The UK faces a hefty fine for underreporting customs duties applied to Chinese footwear imports when it was still in the EU, according to a judgement on Tuesday by the European Court of Justice.
The UK tax office failed to collect the right amounts of customs duties and Value Added Tax on Chinese imports between 2011 and 2017. This was despite three separate warnings from the European Anti-Fraud Office, OLAF, that there was a risk of extreme undervaluation of textiles and footwear imports from China by shell companies set up to make fraudulent transactions look like legitimate trade.
OLAF investigators found that organised crime groups used fake invoices to undervalue Chinese goods intended for Europe and the black market.
The European Commission brought a case against the UK in 2018 when the two sides were still negotiating the terms of the UK’s exit from the EU. They argued that it had “failed to fulfil its obligations under EU legislation on control and supervision in relation to the recovery of own resources and under EU legislation on customs duty and on VAT.”
The case opened a new row between London and Brussels on the financial settlement that the UK had to pay upon leaving the bloc.
Then EU budget commissioner Gunther Oettinger told MEPs that the case was “nothing to do with Brexit” and that the EU executive was required “to ensure that when it comes to import duties, member states levy the correct amount.”
OLAF had asked all member states to monitor their imports of such products, carry out appropriate customs checks, and take adequate safeguard measures if there was any suspicion of artificially low invoiced prices.
In its ruling, the European Court of Justice found that “the United Kingdom has failed to fulfil its obligations under EU law by failing to apply effective customs control measures or to enter in the accounts the correct amounts of customs duties.”
However, it rejected the Commission’s claim that the UK should pay compensation of €2.68 billion, meaning that the Commission will be required to recalculate what it believes it is owed for the agreement of the Court and the UK.
The UK is subject to ECJ rulings from when it was still an EU member.
In response, the UK government stated that it would respond to the judgement “in due course”.
“Throughout, we’ve made the case that we took reasonable and proportionate steps to tackle the fraud in question and that the Commission vastly overstated the size and severity of the alleged fraud,” a UK government spokesperson said.
“The UK has always and continues to take customs fraud very seriously and evolves its response as new threats emerge,” the spokesperson added.