Customs Evasion, Section 370 (1) AO
According to Art. 5 no. 20, 21 of the Union Customs Code, import and export duties are “taxes” in the sense of the law according to § 3 para. 3 German Fiscal Code (AO). Accordingly, customs evasion is punishable as tax evasion under § 370 AO. Paragraph 1 states:
“A penalty of up to five years’ imprisonment or a monetary fine shall be imposed on any person who
- furnishes the revenue authorities or other authorities with incorrect or incomplete particulars concerning matters that are relevant for tax purposes,
- fails to inform the revenue authorities of facts that are relevant for tax purposes when obliged to do so, or
- fails to use revenue stamps or revenue stamping machines when obliged to do so
and as a result, understates taxes or derives unwarranted tax advantages for himself or another person.”
The offence can thus be committed in three ways; either by actively providing false or incomplete data (no. 1) or by concealing information from the customs administration in breach of duty (nos. 2 and 3). The responsible person must act intentionally and obtain an unjustified customs advantage through the act. However, an intention to enrich oneself, as in the case of fraud, is not required. The advantage can be expressed, for example, in underestimated customs duties, concessions or higher exemption limits.
“Facts that are relevant for tax purposes” include any information relevant to the assessment of duty or the claim that has arisen in terms of the reason and the calculation of the amount. These statements or the concealment of relevant facts must be made to a tax authority or other authority, i.e., in customs matters to the main customs office as the competent tax authority. The statement or concealment vis-á-vis a private person or private company, on the other hand, is not sufficient.
Breach of Ban, Section 372 AO
“(1) Whoever imports, exports or transports goods in violation of a prohibition shall be deemed to have illegally imported, exported or transported goods.
(2) The perpetrator shall be punished under section 370(1) and (2) where the act is not subject to punishment or a monetary fine as a violation of import, export, or transit prohibitions under other provisions.”
This norm is relatively easy to understand – anyone who imports, exports or transits goods across the German customs border despite a prohibition is liable to prosecution. What is necessary is the existence of such a prohibition of movement, of which there are numerous, and which can serve very different purposes of an economic, but also non-economic nature. These prohibitions must be ordered by law, statutory instrument, or directly applicable Union law. Restrictions can also constitute such a prohibition in individual cases. For example, there is a general ban on importing potatoes in tourist traffic because of the danger of the spread of bacterial ring rot. On the other hand, the import of edible mushrooms for private use is permitted without restrictions up to two kilograms (quantitative limitation).
However, there are prohibitions and restrictions in importing food and feed and in many other areas such as cultural goods, textiles, animals and plants, weapons, medicines and narcotics, rough diamonds, cash, and much more. Due to the large number and variety of prohibitions and restrictions, it is always advisable to find out before importing or exporting an object whether a limitation also applies in this respect. This precaution can lead to avoiding a fine or even the initiation of criminal proceedings.
If this prohibition of the transfer itself contains a threat of punishment, which is the rule, it applies. In all other respects, paragraph 2 refers to the range of penalties for tax evasion. However, both offences can also be committed and punished together if taxes or customs duties are evaded at the same time as the prohibited import/export.
Smuggling on a Commercial Basis, Section 373 (1) AO
As already mentioned at the beginning, the offence of smuggling is a qualification, i.e., an aggravation of penalty, compared to the tax/customs evasion and breach of the ban just described. This results from the precise wording, which reads:
“(1) Whoever evades import or export duties on a commercial basis or who illegally imports, exports or transports goods on a commercial basis in contravention of monopoly regulations shall be subject to imprisonment for a period of six months to 10 years.”
The aggravation of the penalty is based on the commercial nature of the offence. According to paragraph 2, there is also aggravation of the sentence if a weapon or other dangerous tools are carried along when committing tax evasion or criminal offences (no. 1, 2) or if these offences are executed by a gang (no. 3). However, this article does not deal with these offence variants in detail.
In everyday language, one already speaks of “smuggling” when objects or goods are brought across a border without a proper customs declaration. Smuggling in the legal sense only occurs when an additional, aggravating element is added. Three common forms of smuggling can be distinguished: classical smuggling, intelligence smuggling and travel smuggling. Colloquial “smuggling”, on the other hand, is usually “only” simple tax or customs evasion.
Professionalism as an Aggravating Element of Punishment
According to the Federal Court of Justice (BGH) ‘s established case law, a person acts commercially if they intend to acquire a continuous source of income of some duration and scope by repeatedly committing offences of the type in question for selfish reasons. Thus, already a single act can be sufficient if the concrete circumstances indicate an intention to repeat. This could be obvious if, for example, containers or other hiding places are built into a vehicle since this relates to a considerable effort from which an intention to repeat can be inferred. The establishment of a dummy company may also indicate the existence of this intention.
According to § 1 (1) sentence 3 of the Customs Administration Act, the relevant import and export duties within the meaning of § 373 AO include not only the import and export duties under the Union Customs Code (Art. 3 no. 20 and 21), but also the import turnover tax and other excise duties to be levied on imported goods. Export duties do not currently exist, nor do customs duties within the Customs Union (cf. Art. 28 (1), 30 TFEU).
Moreover, the offence in which the ban is committed through the commercial infringement of monopoly regulations is meaningless, as there are currently no monopoly regulations.
Classic smuggling refers to the physical transfer of goods across the border of the EU customs territory, where customs evasion is committed by circumventing the official border customs offices. In this case, existing customs regulations are violated, stipulating certain obligations for the responsible person to act.
These obligations include the entry summary declaration (Art. 127-132 UC). This declaration must always be submitted before the goods are brought into the EU customs territory and enable the customs authorities to carry out an early risk analysis for protection and security purposes. The basic information required for this examination included the details of the description of the goods (usual trade description for identifying the goods) and the goods number. A customs declaration may be lodged instead of an entry summary declaration, subject to the agreement of the customs office of entry, but it must be lodged within the same time limit and contain at least the exact required particulars.
Then the obligation to transport according to Art. 135 (1) of the Union Customs Code must be observed. The imported goods must be transported to the competent customs office immediately after crossing the border. For this purpose, the transport routes defined under national law must be used, i.e., in Germany in principle only the authorised customs routes (Section 2 (1) of the Customs Administration Act). Once the goods have reached the customs office, they must be presented immediately upon arrival (presentation obligation) by Article 139 (1) of the Union Customs Code. Presentation means informing the customs authorities that goods have arrived at the customs office and are available for customs controls. Furthermore, the goods may not be removed from the place of presentation until they have been checked or the customs authorities have given their consent (Art. 139 (7) CCC).
Furthermore, time restrictions must also be observed. For example, goods to be transported on customs routes may only be brought into or out of the customs territory of the Union during the opening hours of the competent customs offices, Section 3 (1) Customs Administration Act.
Based on this, (commercial) smuggling may occur, for example, if the goods leave the customs route to be used during transport without the consent of the competent customs office. The non-presentation of the goods or a specific part of the goods on arrival at the customs office can also constitute an offence. Likewise, and in particular, failure to properly declare goods subject to duty carries the risk of criminal charges.
These are just a few of the obligations to act that must be observed when moving goods across Union customs borders. Due to many different commitments, there is a risk that one duty will quickly not be adequately monitored. If tax advantages are gained as a result, conduct relevant under criminal law can quickly be assumed, and an investigation initiated.
Intelligence smuggling is when it is not a question of the physical transfer of goods but making incorrect or incomplete statements and attaching forged documents. This false information then leads to an inaccurate assessment basis for the number of duties to be paid and thus, as a result to unjustified customs benefits.
The essential details of the assessment basis include the nature of the goods, the quantity, the customs value and the customs duty rate. Probably the most frequent practical application is the declaration of an incorrect customs value in the form of under-franking. In simple terms, the customs value is the value of the goods when they cross the border. The lower the value, the lower the duties. If there is under-franking, too little duty is falsely calculated, and a tax advantage is gained. For this purpose, invoices are often falsified, showing an incorrect purchase price, which is the basis for determining the customs value. In addition, inaccurate information is usually given about the nature of the goods, leading to an incorrect customs tariff and thus to wrong customs duties. However, the focus is often not only on the tax savings. Instead, the mislabelling of the goods is intended to circumvent import bans or restrictions. For example, meat could be stamped as deer meat (permitted), although it is reindeer meat (prohibited), to bring it into the country.
Therefore, this form of smuggling is often accompanied by various deeds and other offences. This also happens especially when (false) evidence is needed for specific preferential measures. Preferential measures represent preferential treatment under customs law (reduced duty/ duty-free treatment) for goods from certain countries and territories, integrated into the Electronic Customs Tariff as preferential duty rates. However, a corresponding proof of origin is mandatory to benefit from these preferential measures. This proof is therefore often falsified or obtained through unlawful deception or corruption.
Travel smuggling is the evasion of import duties on transported goods in travel, in the personal luggage of the person responsible. The character of the journey is irrelevant, but typically the goods transported are not intended for commercial purposes but for private use. If this is indeed the actual purpose, we are in the legal sense in the area of “simple” customs evasion in travel. If, on the other hand, the true goal is commercial, the aggravating element of commercially may be fulfilled so that smuggling in the legal sense is also present. About any exemption limits, restrictions or prohibitions, the possibility of private use offers advantages that would not exist in the case of importation for commercial purposes, which is why this is always checked in case of doubt.
Thus, declaration obligations and prohibitions or import restrictions must also be compiled within travel and import turnover taxes, which must also be observed as relevant customs duties and can thus be evaded, must be considered. The most common cause is that goods subject to declaration and duties are transported in the aircraft across the customs border and then leaving the airport via the “green exit”. The use of this exit contains the declaration value that no goods subject to duty were transported in the luggage, whereby the evasion has already been committed.
Due to the enormous number of travellers, the global networks and the still expandable control possibilities, an enormously high number of unreported cases in customs evasion in travel can be assumed. This, in turn, results in extreme tax losses every year. The following is a calculation example to illustrate this.
Examples case: Calculation
Person A travels by plane from Dubai (UAE) back to the Federal Republic of Germany and carries two valuable pieces of gold jewellery with a total value of EUR 100,000. The exemption limit for air travel is EUR 430, so this is far exceeded, and there is a duty to declare and pay duty. The customs duty comprises the customs amount and the import turnover tax. The customs amount is the respective customs value multiplied by the customs rate. The customs rate depends on the customs tariff, which depends on the goods (in this case, gold jewellery, a precious metal).
In this specific case, the customs value is EUR 100,00, which must be multiplied by the customs rate and amount to 4.5% for precious metal jewellery, but at least EUR 0.30 per piece and at most EUR 0.80 per piece. Multiplying the customs value by 4.5% results for EUR 4,500, which thus far exceeds the maximum limit. This multiplication is because A is carrying two pieces of jewellery, so that the maximum value for both is EUR 1.60 in total. The amount of duty is, therefore, EUR 1.60. Added to this is the import turnover tax, which is calculated similarly, namely the import turnover tax value multiplied by the import turnover tax rate. The import VAT value is calculated from the customs value and the customs amount; in this case, EUR 100,001.60. The current tax rate is 19% so that the total import VAT is EUR 19,000.30. If the customs amount of EUR 1.60 is added to the import turnover tax, A would have to pay the whole customs duty of EUR 19,001.90. On the other hand, A passes through the country without making a declaration and payment, and they would have to pay the customs duty. If, on the other hand, he passes the “green exit” without declaring and paying, he is liable to prosecution for customs evasion.
In addition to expensive jewellery, other valuables and cash, the transfer to tobacco products, coffee, alcohol, medicines and other narcotics and intoxicants are of great practical importance. However, other goods, such as solar panels manufactured in China, are currently also popular smuggled goods. The focus here is that goods manufactured in China would generally have to pay customs duties (especially anti-dumping and countervailing duties). To save these costs, the goods are first shipped to other countries from which these duties do not apply and then brought into the EU from there. In doing so, the other country, which is not China, is (falsely) declared as the manufacturing country to save the customs duties. Another popular business model in this context is the payment of subsequent refunds (kick-back payments) between the importer and the customer.
Penalty-Exempt Voluntary Disclosure?
Under § 371 AO, it is possible to file a so-called “penalty-exempt voluntary disclosure”. This is a personal ground for exemption from punishment. If the requirements are met, this leads to exemption from punishment. However, this possibility only exists regarding simple tax or customs evasion according to § 370 AO, but not about the more severe offence of (commercial) smuggling. Nor is it applicable to the breach of the ban under § 372 AO. You can read more about the requirement for a voluntary declaration to avoid prosecution in our separate article on this topic.