A customs audit is not criminal proceedings but, initially, an ordinary administrative procedure. The audit service of the Main Customs Office (Hauptzollamt) checks after the event whether imports and exports were correctly declared and duties correctly calculated. The legal basis is Article 48 of the Union Customs Code in conjunction with the provisions of the Fiscal Code (Abgabenordnung, AO) on external audits. For the company, a great deal of money is often at stake – and sometimes more.
The procedure
The audit order
The audit begins with a written order. It names the types of duty, the audit period, the start date and the auditors. Examine the order carefully: its scope and period limit what the auditors may examine. The date can be postponed for good cause.
The audit itself
The auditors work on site, but increasingly also remotely with data they request. They want to see customs declarations, invoices, contracts, payment flows and master data, and initially take samples. The company is obliged to cooperate: it must provide information, produce documents and make a suitable workspace available.
Closing meeting and audit report
At the end, the findings are discussed in a closing meeting. This is the most important date of the entire audit: here facts can still be clarified, legal positions set out and findings averted. The audit report follows, on which you can comment, and finally, where applicable, a duty assessment notice with an additional demand.
After the assessment notice
An objection (Einspruch) against the assessment notice may be lodged within one month. Because the additional amount is nevertheless due immediately, a suspension of enforcement should be applied for at the same time.
What the auditors look for
- Tariff classification: Are the tariff numbers correct – and are they maintained in the item master data, or assigned once and never looked at again?
- Customs value: Were royalties, assists, commissions and freight costs correctly taken into account? Do intra-group transfer prices match the declared value?
- Preferences: Are there valid proofs of origin and supplier's declarations for every duty reduction?
- Customs procedures and authorisations: Are the conditions of authorisations complied with, for example for inward processing or customs warehouses?
- Import VAT: Do the customs value and the taxable amount match, and who deducted the import VAT as input tax?
- Customs service providers: How did the company instruct and supervise its freight forwarders?
How far back it can go
As a rule, duties may be recovered for three years from the date on which the customs debt was incurred. Where the customs debt results from an act that could be subject to criminal prosecution, the period is extended to up to ten years. At this point at the latest, an audit becomes a delicate matter.
When the audit turns
If a suspicion of a tax offence or administrative offence arises during the audit, the auditors must first interrupt the audit and involve the criminal tax matters unit (Strafsachenstelle) and the Customs Investigation Service (Zollfahndung). From that moment, different rules apply: no one is obliged to incriminate themselves. An adviser who is also proficient in criminal proceedings should then be involved immediately.
How to prepare
- Check first yourself. Look at the areas above for the audit period before the auditors do. What you find yourself, you can explain yourself.
- Mind the deadlines. Once the audit order has been notified, a voluntary self-disclosure (Selbstanzeige) with exemption from penalty is barred for the scope ordered. Errors you identify beforehand should therefore be assessed beforehand.
- Appoint a contact person. One person coordinates all of the auditors' enquiries, receives requests for documents and records what was handed over.
- Organise the documents. Contracts, in particular licence and development agreements, authorisations, proofs of origin and instructions to freight forwarders should be readily to hand.
- Brief employees. Anyone who speaks to the auditors should know what is being examined – and that factual, correct information is required, not assumptions.
- Prepare the closing meeting. Ask for the findings in writing beforehand and go into the meeting with arguments and evidence.
Those who have sat on the other side of the table for years know where auditors look closely and where there is still room to move in the closing meeting. It is precisely this experience that we bring to every audit support engagement.