Protecting from the evasion of customs duties

Undervaluation linked to e-commerce

In 2023 OLAF has continued to support customs authorities in identifying the imports at risk of being undervalued and providing cross-border assistance for the control and redetermination of the value. The successful actions carried out by OLAF in previous years have led to an increase of the values declared at import by fraudsters, which are now closer to the statistically determined thresholds for control. However, some Member States, are still affected by significant undervaluation schemes perpetrated through missing traders disappearing shortly after carrying out import operations. This is linked with the evasion of VAT, normally by abusing the so-called procedure 42, which facilitates the declaration of VAT in the country of destination of the goods.

A new emerging fraud trend is the use of fake business-to-business (B2B) imports that hide in reality transactions from businesses to consumers (B2C), sold normally through online platforms. Small parcels addressed to final consumers are hidden in big boxes (matryoshkas) officially imported under a B2B scheme. The goods are wrongly classified and undervalued in order to avoid the payment of import duties and VAT. Once the goods are released, couriers dispatch the small parcels to the final consumers, which receive them at more favourable prices resulting from the tax evasion.

Misdeclaring goods subject to trade defence measures

In 2023 OLAF investigated imports of goods subject to trade measures with suspected false origin declared to evade anti-dumping or countervailing duties. A new emerging fraud pattern is the smuggling of goods subject to trade defence measures by abusing the transit procedure and facilitations offered to economic operators, including the possibility to receive goods in transit at the premises of authorised consignees. This is done in order to bring goods to the European Union without paying import duties and VAT. The goods are sold in e-commerce platforms offering substantial discounts by profiting of the evasion of taxes. This new scheme affects mainly electric and conventional bikes. However, other consumer goods, such as clothing and footwear, have been also identified under the same fraud scheme.

Origin fraud – E bikes

A common fraud affecting e-bikes imported to the EU is to mis-declare the country of origin to evade these tariffs. Otherwise known as origin fraud.

One case closed last year concerned OLAF working closely with the European Prosecutors’ Office (EPPO) to expose a €4 million suspected origin fraud that had seen 17,000 e-bikes fraudulently exported from Türkiye to Italy.

OLAF's involvement in this case started following an EPPO criminal investigation into suspicions of fraud carried out by a Turkish exporter of e-bikes.

After passing the suspicions on to OLAF, OLAF opened a complementary administrative investigation (to the EPPO’s) to ascertain the true origin of the e-bikes.

By working with the EPPO and Turkish authorities and visiting suspicious Turkish companies, OLAF determined how the alleged fraud was carried out.

OLAF established that the suspected fraudsters were importing individual parts needed to build an e-bike from China to Türkiye. These were declared as e-bike ‘component parts’. The suspected fraudsters would then use these parts to assemble completely new e-bikes, which were then exported to Italy (the EU).

Therefore, when these e-bikes (which to all intents and purposes were Chinese e-bikes) arrived in Italy they were labelled as Turkish, and therefore, were not charged Chinese import and anti-dumping duties.

OLAF passed its findings to the European Prosecutor’s Office (EPPO) which opened their own criminal investigation with Italian customs.

As a result of this alleged fraud, it was established that 17,000 ‘misdeclared’ e-bikes had entered Italy evading €4 million of customs duties. OLAF recommended the full recovery of this sum by Italian customs.

Turkish customs were also able to recover customs duties on these e-bikes, which had been evaded at the import stage from China.

Handbag fraud

Increasingly, sharing data between OLAF and partners is key to solving fraud. The following case is an example of where such exchanges of data between OLAF, the European Public prosecutor's Office (EPPO) and national tax and customs authorities, helped protect EU and national revenue, the single market and legitimate businesses. In this case the data exchange concerned import duties and VAT payments.

Following analysis of trade and customs data, OLAF opened an investigation into the possible undervaluation and evasion of VAT relating to imports of handbags.

Working with colleagues from the customs and tax authorities of the Member States concerned, OLAF identified inconsistencies between payments and transport documents, evidence of cross-border customs undervaluation at the import stage and evasion of VAT payments.

The investigation established that Bulgarian operators were using Greek VAT numbers to evade paying correct VAT duties in Italy, resulting in the evasion of more than €10 million of VAT payments. OLAF provided support to tax authorities regarding the evasion and reported its findings to the EPPO, which in turn, started their own criminal investigation.

OLAF carried out further investigations into the financial aspect of the fraud, recommending the recovery of more than €8 million of evaded import duties.

Conference in Seville on fighting customs fraud

OLAF considers cooperation with partners to be a vital and ongoing priority and participates actively in opportunities that bring key players together. A case in point tis the High-Level conference organised by OLAF and the Spanish Presidency on 9-10 November 2023, in Seville to discuss tools to combat customs fraud in a fast-changing environment

The Conference brought together around 100 participants from OLAF and the Customs Administrations of Member States to discuss operational cooperation and legal certainty in mutual assistance exchanges, and ways to produce EU level operational anti-fraud intelligence.

The conference allowed participants to talk about the challenges they face in combating customs fraud and the possible solutions OLAF could develop to support their efforts in this area.

A follow-up conference will be organised in Budapest in 2024 to pursue the ideas and suggestions put forward during the Seville Conference.