Case C‑213/19
European Commission
v
United Kingdom of Great Britain and Northern Ireland
Judgment of the Court (Grand Chamber), 8 March 2022
(Failure of a Member State to fulfil obligations – Article 4(3) TEU – Article 310(6) and Article 325 TFEU – Own resources – Customs duties – Value added tax (VAT) – Protection of the financial interests of the European Union – Combating fraud – Principle of effectiveness – Obligation for Member States to make own resources available to the European Commission – Financial liability of Member States in the event of losses of own resources – Imports of textiles and footwear from China – Large-scale and systematic fraud – Organised crime – Missing importers – Customs value – Undervaluation – Taxable amount for VAT purposes – Lack of systematic customs controls based on risk analysis and carried out prior to the release of the goods concerned – No systematic provision of security – Method used to estimate the amount of traditional own resources losses in respect of imports presenting a significant risk of undervaluation – Statistical method based on the average price determined at EU level – Whether permissible)
1. Actions for failure to fulfil obligations – Jurisdiction of the Court – Action brought against a Member State that has withdrawn from the European Union – United Kingdom Withdrawal Agreement – Article 86 – Jurisdiction of the Court over actions for failure to fulfil obligations brought against the United Kingdom before and after the end of the transition period
(Art. 258 TFEU; Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, Arts 86, 136 and 160)
(see paragraphs 120, 121)
2. Actions for failure to fulfil obligations – Procedure – Objective pursued – Objective finding that a Member State has failed to fulfil its obligations under the FEU Treaty or secondary legislation – Determination as to whether or not there has been an infringement of EU law in a given case
(Art. 258 TFEU)
(see paragraph 162)
3. Actions for failure to fulfil obligations – Subject matter of the dispute – Application for a Member State to be ordered to take specific measures – Claim for specific amounts of traditional own resources to be made available – Admissibility
(Art. 258 TFEU)
(see paragraphs 182-189)
4. Own resources of the European Union – Protection of the European Union’s financial interests – Fight against fraud and other illegal activities – Obligation of the Member States to provide for penalties and effective and dissuasive control measures – Scope – Offences affecting the financial interests of the European Union in customs matters – Direct link between the collection of revenue deriving from Common Customs Tariff duties and the availability of the corresponding resources – Customs controls – Precise obligations as to the result to be achieved – Nature of the control measures having to be determined by reference to the characteristics of the fraud or illegal activity rather than in an abstract and fixed manner
(Art. 325 TFEU)
(see paragraphs 209-220)
5. Actions for failure to fulfil obligations – Proof of the failure to fulfil obligations – Burden of proof on the Commission – Action based on presumptions – Dismissal of the action
(Art. 258 TFEU)
(see paragraph 221)
6. Member States – Obligations – General obligation under Article 4(3) TEU – Concrete expression of that obligation in a given sphere by means of a specific article – Failure to fulfil obligations established only with regard to the specific article
(Art. 4(3) TEU; Art. 325(3) TFEU)
(see paragraph 261)
7. Customs union – Application of customs legislation – Community Customs Code – Union Customs Code – Control measures to be adopted by the customs authorities of the Member States – Requirement that those measures be based on a risk analysis – Obligation to undertake risk management – Provision of a security – Necessity of requiring such provision – Margin of discretion of the Member States’ customs authorities – Limits – Obligation to respect the principle of effectiveness – Scope – Obligation to enter customs debts in the accounts
(Community Customs Code, Arts 13 and 220(1); Union Customs Code, Arts 46 and 105(3); Commission Regulations No 2454/93, as amended by Regulation No 3254/1994, Art. 248(1), and 2015/2447, Art. 244)
(see paragraphs 272-298, 300, 301, 303, 305, 333)
8. Own resources of the European Union – Establishment and making available by the Member States – Responsibility of the Member States – Scope – Direct link between the collection of revenue deriving from customs duties and the availability to the Commission of the corresponding traditional own resources – Obligation of the Member States to guarantee the effective and comprehensive collection of own resources
(Art. 325(1) TFEU)
(see paragraphs 346, 358, 359, 362)
9. Own resources of the European Union – Establishment and making available by the Member States – Release from the obligation – Conditions – Reasons of force majeure or other reasons which cannot be attributed to a Member State – Irrecoverable amounts – Non-compliance with the procedure for establishing the right to be released from the obligation – Effects
(Council Regulation No 609/2014, Art. 13(2) to (4))
(see paragraphs 380-395)
10. Own resources of the European Union – Establishment and making available by the Member States – Interest on amounts made available belatedly – Not made available by the Member State concerned – Finding by the Court of a failure to fulfil obligations – Obligation to pay default interest – Exception – Making own resources available subject to reservations
(Council Regulations No 1150/2000, Arts 9(1) and 11, and No 609/2014, Arts 9(1) and 12)
(see paragraphs 398-401)
11. Own resources of the European Union – Establishment and making available by the Member States – Not established and made available without there being any reason of force majeure or impossibility of recovery in the long term for reasons which cannot be attributed to the Member State concerned – Failure to fulfil obligations
(Art. 325 TFEU; Council Regulations No 1150/2000, Arts 2, 6, 9, 10, 11 and 17, and No 609/2014, Arts 2, 6, 9, 10, 12 and 13; Council Decisions 2007/436 and 2014/335, Arts 2 and 8)
(see paragraph 404)
12. Customs union – Common Customs Tariff – Customs value – Determination – Allocation of competences between the European Union and the Member States – Exclusive competence and responsibility of the Member States – Scope
(European Parliament and Council Regulation No 952/2013, Arts 70 to 74; Council Regulation No 2913/92, as amended by Regulation No 648/2005, Arts 29 to 31)
(see paragraphs 412, 413)
13. Own resources of the European Union – Establishment and making available by the Member States – Not established and made available without there being any reason of force majeure or impossibility of recovery in the long term for reasons which cannot be attributed to the Member State concerned – Failure of the customs authorities to carry out checks to verify the actual value of the goods – Impossibility of carrying out checks – Customs authorities’ awareness of undervaluation of goods – Systematic acceptance of the values declared – Quantification of own resources losses based on statistical data – Whether permissible
(Art. 325 TFEU)
(see paragraphs 445-447)
14. Actions for failure to fulfil obligations – Judgment of the Court establishing the failure to fulfil obligations – Effects – Obligations of the Commission – Obligation to ensure compliance with the judgment – Scope – Traditional own resources payable by a Member State – Loss of resources – Recalculation of the amount payable – Taking into account of the common volume of imports to be considered to be undervalued – Taking into account of debts claimed by the infringing State – Application of a statistical method for determining the value of undervalued imports
(Art. 258 TFEU)
(see paragraphs 475, 517-519, 526)
15. Actions for failure to fulfil obligations – Jurisdiction of the Court – Limits – Traditional own resources payable by a Member State – Calculation of the amount – Lack of jurisdiction of the Court
(Art. 258 TFEU)
(see paragraphs 524, 525)
16. Member States – Obligations – Duty of sincere cooperation – Implementation of EU law – Own resources of the European Union – Obligation to facilitate the Commission’s application of EU law under the control of the Court – Scope – Making available to the Commission supporting documents and other relevant documentation – Included – Failure to make them available – Failure to fulfil obligations
(Arts 4(3) and 17 TEU)
(see paragraphs 527, 584-586, 598, 600, 601, operative part 1)
17. Own resources of the European Union – Resources accruing from value added tax – Basis of collection – Calculation method – Direct link between collection of the tax and the availability to the Commission of those resources – Obligation of the Member States to guarantee the effective and comprehensive collection of own resources – Scope – Own resources withheld from the EU budget because of fraud – Included – Condition – Net tax revenue actually affected by the fraud
(Council Regulation No 1553/89, Art. 3)
(see paragraphs 567-576)
Résumé
The United Kingdom has failed to fulfil its obligations in relation to customs control and the availability of EU own resources by failing to adopt the measures necessary to combat fraud resulting from undervalued imports of textiles and footwear from China:
The United Kingdom should have taken account of the risk profiles and the types of customs control recommended to it by OLAF and the Commission
The European Union has abolished all quotas on imports of textiles and clothing, including from China, since 1 January 2005.
In 2007, 2009 and 2015, the European Anti-Fraud Office (OLAF) sent mutual assistance messages to Member States, informing them in particular of the risk of extreme undervaluation of imports of textiles and footwear from China by shell companies registered for the sole purpose of giving fraudulent transactions the appearance of legitimacy. OLAF asked all Member States to monitor their imports of such products, to carry out appropriate customs checks and to take adequate safeguard measures if there was any suspicion of artificially low invoiced prices.
To that end, OLAF developed a risk assessment tool based on EU-wide data. That tool, involving the calculation of an average derived from ‘cleaned average prices’, produces a ‘lowest acceptable price’ that is used as a risk profile or threshold enabling Member States’ customs authorities to detect values declared on importation that are particularly low, and thus imports presenting a significant risk of undervaluation.
In 2011 and 2014, the United Kingdom participated in monitoring operations conducted by the Commission and OLAF to counteract certain risks of undervaluation fraud, without however applying the lowest acceptable prices calculated in accordance with OLAF’s method or enforcing the additional payment demands issued by the United Kingdom authorities following such operations.
In several bilateral meetings, OLAF recommended that the competent United Kingdom authorities use EU-wide risk indicators, namely the lowest acceptable prices. According to OLAF, fraudulent imports were increasing significantly in the United Kingdom on account of the inadequate nature of the checks carried out by the United Kingdom customs authorities, encouraging the shift of fraudulent operations from other Member States to the United Kingdom. However, according to OLAF, the United Kingdom did not follow its recommendations, instead releasing the products concerned for free circulation in the internal market without conducting appropriate customs controls, with the result that a substantial proportion of the customs duties due were not collected or made available to the European Commission.
Consequently, taking the view that the United Kingdom had failed to enter in the accounts the correct amounts of customs duties and to make available to the Commission the correct amount of traditional own resources and own resources accruing from value added tax (VAT) in respect of certain imports of textiles and footwear from China, the Commission brought an action for a declaration that the United Kingdom had failed to fulfil its obligations under EU legislation on control and supervision in relation to the recovery of own resources and under EU legislation on customs duty and on VAT.
By its judgment, the Grand Chamber of the Court of Justice upholds the Commission’s action in part, ruling, in essence, that the United Kingdom has failed to fulfil its obligations under EU law by failing to apply effective customs control measures or to enter in the accounts the correct amounts of customs duties and accordingly to make available to the Commission the correct amount of traditional own resources in respect of certain imports of textiles and footwear from China, (1) and by failing to provide the Commission with all the information necessary to calculate the amounts of duty and own resources remaining due. (2)
Findings of the Court
At the outset, the Court rejects all of the objections of inadmissibility raised by the United Kingdom in relation in particular to a breach by the Commission of the principle of the protection of legitimate expectations on account of certain statements made by Commission or OLAF agents during meetings with its administration concerning measures taken by the United Kingdom to counter the undervaluation fraud at issue.
In that regard, the Court recalls that a person may not plead breach of the principle of the protection of legitimate expectations unless he or she has been given assurances that have led him or her to entertain well-founded expectations. Even if such expectations have arisen, that principle cannot be relied on by a Member State in order to preclude an objective finding by the Court of a failure to fulfil the Member State’s obligations under the FEU Treaty.
With regard to the substance, in the first place, in upholding the plea relating to the failure to fulfil obligations imposed by EU law to protect the financial interests of the European Union and to counter fraud, and failure to fulfil obligations under EU customs law, the Court emphasises first of all the precise obligations of the Member States, under Article 325(1) TFEU, as to the result to be achieved. In order to counter infringements that are liable to impede the effective and comprehensive collection of traditional own resources in the form of customs duties and that are, therefore, likely to affect the financial interests of the European Union, the Member States must provide for the application not only of appropriate penalties, and in particular criminal penalties in cases of serious fraud or any other serious illegal activity, but also of effective and dissuasive customs control measures. The nature of the customs control measures to be adopted by the Member States in order to comply with the requirements of that provision cannot be determined in an abstract and fixed manner, since it depends on the characteristics of that fraud or other illegal activity, which may change over time.
Accordingly, while Article 325(1) TFEU allows Member States a certain latitude and freedom of choice as to customs control measures, in the present case, having regard to the particular features of the undervaluation fraud at issue, the system of customs controls put in place by the United Kingdom to combat that fraud, limited as it was with very few exceptions to post-clearance action to recover duties, manifestly failed to respect the principle of effectiveness laid down in Article 325(1) TFEU. Furthermore, the Court acknowledges that the common risk criteria recommended to the Member States by OLAF and the Commission and which form part of the common risk management framework are not binding. However, Article 325(1) and (3) TFEU entails close cooperation between, on the one hand, the Member States and the European Union and, on the other, the Member States themselves, which are thus required to take due account of those criteria or to follow them if they have not developed national criteria that are at least as effective as those recommended by the European Union.
Under EU customs legislation, read in conjunction with Article 325 TFEU, the United Kingdom should therefore, at the very least, when establishing its system of risk analysis and risk management during the infringement period, have taken due account of the risk profiles and types of customs control which OLAF and the Commission were recommending to it. In those circumstances, in connection with customs controls taking place before the release of goods for free circulation, the United Kingdom could not, pending the establishment of its own allegedly more effective risk thresholds, refuse to apply any risk profile that would make it possible to identify, before clearance of the goods concerned, very low-priced imports presenting a significant risk of undervaluation. The Court states that, in the context of a massive undervaluation fraud such as that at issue, effective protection of the financial interests of the European Union called not only for the establishment of a risk profile but also for the provision of a security to be systematically demanded in respect of the imports at issue. In the present case, however, the United Kingdom required securities to be provided only very exceptionally, and those securities were, moreover, repaid after the demand notes to which they related were cancelled. The Court also finds that, by calculating customs duty on the basis of incorrect values, these being manifestly too low, then by entering those amounts of duty in the accounts, contrary to EU customs law, the United Kingdom failed to enter in the accounts in an effective manner the full customs duty due.
In the second place, in upholding in part the plea relating to the failure to fulfil obligations imposed by EU law on the making available of traditional own resources consisting in customs duties, the Court notes first of all that the Member States are required to establish the European Union’s entitlement to own resources as soon as their authorities are in a position to calculate the duties arising from a customs debt and to determine who is liable for them, and then to make the European Union’s own resources available to the Commission, taking all measures that are necessary in that respect. The management of the system of the European Union’s own resources is therefore entrusted to the Member States and is their responsibility alone. The direct link between the collection of revenue deriving from customs duties and the availability to the Commission of the corresponding resources obliges the Member States to protect the financial interests of the European Union and to adopt the measures necessary to guarantee the effective and comprehensive collection of those duties.
In the present case, the Court finds an infringement of Article 325(1) TFEU and of EU customs law in so far as the United Kingdom did not adopt measures during the infringement period that would ensure that the correct level of the customs values of the relevant imports would be established, such as pre-clearance controls and the obligation to provide guarantees for imports presenting a significant risk of undervaluation. Thus, the customs debts were calculated by the United Kingdom on the basis of inaccurate values and, as a result of the inadequacy of the controls carried out, the full own resources relating to the imports concerned were not made available to the Commission. By failing to verify the accuracy of the values of the goods in question, declared in accordance with the rules of EU law before the release of the goods for free circulation, the United Kingdom created an irreversible situation leading to considerable losses of own resources for the European Union, for which the United Kingdom must be held liable.
Next, the Court upholds the Commission’s complaint that the United Kingdom infringed EU customs law by failing to make available to it the traditional own resources that were due in respect of the imports within the scope of joint customs operation ‘Operation Snake’, coordinated by OLAF. The additional customs duties claimed in the demand notes issued by the United Kingdom had been entered in the accounts and notified to their debtors in accordance with EU law. However, those entitlements had not yet been recovered and no security had been provided for them when the United Kingdom decided to cancel those demand notes and remove the entry of the relevant amounts from the accounts.
In that regard, the Court recalls that, under EU customs law, the Member States are obliged to take all requisite measures to ensure that the amounts corresponding to the entitlements established are made available to the Commission. However, in the present case, the calculation of those amounts is vitiated by an administrative error by the United Kingdom customs authorities, which were obliged to correct that error by re-determining the customs value, on the basis of one of the methods prescribed for that purpose by EU customs law. That conclusion applies equally to their decision not to reissue those demand notes after having corrected them. In that regard, the application of EU customs law is a matter for the Member States, which are exclusively responsible for doing so, and, by deciding to cancel the aforementioned demand notes rather than reissue them after correcting them on the basis of calculations that accord with EU customs law, the United Kingdom did not, contrary to that law, take the requisite measures to ensure that the amounts established would be made available to the Commission. The Court also finds that the United Kingdom did not comply with the procedure provided for by EU customs law for a Member State to be released from the obligation to place at the disposal of the Commission the amounts concerned. In addition, in rejecting the reasons relied on by the United Kingdom with a view to its being released from its obligation to place at the disposal of the Commission the own resources derived from the customs duties established in the aforementioned demand notes and relating to the fact that the debtors of those entitlements were undertakings that were missing or insolvent, the Court states that if those duties have proved not to be recoverable from the undertakings concerned, that is due to a double administrative error attributable to the United Kingdom authorities. Lastly, the Court finds that the United Kingdom also failed to fulfil its ancillary obligation to pay default interest in relation to the own resources that were not made available to the Commission.
As regards the question whether the United Kingdom failed more specifically to fulfil its obligations under EU law on own resources by not making available to the Commission traditional own resources corresponding to a specific amount for each year of the infringement period, that is a total of EUR 2 679 637 088.86, the Court finds that it is the exclusive competence and responsibility of Member States to ensure that declared customs values are established in accordance with the rules of EU customs law on customs valuation. In the present case, since the United Kingdom customs authorities had failed to take the appropriate measures in a sufficiently systematic manner, significant quantities of manifestly undervalued imported goods were released for free circulation and could not be recalled for the purposes of physical controls. Since those failures to act made it impossible to establish the customs value on the basis of one of the methods prescribed by EU customs law, the Commission, correctly, used other methods for that purpose. The Court also finds that the Commission was fully entitled to avail itself of the ability that is inherent in the system of the European Union’s own resources to submit to review by the Court, in infringement proceedings, the dispute between the Commission and the United Kingdom regarding the latter’s obligation to make a certain amount of own resources available to the Commission.
Lastly, as regards the quantification of own resources losses, the Court makes clear that where the fact that it is impossible to carry out checks is the consequence of the failure of the customs authorities to carry out checks to verify the actual value of the goods, a method based on statistical data, rather than a method intended to determine the customs value of the goods concerned on the basis of direct evidence, is permitted. The Court’s examination in the present proceedings must essentially aim to verify, first, that that method was justified in the light of the particular circumstances of the case and, secondly, that it was sufficiently precise and reliable. In that regard, the Court partly rejects the Commission’s calculation, finding that, because of an inconsistency between the form of order sought in the application and the grounds set out in it, as well as the considerable uncertainty, as a result, regarding the accuracy of the amounts of own resources claimed by the Commission, the Commission has not established the full amounts to the requisite legal standard. In the light of the particular circumstances of the case, the Court does however endorse the method used by the Commission to estimate the amount of traditional own resources losses for part of the infringement period, since that method has proved to be sufficiently precise and reliable to ensure that it does not lead to a clear overestimate of the amount of those losses. The Court also makes clear that it is not for the Court to take the place of the Commission by calculating the precise amounts of traditional own resources payable by the United Kingdom. It can either grant or reject, in whole or in part, the claims set out in the form of order sought in the Commission’s application, without modifying the scope of those claims. It is, however, for the Commission to recalculate the losses of EU own resources remaining due by taking account of the findings in the judgment of the Court regarding the quantum of the losses and the value to be attributed to them.