to occur in practice than it when the preliminary procedure was not formally incorporated in EU customs legislation and was based on case law. However, that does not mean it is always going well. It remains important to critically examine in each single case  if the customs authorities comply with the defence principle. For instance, it is important that the customs authorities have granted full and timely access to the documents that should justify a possible customs claim (or other type of adverse decision pertaining to customs legislation). In our opinion, this is not only about the question of whether a preliminary procedure takes place, but also about the quality of this procedure.

Pursuant to Article 22(6) UCC, customs must communicate the grounds for the intended adverse decision. In our opinion, this means that the customs authorities must provide a clear and understandable substantiation of the intended decision, so that the person concerned is subsequently effectively enabled to exercise the right of defence in a meaningful way. Unfortunately, in practice, this is not always the case.

Decisions that are not comprehensible are announced or customs authorities fail to carefully state the factual and legal substantiation of the  proposed decision. The person concerned asks justified questions about the intended decision, but receives no or hardly any answer to such questions. We also quite regularly see that the party concerned provides a well-substantiated response containing valid defences  during the preliminary procedure. In the subsequent decision-making process, the customs authority does not seem to actually take this input into consideration. The wording of the customs claim does not or hardly deviates from the wording of the pre-notification, and the input of the party concerned is indeed summarized, but the customs authorities do not refute this with sound arguments. The preliminary procedure thus becomes a proverbial 'ritual dance'. There is indeed a preliminary procedure, but without actually respecting the right of defence.

The question is whether in such cases there is not in fact as much a violation of the principle of defence as in cases where no prior notice has been sent at all. In our opinion, the preliminary procedure should not be just a formality. The reference in recital 27 of the UCC to the EU Charter of Fundamental Rights makes it clear that the right to be heard prior to an adverse decision is a fundamental right. This means that the customs authorities must give the interested party the opportunity to respond adequately during the preliminary procedure. In our opinion, this also implies the proactive and timely provision of all relevant information, the clear announcement of a decision, which in itself is not incomprehensible, and the full substantiation of that decision based on the facts and regulations which can also support the decision.

Defence principle has a wider scope than customs duties

Furthermore, the principle of defence has a broader scope and does not only apply to the levy of customs duties. For example, the defence principle also applies to taxes where national provisions implement EU law. Typical examples are VAT and excise duties, where national legislation implements EU directives.

The Dutch Supreme Court recently ruled that if the taxpayer had been heard prior to the imposition of the additional liability to VAT, an input could have been provided that could have resulted in a decision with a different outcome. In that case, the tax inspector had not put forward any good reasons to justify not hearing the taxpayer before the imposition of the additional VAT assessment. The additional tax assessment was therefore annulled by the Supreme Court[9].

In our view it remains important to stay keen on possible breaches of the principle of respect for the right of defence.

Do you have any questions concerning this blog? Please contact Arjan Wolkers, customs specialist at Ploum Lawyers, team Customs Trade & Logistics.