In customs, the company is liable for every declaration, even if a forwarder lodged it. An error in a tariff number or a proof of origin repeats itself with every import, often for years, until the next customs audit finds it. A customs compliance system is meant to prevent exactly that, through clear responsibilities, reliable data and controls. It does not have to be large, but it must suit the company and actually be lived.
Responsibility and organisation
It starts with a decision by management. Who is responsible for customs, with what powers, and who deputises for that person? In many companies, customs is spread across logistics, purchasing and accounting without anyone having an overview. This is the most common weakness. Management can delegate the tasks but remains responsible for selecting, equipping and supervising those in charge.
Work instructions
Written work instructions set out how the essential processes work. Who assigns tariff numbers? Who checks proofs of preferential origin and supplier's declarations? Who reports royalties or assists to the customs department? What happens with new products, new suppliers or new countries? Good instructions are short, specific and updated when the law or processes change.
Master data
Most customs errors are master data errors. Three areas deserve particular attention:
- Tariff: Every tariff number needs a comprehensible justification and is reviewed regularly, at least whenever the Combined Nomenclature changes. For difficult cases, binding tariff information provides legal certainty.
- Origin: Preferential origin and supplier's declarations must be valid, complete and assigned to the items.
- Customs value: Additions such as royalties, assists or freight costs and the method of their allocation must be defined and documented.
Retention periods are part of this. Customs, tax and preference law periods differ; in each case the longest is decisive. The system should define which documents are to be kept, for how long and in what form. In audits, this is regularly exactly where something fails.
Control of service providers
Forwarders and customs service providers lodge most declarations, either in the name and on behalf of the company as direct representatives or in their own name but on behalf of the company as indirect representatives. In direct representation, the company is the declarant and debtor of the customs debt and is itself answerable for the forwarder's errors. In indirect representation, the service provider is itself the declarant, and the company also becomes a debtor under Article 77(3) of the Union Customs Code (UCC). In both cases this requires written powers of representation with a clear scope, binding instructions on tariff numbers, preferences and procedures, the service provider's obligation to report discrepancies, and a regular reconciliation of the declarations lodged with the company's own data.
Internal control system
A system without controls is just paper. Check regularly by sampling whether declarations, invoices and master data match and whether the instructions are being followed. Analysing the import data held by customs is a good tool for this. Record what was checked, what was found and what follows from it. Once a year, management should receive a short report. An independent external review, for example a customs compliance audit, uncovers what is overlooked in day-to-day business.
Training and documentation
Employees in customs, logistics, purchasing and sales must know which of their decisions are relevant for customs. Training should take place regularly and be documented. In general, for the authorities, what is not documented did not happen. This applies to responsibilities, instructions, controls, training and decisions in cases of doubt.
Dealing with errors
Even a good system does not prevent every error. What matters is what happens next. The error is reported, its cause and extent are clarified, the processes are adjusted and the affected declarations are corrected.
For import duties, this is not merely a recommendation. Under Section 153 of the Fiscal Code (Abgabenordnung, AO), the declarant must notify and correct without delay as soon as it realises that its information was incorrect and that too little duty was assessed as a result. Anyone who remains silent despite knowing of the error risks tax evasion by omission from that point on. The compliance system should therefore set out who reports an identified error to whom and how quickly.
Why it matters for fines and penalties
- Duty of supervision: Under Section 130 of the Administrative Offences Act (Gesetz über Ordnungswidrigkeiten, OWiG), an owner or manager who fails to take the supervisory measures required to prevent a violation, or to make it significantly more difficult, commits an administrative offence. A fine can then be imposed on the company under Section 30 OWiG. A documented system is the evidence that supervision was exercised.
- Assessment: In its judgment of 9 May 2017, case no. 1 StR 265/16, the Federal Court of Justice (Bundesgerichtshof) held that an effective compliance management system must be taken into account when assessing a corporate fine, as must its improvement after a violation.
- Intent and recklessness: Under point 2.6 of the application decree on Section 153 AO (Anwendungserlass), the tax administration regards an internal control system as an indication that may speak against intent or recklessness if a return was incorrect. Whether and how the customs administration applies this principle to import duties must be examined in the individual case.
- Authorisations: For AEO status and many simplifications, the customs administration requires internal controls in any case.
The last point gains weight with the customs reform. Anyone wishing to maintain or obtain AEO status or the new status of Trust and Check trader will need a system that withstands regular review.
For the set-up, the auditing standard IDW PS 980, as revised in December 2022, can serve as a framework. It describes the basic elements of a compliance management system, i.e. culture, objectives, risks, programme, organisation, communication and monitoring, and is also used for tax compliance systems. The customs system can be built as part of it.
How to proceed
- Identify risks. Which goods, countries, procedures and authorisations does your company have, and where are the greatest duty risks?
- Assign responsibilities. Name those responsible and their deputies in writing.
- Describe processes. Start with tariff, origin, customs value and service providers.
- Introduce controls. Define samples and document their results.
- Train and report. Train those involved and report to management regularly.
- Develop further. Adjust the system after every error, every audit and every change in the law.
Where the priorities lie in the individual case depends on the size and business of the company. An independent view from outside helps to set them correctly.