The Thyssenkrupp IP & BoD Case: Lessons

The recent tribunal victory of German steel giant Thyssenkrupp, successfully challenging a monumental £9 million customs duty and import VAT assessment, has made waves in the international trade community.

The success of German steel producer Thyssenkrupp in the recent tribunal, overturning a landmark £9m customs duty and import VAT assessment, has reverberated across the world of international trade.

This victory has brought a sense of relief to many major UK importers who, like Thyssenkrupp, rely on Inward Processing (IP) for cost-effective trade on goods imported for processing and subsequent export.

In Brief:

HMRC claimed £8.9m, alleging errors in Thyssenkrupp's 2014 quarterly Bills of Discharge (BoDs). Thyssenkrupp admitted some errors but disputed their impact on duty.

HMRC insisted any BoD error triggered duty for all imports. The First-tier Tribunal (FTT) sided with HMRC, stating all BoD errors incurred duty. Thyssenkrupp appealed to the Upper Tribunal (UT) against FTT's ruling.

Introduction

Thyssenkrupp's appeal scrutinizes customs duty and import VAT procedures under the Inward Processing (IP) system. It underscores the necessity of precise BoDs and adherence to IP regulations.

Thyssenkrupp found itself facing a significant challenge when HMRC raised substantial duty claims against them, citing inaccuracies in their Bills of Discharge (BoDs).

In response to HMRC's claims, Thyssenkrupp decided to contest the issue by appealing to the First-tier Tribunal (FTT). However, despite their efforts, the FTT upheld HMRC's position, ruling that errors in the BoDs translated to duty obligations for all goods listed.

Undeterred by the FTT's decision, Thyssenkrupp has taken their case further by appealing to the Upper Tribunal. In this subsequent appeal, they aim to challenge the FTT's ruling and seek a different outcome that favors their position.

The "Inward Processing" Special Procedure in Bullet points

• Customs duty and VAT were payable on goods imported into the UK from outside the EU. Inward Processing Relief (IPR) allowed authorized businesses to import, process, and re-export goods without paying customs duty and VAT.

• IPR operated under two systems: suspension and drawback. The suspension system suspended customs liabilities upon importation, discharging them if products were exported outside the EU.

• Strict controls and authorization were necessary to prevent duty and VAT loss and HMRC monitored IPR compliance through the CHIEF system and MSS database.

• The law established strict requirements for IPR operation and discharge, aiming to ensure compliance and effective customs supervision.

• IPR Authorization holders were required to maintain records and submit accurate BoDs within specified timelines, detailing essential information for customs control and duty determination.

• Failures with no significant impact on customs procedure operation could mitigate potential customs debt incurrence, provided they were promptly rectified and complied with specified criteria.

What was required?

• TK was authorized for Inward Processing Relief (IPR) using the suspension system, requiring quarterly submission of Bills of Discharge (BoDs) to HMRC. The authorizations, issued in December 2013 and May 2014, outlined conditions for BoD submission and record-keeping.

• The November 2010 authorization stipulated a throughput period of 18 months and required timely submission of Form C&E 812. The May 2014 authorization largely mirrored the November 2010 terms but reduced the throughput period to six months.

• TK had to submit BoDs along with HMRC's Form C&E 812, meeting the requirements outlined in Notice 221 for discharge of customs duties and import VAT.

Where did it go wrong?

• In 2014, HMRC raised concerns about discrepancies between the information on Thyssenkrupp's Bills of Discharge (BoDs) and HMRC's MSS.

• Thyssenkrupp acknowledged room for improvement in their BoDs and agreed to a new report format with HMRC. Revised BoDs were submitted accordingly.

• Despite the revisions, HMRC deemed the BoDs for the period March 2014 to December 2014 non-compliant, issuing a decision letter and a C18 Demand.

What did the First Tribunal Argue?

• Thyssenkrupp appealed to the FTT, where the hearing focused on 72 alleged defects initially identified by HMRC, later reduced to 12 categories for consideration.

• The FTT's decision began with a discussion of the Döhler case, rejecting Thyssenkrupp's argument that its principle only applied in cases of absolute failure to supply a BoD.

• The FTT ruled that any error in a BoD, regardless of its significance, could result in a customs debt, citing even minor errors as potentially incurring such liabilities.

• Specific errors identified by HMRC led the FTT to conclude that Thyssenkrupp's BoDs were inaccurate and incomplete, particularly concerning discrepancies between MSS and BoD data.

• The FTT determined that these errors, regardless of their materiality, rendered Thyssenkrupp's BoDs non-compliant, resulting in a customs debt for the entire quantity of goods listed in the BoDs.

This initial judgment against TK had left importers feeling vulnerable, questioning their customs declaration processes and contemplating their fate if faced with a similar situation. However, does this tribunal victory signify a return to ease for importers, assured that justice prevails and disproportionate penalties for minor errors are rectified?

However, the TK judgment UT FINAL of 28 March 2024 said: "CUSTOMS DUTY – inward processing relief – requirements of a bill of discharge (‘BoD’) – whether a single error on BoD or data mismatch between BoD and HMRC’s Management Support System gives rise to a customs debt under Article 204 Community Customs Code in relation to all products on the BoD – appeal allowed".

Judges agree with the ground of the appeal

There were four grounds on which the request for appeal was based:

1. TK argued that the FTT had been mistaken in requiring its BoDs to contain precise details reconciling MSS and BoD data without further inquiry, leading to customs debt upon non-compliance.

2. TK contested the FTT's interpretation of the Döhler case, suggesting that a single BoD error should not automatically trigger liability for customs debt on all goods listed.

3. TK maintained that the FTT's decision to attribute customs debt to any BoD error, regardless of its triviality, was flawed.

4. TK criticized the FTT for providing inadequate reasoning and failing to address its detailed arguments.

Case Law Review: Failing to comply with customs procedures

In their agreement with TK, the judges cited four CJEU judgments and examined the consequences of failing to comply with customs procedure obligations were examined.

1. In Case C-430/08 Terex EU:C:2010:15, the CJEU addressed a situation where a trader mistakenly used an incorrect customs procedure code on export declarations, resulting in a customs debt. Despite the risks associated with the inward processing procedure, the CJEU allowed for the correction of export declarations under Article 78 CCC.

2. In Case C-402/10 Groupe Limagrain Holding EU:C:2011:704, the CJEU emphasized the essential nature of record-keeping obligations under the customs procedures. While minimal information was deemed insufficient, discrepancies or omissions could be rectified with additional documents.

3. The CJEU's decision in Case 121/87 Bayernwald Früchteverwertung EU:C:1988:481 was cited, highlighting the importance of maintaining accurate records to verify customs duties.

4. In Döhler, the CJEU ruled that failure to submit a Bill of Discharge (BoD) within the required period led to a customs debt for all goods covered by the BoD, underscoring strict compliance with customs obligations.

5. The CJEU's interpretation of Article 859(9) of the Implementing Regulation, inapplicable in Döhler, allowed for extensions of deadlines under certain conditions.

6. Latvijas Dzelzceļš (Latvian Tankers) EU:C:2017:392 explored the transit procedure, where goods must be produced "intact" at the customs office of destination. Irretrievable loss during transit could lead to a customs debt, but only for the portion of goods not produced intact.

Ground 2 is Paramount! The Court Agree with TK....

In Ground 2, the question revolved around whether the Döhler judgment implied that a single error in a Bill of Discharge (BoD) triggered a customs debt for all goods listed. The court rejected this interpretation, emphasizing that Döhler focused on the failure to submit a BoD within the required time frame, not individual errors within a timely submission. The court dismissed HMRC's attempt to omit key clauses from the Döhler judgment, highlighting that the consequences of non-compliance with a BoD deadline were distinct from errors within a submitted BoD. The court underscored the impracticality of extending Döhler's implications to minor errors in large BoDs, emphasizing the disproportionate outcome it would entail. While acknowledging the possibility of severe non-compliance rendering a BoD invalid, the court concluded that this was not the case here and upheld Ground 2 of the appeal.

...therefore Ground 1 is also valid

In Ground 1, the focus was on whether errors in individual entries within a Bill of Discharge (BoD) invalidated the entire document, potentially leading to a customs debt. The court concluded that such errors might trigger a customs debt for the specific goods covered by the erroneous entry, but not for the entire BoD. It deliberated on whether the errors identified by HMRC warranted customs debts, as HMRC argued, or if they were immaterial errors, as TK contended. The court found that the BoDs were not required to contain particulars enabling reconciliation with HMRC’s MSS without further investigation. It rejected HMRC's interpretation that BoDs should replicate errors from customs declarations, emphasizing the need for accurate descriptions of goods in BoDs. The court also highlighted the distinction between the record-keeping requirement and the obligations of a BoD, ultimately concluding that Ground 1 of the appeal was valid.

Ground 3 was valid also

Ground 3 addressed whether any error or discrepancy on a Bill of Discharge (BoD) automatically triggered a customs debt, regardless of its significance. The court established that minor errors or discrepancies that had no significant impact on the customs procedure did not incur a customs debt. It clarified that BoDs had to comply with the requirements specified in Article 521(2) of the Implementing Regulation, and TK's obligations, without additional conditions imposed by HMRC. The court analyzed specific examples provided by HMRC, concluding that most errors did not warrant a customs debt except for two cases where a customs duty was admitted by TK, and another where further information was needed. Overall, Ground 3 was deemed well-founded.

What does this case means for IP operating businesses?

For businesses considering leveraging Inward Processing (IP), it's imperative to heed the risks and responsibilities highlighted by the Thyssenkrupp case:

• Timely and Accurate Bills of Discharge (BoDs): Errors in BoDs can incur significant costs for correction.

• Realistic BoDs Reflecting Detailed Audit Trails: A thorough audit trail is essential for BoDs reflecting reality.

• Potential HMRC Audits and Assessments: HMRC may audit and assess duty contained in a BoD up to three years from submission.

• Debate Over Significance of Errors: Disputes with HMRC on the significance of errors can be costly.

• Similar Principles for Authorised Use: Authorised Use also necessitates accurate BoD submissions.

The tribunal outcome provides clarity on the complexities of compliance when working with Bills of Discharge:

• No Mandatory Reconciliation to MSS: Reconciliation between BoD and MSS is not mandatory if stock records and documents suffice.

• Errors on BoDs Not Equivalent to Non-submission: Not all errors on BoDs lead to duty demands; only material errors do.

• Correction Through Stock Records or Documentation: Easily correctable errors deemed non-significant.

Conclusion

The tribunal ruling underscores the significance of adhering to the requirements of a BoD within the framework of Inward Processing Relief. Specifically, it addresses whether a single error on a BoD or a data mismatch between the BoD and HMRC’s Management Support System could trigger a customs debt for all products listed on the BoD. In a significant victory, the appeal was granted, offering valuable insights for import businesses grappling with the complexities of customs regulations.

Recommendations

• Partner with Customs Manager Ltd for expert guidance on customs compliance.

• Conduct regular audits of customs documentation to ensure accuracy.

• Train staff members to understand customs regulations and minimize errors.

• Maintain detailed record-keeping practices to support compliance efforts.

• Stay informed about changes in customs laws and regulations -> www.customsmanager.info

• Utilize technology solutions for efficient customs management.

• Seek advice from Customs Manager Ltd to optimize customs duty payments.

• Address discrepancies or errors in customs documentation promptly.

• Foster a culture of diligence and attention to detail in customs compliance. Check out our section on due diligence.

• Collaborate with customs experts to develop tailored compliance strategies.