Antidumping duties: burden of proof on customs administration even in the presence of Olaf reports

Court of Cassation, Tax Section, Ord. 24 July 2020 (2 July 2019), no. 15864

In the event that the revision of the customs origin is the result of an OLAF investigation, the burden of proving that the information is directly and specifically related to the goods subject to correction lies with Customs. An assessment that merely refers to OLAF documentation without providing evidence to prove the irregularity of the specific transactions involved is unlawful, since the taxpayer has the right to fully challenge the findings of the reports.

 

Antidumping duties: burden of proof on customs administration even in the presence of Olaf reports 

By Sara Armella – Armella & Associati

With the order no. 15864 of 2020, the Court of Cassation clarified that the report with which Olaf informs several national customs authorities of possible violations does not legitimize, by itself, the adjustment of the customs origin of the imported goods, placing on the Administration the burden of proving that such investigation is referable precisely to the disputed products, my comment in GT Rivista di Giurisprudenza Tributaria n. 1/2021

The Court of Cassation, with the judgment in comment, intervenes on the issue of ascertaining the origin of products and the relevance, in the context of the international investigation involving the Country of export, of the checks carried out by OLAF (European Anti-Fraud Office).

As is well known, the origin of a product, along with the classification and value, is a fundamental element in determining customs taxation. For a long time, the identification of origin was easy to solve, but it’s with the growth of outsourcing and segmentation of production activity that the determination of the place of origin of a product has become very complex[1].

The judgment puts a bar to the widely held view that a mere reference to a foreign trader in an Olaf final report would be sufficient proof to contest the origin of the imported goods, and emphasises the need for direct proof between the contested imports and the products subject to the international investigation.

The decision consolidates a jurisprudential orientation, that was expressed in a number of fundamental orders in 2019[2] and was confirmed in 2020[3].

In these judgments, the Supreme Court, for the first time, declared the illegitimacy of the customs assessment based exclusively on OLAF reports, when the information contained therein cannot be unequivocally referred to the disputed transactions, and goes against the most recent trend which, until now, had generally endorsed the corrections of customs declarations in the presence of OLAF reports[4].

The ruling is clearly a derivation of the general principle of the burden of proof, in terms of the need for any investigation, including those carried out by international bodies of considerable prestige, to lead to the demonstration, based on objective data, of the assumptions underlying the assessment activity.

Preferential and non-preferential origin of goods

In addition to the scarcity of similar precedents in other European countries, this order is of particular interest to many companies, considering the increasing frequency of such disputes.

As is well known, the customs origin of products is divided into preferential and non-preferential.

Preferential origin consists of preferential treatment, in the form of reduced or exemption of import duties, recognised for products originating in some countries on the basis of free trade agreements or concessions granted unilaterally by the European Union[5].

The European Union has concludes with third Countries, pursuant to article 207 of the Treaty on the Functioning of the European Union (i.e. TFEU), several agreements, which provide, in specific origin protocols, reciprocal tariff concessions and the conditions for their application[6].

In some cases, therefore, tariff concessions are provided on the condition of reciprocity, so that exemptions or reductions apply both to European products exported to the contracting countries and to products originating in the partner countries when imported into the European Union.

In other cases, however, the preferential regime is not reciprocal, as is the case for developing Countries, which are unilaterally granted preferential customs treatment. In fact, in implementation of Article 208 TFEU, customs legislation provides that the European Union may autonomously grant preferences to certain countries in order to support their economic development. This category includes the Generalised System of Preferences (GSP), which the European Union grants to products from developing countries (PVS)[7].

On the other hand, the “non-preferential” origin represents the general rule applicable to products coming from all countries with which the European Union has not stipulated specific agreements (e.g. United States, China): in this case, the duty rate provided for by the common customs tariff is applied to the goods[8].

In order to identify univocal rules at international level, the International Convention on the Simplification and Harmonisation of Customs Procedures (Kyoto Convention) was also concluded, which established the general principles for the use of non-preferential rules of origin[9].

In general, goods that are wholly obtained in a country are considered to originate in that country. However, the ever-increasing complexity of production processes means that most industrial products are the result of a combination of several processing stages, carried out in different countries, of raw materials of different origins.

In such a case, the origin of the product is determined by reference to the place where the last, substantial, economically justified processing or working took place in an undertaking equipped for that purpose and resulting in the manufacture of a new product or which represented an important stage of the manufacturing process (Art. 60(2); Arts. 32-34 Reg. 2446/2015, RD).

International origin investigations: the importance of Olaf 

The European Anti-Fraud Office (OLAF), which was established in 1999 as a general service of the European Commission, is crucial in the fight against fraud and in carrying out administrative investigations across the board and provides the Member States with the necessary assistance to protect the financial interests of the Union[10].

OLAF has the power to carry out independent internal investigations (i.e. in any institution or body financed by the EU financial statements) to detect fraud, corruption and other illegal activities affecting the financial interests of the Union.

In the customs field, external investigations are of particular importance, including on-the-spot checks in Member States and third countries, with inspections at the premises of economic operators, in close cooperation with the competent national authorities.

Investigations are launched on one’s own initiative or at the request of a Member State or a Union body when there is a “sufficient suspicion” that “leads to the presumption of the existence of fraud, corruption and any other illegal activity affecting the financial interests of the Union”, including on the basis of information provided by third parties or anonymously (Art. 5, Reg. 883/2013).

Of extreme importance, for the purposes of this subject, is the power of Olaf to carry out investigations also in the territory of Countries not belonging to the EU, in respect of the limits and procedures provided for by the agreements of mutual administrative assistance, concluded by the European Union with the third Countries.

In the course of an external investigation, the Office may exercise many significant investigative powers and may have access, subject to the principles of necessity and proportionality, to all relevant information contained in databases of institutions, bodies, offices and agencies in relation to the facts under investigation.

In addition to the powers, the European framework also provides for the legal limits of OLAF’s investigative action. In this respect, the principles and procedural guarantees relating to investigations, to which Reg. 883/2013 devotes a specific article (Art. 3), are very significant.

One extremely significant aspect relates to the principle of impartiality, according to which OLAF’s activity is fact-finding, so that, in the course of investigations, evidence is gathered both against and in favour of the person concerned.

Another important principle clearly expressed by the European legislator is the principle of prior adversarial proceedings[11], which must take place at a stage prior to the drawing up of the conclusions of the investigation.

To this end, the Office sends the person concerned an invitation to submit their observations, either in writing or during an interview with OLAF staff. The invitation includes a summary of the facts concerning the people concerned and sets a time limit, not less than ten days, for them to submit their observations.

It is provided that the final investigation shall make reference to these observations. The right to be heard may be deferred only in duly justified cases, where it is necessary to ensure the confidentiality of investigations and/or which involve recourse to investigative procedures which fall within the competence of a national judicial authority [12].

At the end of the operations, Olaf draws up a final report describing the legal basis of the investigation, the procedural steps followed, the facts established and their preliminary legal qualification, the estimated financial impact of the fraud established, compliance with procedural guarantees and the results of the investigation, as well as any observation made by the person concerned.

If OLAF has established an infringement or conduct detrimental to the financial interests of the Union, different procedures are followed, depending on whether the infringement is an administrative offence or a criminal offence. In the first case, the report is aimed at recovering the sums allegedly misappropriated from the European budget and is sent to the body in charge of that operation (in Italy, the Customs Agency), which may “freely assess” the evidence provided by the Office (Article 11, Reg. 883/2013)[13].

In compliance with the principles of the EU Treaty, the division of competences and functions between OLAF (in charge of the investigation) and the national customs authorities, which are the exclusive holders of the power of investigation and the exercise of taxation powers, is clearly expressed. In this sense, the provision should be read, according to which “it is for the competent authorities of the Member States or the institutions, bodies, offices or agencies, as the case may be, to decide what action to take on completed investigations, on the basis of the final investigation report drawn up by the Office” (31st recital, Reg. 883/2013).

Of significant importance is the provision that concluding reports “shall constitute evidence”[14] in administrative or judicial proceedings of the Member State in which it is necessary to use them.

The effectiveness of such proof is at the centre of a wide divergence of views between the Customs Agency and operators. According to the view expressed by the Administration, the minutes and final reports of Olaf have a privileged evidentiary value, according to a theory that was also reiterated in the case referred to in this note.

It should be noted that the current European regulation is clear on this point and establishes, instead, that such inspection reports constitute evidence, in the countries where they are used by the Customs Administration, “on the same basis and under the same conditions as the administrative reports drawn up by national administrative inspectors. The reports shall be subject to the same evaluation rules applicable to national administrative reports and shall have the same evidentiary value” (art. 11, Reg. 883/2013).

The case examined

The case in question, like the other more recent cases examined by the Court of Cassation, relates to a case, without criminal relevance, in which the importer declared customs origin on the basis of foreign certificates of origin, the authenticity of which was not contested by Customs.

However, according to the Customs Agency, the origin declared by the importer is not the actual origin and the product declared as Thai is in reality Chinese: such a different classification should have led to the application of an anti-dumping duty.

The case in question therefore arises from the disallowance of the preferential origin of some steel products, declared as having Thai origin, but considered by the Customs Agency as having been produced in China, on the basis of a report sent by Olaf, with the consequent application of an anti-dumping duty of 85%.

In the present case, Olaf’s alerts were limited to informing the Italian Customs of a possible evasion of anti-dumping duties, as the supplier was included in a long list of parties considered to have ceased trading.

It should be noted that the judgment in question reflects a long line of case law on this point. In previous rulings, the Court of Cassation has already distinguished, within the findings contained in the Olaf reports, the part relating to the “dispute”, based on the findings and historical-objective data acquired in the course of the investigation carried out, compared to the part defined as “supposition”, i.e. presumptive reconstruction, made by way of deduction from the historical facts acquired.

In this regard, the Supreme Court has properly clarified that the facts and circumstances ascertained, in relation to a year, can not extend to previous years, “without passing from a more specific evidentiary endorsement in terms of historical and factual (…) with the knowledge of the complete framework of operating techniques used in those countries”, in order to assess the suitability to support the thesis of a different origin of the goods, supported by the Customs[15].

Although Community law allows OLAF investigations to be used in customs disputes under Italian law, like other sources of evidence, national judges are required to assess them carefully and independently, according to the rules of evidence in force in our Country[16].

As clarified by the Supreme Court, even if the assessment is the result of an OLAF investigation, the burden of proving that the investigation is directly and specifically related to the rectified products is still on the Administration.

At the basis of this conclusion is the consideration that the reports of the European Body must be considered for their content and not only for the authority of the body from which they emanate.

Sometimes the records do not allow the origin declared to Customs to be disallowed, also in view of the fact that they generally relate to thousands of transactions and numerous exporters.

In such cases, therefore, specific evidence is required that can refer to the producer and the disputed supply and that gives certainty as to the origin of the goods, such as, by way of example, the traceability of the products through the reconstruction of transport.

The Court of Cassation, therefore, took up the principles on the burden of proof on the subject of OLAF assessments, already affirmed by European case law[17] and, in the wake of some rulings of legitimacy intervened in recent years on the same subject[18], confirmed the annulment of the adjustment notice for lack of evidence, already pronounced by the Regional Tax Commission.

The recent judgments confirming the probative value of the simple presumption of the reports of the European Anti-Fraud Office do not deviate from this approach, but instead consider the contested adjustment notice to be legitimate (Court of Cassation, Tax Section, 7 July 2020, nos. 14026, 14027 and 14028)[19].

In this regard, the overcoming of a presumption of infallibility or privileged faith of OLAF’s reports is to be considered positively.

The Supreme Court, through a long process started in the first decade, has come to delineate the nature and effectiveness of the checks carried out by OLAF and, in doing so, has applied by analogy the principles established in case law on the subject of assessments carried out by the financial police. In this way, OLAF reports have been assimilated (in terms of content and form) to the reports of findings[20].

The Court recalled that such acts can assume a threefold level of reliability: i) minutes with privileged faith, for facts attested by a public official as having been made by him or as having taken place in his presence; ii) minutes valid until proven otherwise, if they contain statements made by the parties or by third parties to a public official; iii) minutes freely assessable by the judge, when the persons who made the statements reported are not specifically indicated, with the possibility for the judge to disregard them if considered unreliable or in contrast with other elements acquired in the judgement.

In the present case, the Court of Cassation, while affirming the full evidential value of the documents issued by OLAF in the course of an international investigation, recognised the taxpayer’s right to challenge in full the conclusions reached in the reports themselves.

Excluding, therefore, the value of privileged evidence for the reports and information Olaf, the Court stated that, “in the face of an import of products formally originating in Thailand, for the subjection of the same products to the aforementioned anti-dumping duties, two roads are theoretically possible: o the adoption by the Council, following the necessary investigations, of an autonomous regulation, which extends these duties to products imported from certain countries, once it has been ascertained that elusive trade practices have been carried out (as, for example, happened with the so-called Malaysia Regulation). Regulation Malaysia, EU Regulation 723/2011, which extends the duties under EC Regulation 91/2009 to imports of certain iron or steel fasteners shipped from Malaysia, regardless of whether they are declared as originating in Malaysia or not); or, alternatively, it is necessary to fully demonstrate the actual Chinese origin of the products themselves”

The ruling upholds the now prevailing view that the Office must provide evidence of the specific transactions at issue and, in the absence of such evidence, considers the verification to be unlawful.

According to those judgments, in particular, the authorities cannot simply refer to the reports received by OLAF, nor can the mere fact that OLAF has included the foreign supplier on a list of companies which are inactive or which have ceased trading be relevant, since the mere reference to those circumstances, in the absence of evidence to substantiate that situation, does not justify the adjustment of the assessment.

According to those judgments, in particular, the authorities may not confine themselves to referring to the reports received by OLAF, nor may the mere fact that OLAF has included the foreign supplier on a list of companies which are inactive or which have ceased trading be relevant, since the mere reference to those circumstances, in the absence of evidence justifying that situation, does not legitimise the adjustment of the assessment[21].

Indeed, the Customs Agency cannot base its duty claim solely on general information received from foreign investigating authorities, if that information does not prove with certainty the customs origin of the imported products or if it is unspecified and lacks specific evidence relating to the products specifically imported[22].

These principles, already expressed by several Commissions of merit, are now shared by the Supreme Court, which has clarified that the marking with which OLAF informs the national customs authorities of any violations does not legitimize, per se, the adjustment of the assessment, since this must be supported by specific and concrete elements that demonstrate the irregularity of the specific transaction, in implementation of the principle that it is up to the tax authorities to demonstrate the existence of the facts constituting the greater tax claim[23].

 

[1] M. Lux, Guide to community customs legislation, Bruxelles, 2002, p. 160; T. Lyons, EC Customs Law, Oxford, 2008, p. 257 ss.; T. Walsh, European union customs code, Alphen aan den Rijn, 2015, p. 294; WCO, Rules of origin – handbook, in www.wcoomd.org; L. Moriconi – M. Zanga, Guida pratica sullorigine delle merci, Milan, 2011, p. 5; S. Armella, Diritto doganale, 2017, Milan, p. 270 ff.

[2] Court of Cassation,Tax Section, 28 February 2019, nos. 5931, 5932, 5933, 5934 and Id. 21 March 2019, nos. 7993 e 7794; Id., ord. 6 June 2019, no. 15360.

[3] Court of Cassation, Tax Section, 31 July 2020, no. 16469; Id., ord. 29 April 2020, no. 8337.

[4] Court of Cassation, Tax Section, 13 March 2013, no. 6238; Id. 28 September 2012, no. 16570; Id. 26 September 2012, no. 16539; Id. 27 June 2012, no. 13496; Id., ord. 2 March 2009, no. 4997.

[5] The rules governing preferential origin are contained in Article 64 ff. of the Union Customs Code (Reg. 952/2013, hereinafter UCC), articles 37-70 of the Delegated Regulation (Reg. 2446/2015, RD), articles 60-126 of the Implementing Regulation (Reg. 2447/2015, RE) and in numerous free trade agreements. For an exhaustive overview, please refer to the Trade section of the European Commission’s website and, in particular, List of arrangements.

[6] There are approximately 300 free trade agreements already active in the world and, at the present time, another 100 are in the phase of negotiation or ratification. The purpose of these treaties is to strengthen trade and attract investments between certain regional areas of the world, through the instrument of preferential rules of origin. As of September 2020, the European Union has concluded 43 Free Trade Agreements involving 74 countries, the latest of which is Vietnam (Free Trade Agreement in force since 1 August 2020).

[7] The GSP was introduced on 1 July 1971, in application of the principles developed by UNCTAD, the United Nations Conference on Trade and Development, which was established in 1964 to promote the growth and integration of developing countries into the world market.

[8] Non-preferential origin is regulated in Articles 59-63 UCC, while specific rules are provided for in the Delegated Regulation (Articles 31-36 and Annex 22-01) and the Implementing Regulation (Articles 57-59).

[9] Kyoto Convention of 15 May 1973, as amended by an Additional Protocol, to which the European Community acceded by Council Decision No 415 of 3 June 1977.

[10] Reg. 883/2013 governs the investigative powers of that Office, which contributes to the design and development of methods of preventing and combating fraud, corruption and any other illegal activity detrimental to the general budget of the European Union, including within the institutions, bodies, offices and agencies of the Union.

[11] Respect for an adversarial process is one of the fundamental principles of the OLAF framework: Recital 24 of Regulation 883/2013 states that ‘In order to strengthen the protection of the rights of persons under investigation, no conclusions referring by name to a person concerned should be drawn, at the final stage of an investigation, without that person having been given the opportunity to express his or her views on the facts concerning him or her’.

[12] Art. 9, para. 4, Reg. 883/2013.

[13] If, on the other hand, the investigation reveals the hypothesis of the commission of an offence (for customs duties, smuggling), OLAF may also involve the national judicial authorities. Indeed, the Director General, in accordance with national law and the law of the Member State concerned, may transmit to the judicial authorities of the Member State concerned information gathered in the course of investigations on facts falling within their competence.

[14] Unlike in the case of exchange of information between Member States, where the elements provided “may constitute evidence” (Art. 16, Reg. 515/1997, as reformulated by Reg. 1525/2015, §10.3.2).

[15] Court of Cassation, Tax Section, 30 May 2008, no. 14516. That said, the principles provided for with regard to the minutes of ascertainment drawn up by public officials belonging to the customs administration apply, in which it is necessary to distinguish between the operations and the facts that they declare to have occurred in their presence (e.g. measurements, findings, documents found) and that they attest with full evidence, up to the point of a suit for forgery, while such value is not assumed by the deductive and hypothetical assessments reported in the minutes, which deserve to be prudently assessed by the judge, on the basis of the serious, precise and concordant nature of the presumptions.

[16] The Court of Cassation, Tax Section, 11 August 2016, no. 16962, also holds that it is for the trial judge to assess the findings of the OLAF enforcement bodies according to the ordinary rules on the assessment of evidence.

[17].Most recently, Court of Justice 16 March 2017, cases C-47/16, Veloserviss SIA.

[18] Court of Cassation, Tax Section, 11 August 2016, no. 16962; Id. 30 May 2008, no. 14516.

[19] See also, Court of Cassation, Tax Section, 21July 2020, no. 15509; Id. 22 July 2020, n. 15581; Id. 30 July 2020, no. 16351.

[20] Cfr. S. Armella, Diritto doganale dellUnione Europea, Milan, 2017, p. 331 ss.

[21] Tax Court of Liguria, sec. III, 13 January 2015, nos. 48- 54; Tax Court of Genoa, Sez. XIII, 4 November 2014, nos. 2114 e 2117.

[22] Tax Court of Liguria, Sez. III, 6 October 2017, n. 1420; Tax Court of Genoa, Sez. XIII, 23 September 2014, nos. 1753 e 1754

[23] Expluribus, Court of Cassation, Tax Section, 20 July 2018, no. 19368; Id. 31 May 2018, no. 13934; Id. 15 April 2016, no. 7501; Id. 15 July 2015, no. 14787.

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