A special report published by the European Court of Auditors (ECA) shows that customs procedure 42, which is a mechanism an EU importer uses in order to obtain a VAT exemption, has led to significant losses to national budgets. ECA calculates that the extrapolated amount of the losses in 2009 is approximately €2200 million.

According to the special report published by the ECA, customs procedure 42 which is a mechanism an EU importer uses in order to obtain a VAT exemption and it is applied when goods imported from outside the EU into a Member State will be transported to another, has led to significant losses to national budgets. Based on results of the sample tests, the extrapolated amount of the losses in 2009 is approximately €2200 million.

Furthermore, the report also reveals that the regulatory framework does not ensure the uniform management of this VAT exemption by customs authorities. It does not ensure that the information concerning these transactions is always made available to the tax authorities in the destination Member State either. The ECA also found that control in Member States was also deficient. Member States do not ensure that exemption conditions are met. Essential information is not made available to tax authorities to ensure that VAT is eventually paid. Moreover, tax authorities do not exploit the possibilities offered by the information available to them to detect and prevent VAT evasion. In addition, there was no agreement to impose joint and several liability for not reporting information relating to such intra-Community transactions.

In view of all these discoveries, ECA recommends to the Commission to amend the Customs Code Implementing Provisions to implement uniform communication of the complete VAT data for each intended transport; that importers should be held jointly and severally liable for VAT losses in the Member State of destination when the VAT statement is not submitted by them; that the Member States’ custom electronic clearance system should carry out automatic verification of VAT data; to create a common EU risk profile for these imports; and that legislation should be changed to improve the exchange of information necessary for correct charging of VAT in the Member State of destination.