EU Court: Free Zone Case

Understanding Customs Procedures for Free Zones: Key Insights from the Baltic Container Terminal Case

Discover how EU customs regulations shape operations in free zones and what businesses need to know for compliance.

The complex world of customs compliance is ever-evolving, particularly when it comes to operations within free zones. The recent ruling in the Baltic Container Terminal case highlights crucial aspects of customs procedures, documentation, and how EU law applies to goods exiting free zones. Whether you're an importer, exporter, or customs consultant, understanding these nuances is vital for staying compliant and avoiding costly mistakes.

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Key Questions Covered in This Blog:

• How should operators in free zones manage records for goods exiting these zones?

• What documentation is sufficient for proving compliance with customs procedures in free zones?

• How does the principle of legitimate expectations affect customs compliance for businesses?

• What role does national law, including res judicata, play in EU customs decisions?

  
  

"Compliance isn't just about ticking boxes; it’s about understanding the full context of customs law and how to apply it in real-world scenarios."– Arne Mielken, Managing Director, Customs Manager

Abbreviations Used in This Blog:

• MRN: Movement Reference Number

• CMR: Convention relative au contrat de transport international de marchandises par route (International Road Transport Convention)

• EU: European Union

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1. What records must be maintained by the holder of an authorization for activities in a free zone, and is the inclusion of the MRN (Movement Reference Number) required?

According to the judgment, the holder of an authorization for activities in a free zone is not required to include the MRN (Movement Reference Number) in their records when discharging a special customs procedure. It is sufficient to record information about how the procedure was discharged and include identifying data about the relevant documents. Therefore, there is no obligation to specifically reference the MRN, as long as the discharge procedure and related documents are clearly identified.

2. Can a CMR consignment note be used as proof for discharging a customs procedure in a free zone?

Yes, a CMR consignment note can be used as proof of discharge for goods leaving a free zone, provided it is certified by the customs authorities. The CMR note should show the customs status of the goods and bear the customs office's stamp and a customs official’s signature. However, the consignment note must contain enough detail to demonstrate that the customs procedure has been discharged. While the note is acceptable, it is not always enough on its own to show every detail regarding the discharge, but it can be used to satisfy the necessary requirements in many cases.

3. Is there an obligation to verify the accuracy of the CMR consignment note?

No, the holder is not required to verify the accuracy of the CMR consignment note if it has been certified by the customs authorities. The customs authorities' stamp and signature on the consignment note are deemed sufficient, and the holder can rely on the information provided in the consignment note unless there are clear reasons to suspect inaccuracies. This simplifies the process for operators working in free zones.

4. Can a holder of goods rely on an established administrative practice to form legitimate expectations regarding their customs obligations?

Yes, under the principle of legitimate expectations, the holder of goods can rely on an established administrative practice if it has been consistently applied by the customs authorities. If customs authorities have, in a precise and consistent manner, indicated that the inclusion of data from the CMR consignment note is sufficient to meet the customs obligations, the holder may reasonably expect that their records comply with the rules based on this practice. This reliance is valid as long as the practice has not been contradicted by the authorities.

5. Does EU law prevent the application of national provisions on res judicata (the finality of judicial decisions)?

No, EU law does not preclude the application of national rules on res judicata, provided those rules do not prevent the exercise of rights under EU law. In this case, national rules that provide res judicata effect to a final judicial decision on customs debt are allowed, as long as they do not make it excessively difficult or impossible for the holder to exercise their rights under EU law. The national authority can apply the principle of res judicata to annul the customs debt if a final decision has already been made on the lawfulness of the customs penalty.

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JUDGMENT OF THE COURT (Fifth Chamber)16 January 2025 (*)

Summary of Case C-376/23:This case involved a request for a preliminary ruling under Article 267 TFEU from the Augstākā tiesa (Senāts) (Supreme Court of Latvia) regarding the interpretation of several provisions of the Union Customs Code (Regulation (EU) No 952/2013) and associated regulations. The case concerned a dispute between BALTIC CONTAINER TERMINAL SIA and the Valsts ieņēmumu dienests (Latvian Tax Authority) over the payment of import duties and VAT on goods that had exited the free zone of the Port of Riga, Latvia.

The core issues clarified by the Court related to the change of customs status of non-Union goods to Union goods within free zones, the records that the holder of an authorisation for activities in such a zone had to maintain, and the protection of legitimate expectations and res judicata principles. Specifically, the Court was asked to interpret provisions related to the customs treatment of goods in free zones, the conditions under which goods could be deemed to have undergone a change in status, and the relevant documentation requirements.

The Court also considered how the principles of legitimate expectations (where individuals could rely on the consistency of legal rules) and res judicata (the finality of judicial decisions) applied in this context, and whether the tax authority's actions in the case aligned with these principles.

This request was made in response to a dispute in which Baltic Container Terminal challenged the Latvian Tax Authority’s demand for import duty and VAT on goods that had left a free zone. The case was significant for clarifying the interpretation of the Union Customs Code as it applied to free zones, particularly in relation to the change of customs status and the documentation that had to be maintained for customs compliance.

Summary of the Legal Context and Dispute in the Main ProceedingsEuropean Union Law & Union Customs Code

1. Customs Declaration: According to Article 5(12) of the Union Customs Code, a customs declaration is an act where a person expresses the intent to place goods under a specific customs procedure, detailing the procedure and any necessary arrangements.

2. Customs Procedures: Article 5(16) outlined various customs procedures, including release for free circulation, special procedures, and export.

3. Customs Status: Articles 5(22) and 5(23) defined "Union goods" as goods wholly obtained in the EU or brought into the Union and released for free circulation, while "non-Union goods" referred to goods that were not Union goods or had lost their Union status.

4. Customs Debt: Article 79 highlighted that a customs debt was incurred if goods were not in compliance with customs legislation, particularly regarding the introduction of non-Union goods into the Union and their subsequent movement, storage, or processing.

5. Verification of Customs Declarations: Article 188 allowed customs authorities to verify customs declarations through examination of documents, goods, or by requesting additional documentation.

6. Release for Free Circulation: Article 201 outlined the process of releasing non-Union goods for free circulation, including the collection of import duties and the conferring of Union goods status on such goods.

7. Special Customs Procedures: Title VII provided for special customs procedures, such as storage in customs warehousing or free zones. Article 210 permitted goods to be placed under these procedures, with various obligations for documentation and record-keeping, as detailed in Articles 211, 214, and 215.

   
   

Delegated and Implementing Regulations

1. Delegated Regulation 2015/2446: Provided definitions and procedures for proving the customs status of Union goods, including documentation like T2L or T2LF.

2. Implementing Regulation 2015/2447: Outlined how customs declarations were accepted and the importance of the Master Reference Number (MRN), as well as requirements for keeping records of goods in special procedures like free zones.

   
   

Latvian Law

1. Decree No 500: Related to customs warehousing and free zones in Latvia, requiring the storage and processing of goods in these zones to be recorded and monitored.

2. Law on Administrative Procedure: Article 153(3) ensured that facts established by a final judgment did not need to be re-established in subsequent related cases.

   
   

The Dispute in the Main Proceedings

1. Background: Baltic Container, authorised to operate in a free zone in Riga, had been found by the tax authority to have removed non-Union goods (plastic rattan baskets) from the zone without following the appropriate customs procedures.

2. Tax Authority's Findings: The goods had been recorded as entering the free zone but were removed without being placed under a subsequent customs procedure. This led the authority to impose import duties and VAT on Baltic Container, citing a breach of customs regulations.

3. Decision: The tax authority ordered Baltic Container to pay duties, VAT, and penalties for late payment, considering the failure to discharge the special customs procedure.

This case focused on the proper handling of goods placed under special customs procedures, the responsibilities of operators in free zones, and the implications of non-compliance with customs rules.

Summary of the Court's Findings:

1. First Question (Records and MRN):

   • Union Customs Code and Delegated Regulation 2015/2446: These provisions did not require the holder to refer to the MRN (Movement Reference Number) of a customs declaration in their records when discharging a free zone special customs procedure. Instead, it was sufficient for the holder to include information about how the procedure had been discharged and data that could identify relevant documents.

   • Key Point: There was no obligation to include the MRN in the records, provided the manner of discharge and other relevant document identification were properly indicated.

     
     

2. Second and Third Questions (CMR Consignment Notes and Verification):

   • CMR Consignment Notes: The inclusion of a CMR consignment note in the holder's records could suffice to indicate the discharge of the free zone procedure, provided it showed the customs status of the goods and was certified by the customs office’s stamp and a customs official’s signature. However, the consignment note did not provide enough specific detail regarding the manner of discharge.

   • Verification of CMR Notes: The holder was not required to verify the accuracy of the information on the consignment note, especially when it had been certified by customs authorities.

   • Key Point: The holder was allowed to rely on the CMR consignment note for discharging the free zone procedure and did not need to verify its accuracy unless there was a clear reason to suspect the information might be incorrect.

     
     

Legal Interpretation:

• Records: The Union Customs Code and the relevant Delegated Regulations gave flexibility regarding the information required in records, specifically in the case of discharge of a special customs procedure. A detailed reference to the MRN was not mandatory, but records had to include enough information for customs authorities to verify compliance with the procedure.

• CMR Consignment Note: It could be used as proof of discharge, provided it was appropriately certified by customs officials. The customs authorities might waive some of the detailed information normally required.

• Verification: The holder was not required to verify the accuracy of the CMR consignment note unless there was clear evidence suggesting an issue.

  
  

Conclusion:

• The holder could include CMR consignment notes in their records to demonstrate the discharge of the free zone procedure, without needing to provide a Movement Reference Number (MRN). Additionally, there was no obligation to verify the information on these documents unless there were specific grounds for concern. The customs authorities' approval and any waivers played a crucial role in determining the specific requirements.

  
  

The fourth and fifth questions raised in this case related to the interpretation of specific EU customs regulations and how national laws, particularly regarding the authority of res judicata, should apply in light of EU law.

Fourth Question:The referring court asked whether the principle of protection of legitimate expectations allowed a holder of goods to expect that their records complied with certain customs obligations based on a practice where a CMR consignment note, certified by the customs office, was considered sufficient to discharge the special customs procedure.

The Court concluded that the principle of legitimate expectations could apply in this case. If there was an established administrative practice where customs authorities had, in a precise and consistent manner, indicated that the inclusion of data from the CMR consignment note was enough to comply with the customs obligations, then the holder could rely on that practice. This reliance was valid under the principle of legitimate expectations, provided that such practice had been consistently applied and the authorities had not contradicted it. The holder might reasonably expect that its records were compliant based on this established practice and might be relieved from the need to supply further information required by the regulation.

Fifth Question:The referring court also asked whether EU law precluded the application of national provisions regarding the authority of res judicata, which would require a national court to annul a customs debt owed by the holder if a final judicial ruling regarding the lawfulness of an administrative penalty had already addressed the same customs operations.

The Court held that EU law did not preclude the application of national rules that conferred the authority of res judicata to judicial decisions. In principle, EU law allowed national procedural rules to decide how the res judicata principle was applied, as long as those rules did not prevent the exercise of rights under EU law. Therefore, the application of res judicata in this context did not contradict EU law, as long as it did not make it impossible or excessively difficult for the holder to exercise their rights under EU law. The Court also emphasised that while the case involved the same customs operations, the national provision that gave res judicata effect to previous decisions had to ensure that the legal proceedings regarding those operations were consistent.

In conclusion:

• The fourth question affirmed that a holder could rely on an established administrative practice to form a legitimate expectation that their records complied with EU regulations.

• The fifth question concluded that EU law did not prevent national provisions on res judicata from being applied, provided they did not impede the holder's ability to exercise rights under EU law.

  
  

This decision related to the interpretation of several provisions within the Union Customs Code and the supplementary rules provided by the Commission Delegated Regulation. The Court provided a detailed ruling on how records related to the discharge of customs procedures in free zones should have been maintained.

It clarified that:

1. No requirement for the master reference number: A holder of an authorisation to carry on activities in a free zone might not have needed to reference the master reference number of the customs declaration in their records, provided other necessary information, such as relevant documents and the discharge method, was included.

   
   

2. Consignment note as sufficient evidence: The Court ruled that for goods exiting a free zone, including only a consignment note and its customs status, certified by the customs office, was sufficient. This might replace a more detailed reference to the customs declaration.

   
   

3. Legitimate expectations: The Court found that a holder could rely on established administrative practice if it was clear and unconditional that the inclusion of a consignment note with a customs status indication would fulfill their obligations under EU customs law.

   
   

4. National authority of res judicata: The Court clarified that EU law did not prevent a national court from applying its own authority to annul a customs debt if it had previously ruled that the holder did not fail in its customs obligations in a final judicial decision.

   
   

These rulings guided how free zone operators should manage their customs procedures and the types of records needed to comply with EU customs regulations, specifically regarding the discharge of customs procedures and the evidence required.8(1)(b) and (c) of Delegated Regulation 2015/2446 must be interpreted as not prec