The Court of Auditors recently published a Special Report concerning Binding Tariff Information (“BTI”). In this Special Report, the Court of Auditors reviewed the management role of the European Commission (“Commission”) and examined the implementation of BTI in six EU Member States (Denmark, Germany, Greece, Hungary, Slovenia and the United Kingdom).
A BTI is a written tariff classification decision by the customs authorities of an EU Member State at the request of economic operators. It is legally binding on all customs authorities within the European Union vis-à-vis the holder for up to six years from the date of issue. It should be noted though that the possibility exists for a BTI to be revoked, and/or annulled, within the aforementioned six-year period.
The BTI system is intended to help ensure uniform application of customs policy, which is a requirement of the customs union, and consequently also helps to ensure that the correct duty is levied. It does this by attributing an EU-wide classification to a given good. The economic operators and customs offices, thus, have a certain degree of certainty about the tariff classification of such goods, which the former intend to import (or export). It should, however, be pointed out that, in practice, differences do exist in the way the different EU Member States classify goods.
The audit’s objectives were:
- to assess whether the Commission adequately manages the BTI system, and whether its procedures and mechanisms ensure that this system is working as intended; and
- to evaluate whether the EU Member States apply the BTI system in accordance with the legal provisions.
Conclusions and Recommendations of the Court of Auditors
After its review, the Court of Auditors concluded that the BTI system is well-designed, that the Commission’s management is adequate and that the six EU Member States which have been audited largely applied the legal provisions on BTI.
Nevertheless, improvements are needed in order to enhance the overall functioning of the system. The recommendations of the Court of Auditors can be summarized as follows:
Treatment of BTI classification in the Customs Code Committee
Where two or more EU Member States have issued different BTI for the same goods (i.e. divergent BTI), the cases are brought to the Customs Code Committee (“Committee”) to be resolved, unless the EU Member States concerned are able to find an agreement on classification. In accordance with the Committee procedure, the Commission has to adopt a measure to ensure the uniform application of nomenclature, as soon as possible, and within six months following the meeting. The Court of Auditors found situations which may affect the prompt resolution of classification issues. Thus, an inconsistent tariff classification may persist for a period of time. This could affect the collection of the correct amount of traditional own resources.
► The Commission should make the following improvements:
a) the working procedures of the Customs Code Committee should be streamlined and factors which can lead to delays eliminated;
b) the maximum time for resolving BTI classification issues should be reassessed; and
c) the number of staff dealing with BTI in the Commission should be reassessed in relation to the time limits for resolving classification issues.
Financial responsibility of an EU Member State which has issued an incorrect BTI
EU Member States are financially responsible for the losses of traditional own resources caused by their administrative errors, regardless of the degree of negligence. The audit showed that the Commission has not systemically addressed the issue of an EU Member State’s financial responsibility when the latter has issued an incorrect BTI, which leads to losses of traditional own resources. No reliable estimate of the amount of traditional own resources lost, due to such incorrect classifications, is available. This is due to the fact that economic operators in possession of a BTI are not obliged to declare this when they import goods.
► The Commission should evaluate the full financial impact of the issuance of incorrect BTI, and make EU Member States financially responsible for any resulting losses to traditional own resources.
Implementation of the BTI system by the EU Member States
The Customs Code Committee allows inconsistent tariff classifications to be resolved, although delays were identified. The EBTI-3 database contains the information on BTI, and its availability is satisfactory. The Commission has not systemically monitored whether EU Member States respect Community legislation on BTI.
► The Commission should encourage EU Member States:
a) to promptly remedy any systematic problems found regarding their procedures and IT tools;
b) to update the EBTI-3 database promptly;
c) to check, before granting a BTI, if the applicant has submitted BTI applications for the same goods in other EU Member States and whether divergent BTI exist;
d) to issue BTI as soon as possible in accordance with Article 7(1) of Regulation (EEC) No 2454/93 (Implementing Provisions of the Community Customs Code, “IPCCC”); and
e) to instruct their customs authorities, to include cross-checks of import declarations against BTIs when performing customs controls.
Use of the EBTI-3 database
The EBTI-3 database makes it possible for the Commission to query whether the BTI applications, BTI decisions and annulled or invalidated BTI, are promptly entered in the database. Various shortcomings were noted in the EU Member States, including examples of failure to verify whether other BTI applications or divergent BTI’s existed for the same goods, the slow issuance of BTI and delays in updating the EBTI-3 database. More systematic use of, and more accurate input in, the EBTI-3 database would not only lead to possible earlier detection of delays, but also to an improved use of the EBTI-3 database enabling both the Commission and the EU Member States to better monitor BTI applications and BTI decisions in other EU Member States.
► The Commission should:
a) use more actively, the possibilities offered by the EBTI-3 database, to identify where EU Member States are not managing BTI in accordance with the legal provisions;
b) better target the training it organises on the EBTI-3 database, to the operating level in the EU Member States;
c) update the thesaurus, in order to maximise the usefulness of the EBTI-3 database; and
d) translate the user interface of the public EBTI database into all languages of those EU Member States which have acceded since 2004.
Adequacy of legislation
When declaring his goods, an economic operator has no obligation to present his BTI, and the audit confirmed that BTI are seldom presented. An import declaration can only be easily cross-checked with the relevant BTI when the latter is actually referred to at import. When its existence is not declared, customs officers have difficulty verifying whether the declarant has a BTI for the goods, and if the customs classification is correct. The Court of Auditors found that the Commission currently has no reliable estimate of the value or volume of imports covered by a BTI.
► In order to facilitate customs checks, it is important that the Commission ensures that BTI are declared when importing the goods, and therefore a holder of a BTI should be obliged to declare his BTI. This could also allow the value and volume of imports covered by BTI to be determined.
Period of grace
BTI holders rarely request ‘periods of grace’. This ‘period of grace’ allows the economic operator to use a BTI, which has ceased to be valid and is thus invalidated, for imports and exports for up to 6 more months. Under the current system, the audit showed that it is difficult for national customs to ensure that only the quantities of goods, that were the basis for the period of grace, are imported using the BTI. This is because such goods can continue to be imported in any EU Member State without an obligation to declare the existence of the ‘period of grace’.
► The Commission should examine ways to remedy the control deficiency regarding the period of grace system. For example, the IT system created for managing quotas could be extended to BTI periods of grace.