In the last days we have heard about the fraud using customs procedure 42 that has been dismantled in Belgium.
But what is the customs procedure 42? Is it legal to use this procedure?
The so-called customs procedure 42, is a legal customs procedure, that allows simultaneous release for free circulation and home use of goods which are the subject of a VAT-exempt supply to another Member State.
As mentioned in the SAD Guidance of DG TAXUD, the exemption from payment of VAT is granted because the import is followed by an intra-Union supply or transfer of the goods to another Member State. In that case, the VAT is due in the Member State of final destination. In order to use this procedure, the persons must meet the conditions listed in Article 143(d) of Directive 2006/112/EC (VAT Directive).
In accordance with Article 143(1)(d) of the VAT Directive, goods may be imported with an exemption from VAT only via a trader who is registered for VAT in the country of release for free circulation or via a tax representative in that country.
Already in 2011, the European Court of Auditors issued the special report No 13/2011 on whether the control of customs procedure 42 prevents and detects VAT evasion. The result of this report was that the control of customs procedure 42 does not prevent and detect VAT evasion.
Recently, the European Commission took some actions to prevent this kind of fraud within the so-called ‘VAT in the Digital Age’ proposal, which introduces a series of measures to modernise and make the EU’s VAT more resilient to fraud through digitalisation. One measure to combat fraud using customs procedure 42 is ensuring that the Member States concerned have real-time digital reporting information on cross border transactions of goods via e-invoicing, to be in a much better position to crack down more quickly and to address this fraud.
In the meantime, if you are a customs representative and a client is asking you to customs clear the goods using customs procedure 42, take all the measures to ensure that you will not be engaged in a fraud.