e-Origin is driving a R&D project mixing digital technology and legal framework in customs clearance related to e-commerce. The research is led by the Customs Trade Law Academy (CTLA) at the University of Liège, which has set up an educational course at HEC-Executive Education for professionals.
In Part 2 of our 4 part interview, CTLA point out the difficulties to manage risk in customs clearance related to e-commerce. Automated tools to manage risk could be a support to reach AEO certification. The CTLA members interviewed were:
Because of his central role in the establishment of customs formalities, the customs broker is the privileged interlocutor of the customs authorities. If he is also a tax representative, for VAT for example, he will also be a tax representative for the AG Fisc. This is the reason why the commercial attractiveness must always be considered first in the sense of his interests and his professional reputation. Indeed, its first customer is and remains above all the customs authorities and as he needs to work in the long term and with a certain level of customs compliance, it cannot do it properly without screening his flow. It means that customs broker has to do a screening of his customers (UE legal entities’ importers) and through data he has to manage for customs clearance.
Through his ability to control tax (and non-tax) risks and his willingness to comply with regulations, the customs representative builds a reputation that allows him to have the tools to facilitate his daily operations and even to reduce the rate of control, if he can have an AEO certification.
What fraudulent exporters fears the most is that his package will be intercepted by customs at the time of delivery. Because at the end of the chain, there will be an unhappy customer. Customs authorities have risk analysis tools and random checks that act as a front line. They can still carry out ex-post controls for a minimum of 3 years.
In the same way, customs brokers must equip themself with risk analysis and internal control tools. This analysis will allow them to identify anomalies, or even possible frauds, even before the goods are declared. In consultation with their customers, brokers will be able to make the necessary corrections and ensure that the parcels arrive at their destination within the announced deadlines.
This analysis will also be useful for managing post-controls, since it will be able to respond immediately to requests for information from customs, and to provide all the evidence of the regularity of parcels and shipments. This is really useful as some controls take place several years after the shipment of the parcels, at a time when the commercial relations with certain carriers may have ended. In this case, the customs broker remains the only person to provide the information requested by authorities.
In General Cargo, the flow of goods is easier to analyze and control. Let’s take the example of a ton of electronic products imported by a large retailer in Europe. The retailer is generally the buyer and the importer. He will probably have carried out a screening of its supplier and of the products. He also would have checked all practical details of the transport to ensure that the formalities are carried out in a rigorous manner by his the customs brokers. In this case the shipment will be subject to a single declaration customs declaration. If the customs brokers wishes to carry out an inspection, it will have all the necessary support and the importer will be in the “back office” to provide all the additional information needed to complete the inspection. The data transmitted to the broker in charge of customs formalities can be considered reliable.
In e-commerce, there are many small packages carried in a single shipment. These packages come from multiple manufacturers and are destined for customers all over Europe. The key players in the transport process are usually neither the sellers nor the buyers, but intermediaries who consolidate the packages and work on behalf of the marketplaces or carriers.
The risk is obviously way different. On general cargo the data and all declarative elements can be consider reliable by nature. For e-commerce the customs broker as to use the data transmitted by his customer but due to the fragmented supply chain these declarative elements can be corrupted. In this context, there are major discrepancies between the commercial information available on the marketplaces when the order was placed, and the logistical information transmitted to the customs broker to manage customs formalities. Customs brokers are supporting non-tax risks mainly related to the customs value (i.e. under valuation) and tariff classification of the goods (HS Code defining).
The Customs representative must therefore set up an internal control process on the transmitted data in order to avoid the major part of the risk
When the e-commerce flow came in, the customs authorities based themselves on the existing rules in the express mail sector. Because basically, the same issues were similar : under valuation, false denomination, non-conformity of products, counterfeits, etc. From the point of view of controls, the customs services had prior information and carried out risk analyses even before the aircraft landed. This flexibility has been transposed to e-commerce flows.
It should be noted that the provisions relating to duty and VAT exemptions for small shipments were still in force, with the possibility of filing a “verbal” declaration for these low-value shipments (less than EUR 22).
In 2020, AGDA developed a tool dedicated to e-commerce: BE GATE, gathering all e-commerce declarations, whatever the declared values. This tool allowed Customs to perform a risk analysis prior to the arrival of goods, with the tools available at the local level.
In 2021, the EU introduced the VAT package on July 1, 2021, with the obligation to file a customs declaration in the member states’ customs clearance systems for each shipment (H7). In Belgium, the IDMS application has replaced PLDA for filing H7 declarations (shipments with a value of up to EUR 150 to private individuals in the EU).
As explained before, the fact that an e-commerce shipment includes many low-value packages, segmented according to the typology of the flows (B2B, B2C, B2B2C, C2C, etc.) and declared in different systems according to the regulations that apply, this has made the management of customs controls much more complex.
At the same time, OLAF (the UE’s anti-fraud body) has organized various control operations with the Member States after having noted numerous cases of VAT fraud (B2B, FBA and B2B2C) and customs fraud (customs value). This resulted in a significant increase in controls through a risk analysis targeted at e-commerce movements.
It is true that in this context, the customs broker could feel a bit lost, as he “offers” his fiscal responsibility (VAT and/or customs) by filing customs declarations on behalf of operators who are not established in the EU and for importers in different Member States for whom it is difficult to verify the real fiscal activity. Except tools self-developed by some brokers, there is no tool for analyzing data transmitted by the shippers in order to detect anomalies or risks of fraud. However, this is critical in the decision process to work with a customer not established in EU. .
In e-commerce, the difficulty comes from the fact that the buyer and the seller do not know each other and have no control over the stakeholders in the supply chain. If one of the stakeholders tries to trigger fraud or if information are improperly communicated, it is difficult, or impossible, to identify who is responsible and to trace the origin of the fraud.
The customs broker is neither at the initiative nor an accomplice of the fraud, but nevertheless he is considered as legally responsible for 3 years for the formalities he has executed. It is like we were asking to a customs broker to be able to manage the whole logistic chain of an e-commerce flow while he is only a small part of it and totally disconnected of the upstream chain.
The exposure to risks is therefore very important in e-commerce compared to other types of flows.
The representative must therefore be equipped with a data analysis tool to protecte himself against fraud. Conceptually, he has the same role as the customs, i.e. to prevent fraudulent flows from entering the European market without respecting the rules.