Evaluation of current arrangements for the holding and moving of excise goods under excise duty suspension. Final Report

Transcription

1 Evaluation of current arrangements for the holding and moving of excise goods under excise duty suspension Final Report

2 Specific contract No. 11 under FWC TAXUD/2012/CC116 PREPARED BY: Rambol Management Consulting AS & Europe Economics Research Ltd Henrik Stener Pedersen Alexandru Floristean Edmund Beavor Franziska Lessmann Christina Mørup Helene Bundgaard Rohde Pau Salsas Chiraag Darbar Justina Raižytė Cindy Pedersen CHECKED BY: Dr. Walter Summersberger Dr. Thomas Bieber FOR THE EUROPEAN COMMISSION: Directorate-General for Taxation and the Customs Union (DG TAXUD) Directorate C Indirect Taxation and Tax Administration Unit C2 Indirect Taxes Other than VAT Contact: TAXUD-C2-EXCISE-MOVEMENTS@ec.europa.eu European Commission B-1049 Brussels LEGAL NOTICE This document has been prepared for the European Commission. However, it reflects the views solely of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet ( Luxembourg: Publications Office of the European Union, 2015 ISBN doi: / European Union, 2015 Reproduction is authorised provided the source is acknowledged. 2

3 Table of Contents Abstract (EN)... 6 Executive Summary (EN) Introduction Structure and content of the report Objectives and scope of the evaluation Overall approach to the assignment Potential limitations of the evaluation approach Legal and operational context Directive 2008/118/EC The EMCS (Excise Movement and Control System) Treatment of authorisations and guarantees Number and type of authorisations across the EU Common definition of registered economic operators Conditions for granting and managing authorisations and guarantees The scope for simplifying and reducing administrative burdens Key points General arrangements for the holding and movement of excise duty goods Economic importance of movements under duty suspension Impact of the EMCS on administrations Impact of the EMCS on economic operators The EU added value of the EMCS Key points The fight against fraud Current estimated levels of fraud To what extent do the general arrangements contribute to the reduction of fraud? Key points Practical problems with the current arrangements Shortages and excesses Losses during transport (and national tolerances) Errors in the e-ad Change of destination (following rejection/refusal) Key points Arrangements for the movement of specific excise products Movement and control of specific energy products Movement of denatured alcohol

4 7.3 Provisions for simplified procedures Exemptions for small wine producers from the EMCS requirements Exempt consignees Key points Coherence with customs procedures Problems perceived with export and import procedures Procedures for exporting excise goods Sources of problems Economic importance of exports Impact of the practical problems Suggestions for improvement Key points Conclusions and recommendations Conclusions Recommendations Annexes

5 Table 1: List of abbreviations List of Abbreviations Abbreviation AAD ARC C&C CCCIP CDA CED CoD CS/MISE DDNXA e-ad EC ECP ECS ECWP EMCS ETD EU FESS HMRC LNG MS REFIT RoR SAAD SAD SEED UCC Meaning Accompanying Administrative Document Administrative Reference Code Counterfeit and contraband Community Customs Code Implementing Provisions Completely denatured alcohol Committee on Excise Duty Change of destination Central System Services for the Management Information System for Excise Design Document for National Export Application (ECS) Electronic Administrative Document European Commission Excise Computerisation Project Export Control System EMCS Computerisation Working Party Excise Movement and Control System Energy Tax Directive European Union Functional Excise System Specification Her Majesty's Revenue and Customs Liquefied natural gas Member State Regulatory Fitness and Performance Report of Receipt Simplified Administrative Accompanying Document Single Administrative Document The System for Exchange of Excise Data is an online database which permits the verification of excise authorisations Union Customs Code 5

6 Abstract Almost 99% of all intra-eu movements of excise duty goods take place under suspension of excise duty. Annually, this amounts to approximately 3.5 million individual movements of energy, alcohol and tobacco products with a total financial value of EUR 270 billion and associated excise duty of EUR 90 billion. By setting common rules under which excise goods can move across borders before being subject to payment of excise duty or leaving the EU customs territory, Directive 2008/118/EC and the implementing rules surrounding it aim to balance the need for a fully functioning and efficient EU internal market with the monitoring and control measures required for ensuring the proper collection of excise duty a major source of revenue for the Member States. This study, commissioned by the European Commission and performed by Ramboll, has analysed an array of qualitative and quantitative data and concluded that the EU rules have indeed achieved the objectives of simplifying and modernising excise procedures, making a strong contribution towards the proper functioning of the internal market, improving the control of traders and consignments, and providing administrations with appropriate prior information to facilitate timely, targeted and selective controls. Improvements and solutions to practical problems which still exist have also been sought and have resulted in a number of recommendations, mainly relating to: Treatment of authorisations and guarantees The functioning of the general arrangements, as well as specific features of the current system, such as handling exceptions (e.g. irregularities, shortages, maximum journey times, etc.) Practical problems with the current arrangements Specific arrangements for certain types of product (e.g. certain energy and alcohol products) Coherence with customs procedures 6

7 Executive Summary Legal and operational context EU rules apply to certain products which are subject to excise duty in all EU Member States: these are alcohol and alcoholic beverages, manufactured tobacco, and energy products and electricity. The EU s right to act in the area of excise duties is established in Article 113 of the Treaty on the Functioning of the European Union, which permits the EU to lay down harmonised rules in order to ensure the proper functioning of the internal market 1. After the establishment of the internal market and the abolition of border controls between Member States, provisions were made for excise goods to be moved without having been taxed in the Member State of dispatch (in other words, excise duty was suspended ), to ensure that the free movement of excise goods was possible. In order to allow free movement of goods while at the same time ensuring that the correct tax debt would ultimately be collected by the Member States, a system had to be put in place to ensure the adequate supervision of the movements. For this purpose, Directive 92/12/EEC was adopted, which sets out general arrangements for those products that are subject to excise duty and particularly concerns the production, storage and movement of excise goods between Member States. Directive 2008/118/EC 2 (henceforth known as the Directive ) repeals Directive 92/12/EEC 3. It is designed to simplify and modernise the arrangements for the holding and movement of excise goods, transitioning from a paper-based procedure to electronic supervision. Importantly, it provides a legal basis for the use of the Excise Movement and Control System (EMCS), which was introduced following Decision 1152/2003/EC to computerise the movement and surveillance of excise products 4. Additionally, in the first four chapters, the Directive inter alia: Prescribes common definitions for the types of economic operators that must be registered and authorised to hold excise duty goods under suspension, but leaves the practical arrangements for doing so largely to the discretion of Member States. Sets harmonised rules in terms of the time and place that excise duty is chargeable. Lays down clear conditions under which excise duties may be moved under a duty suspension arrangement within the territory of the European Union, as well as the procedures to be followed. The overall objectives of the Directive are thus to: Ensure the proper functioning of the internal market, and Safeguard the budgetary interests of the Member States (i.e. ensure the excise duty revenue is properly collected). In pursuing these objectives, the Directive seeks to achieve a balance between the need to facilitate cross-border trade and the need to ensure that effective controls are in place in order to monitor the holding and movement of excise goods, and ultimately 1 Article 113, TFEU. The Council shall adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition. 2 Council Directive 2008/118/EC concerning the general arrangements for excise duty and repealing Directive 92/12/EEC. 3 Council Directive 92/12/EEC of 25 February 1992 on the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such goods. 4 The decision to introduce the EMCS was taken following a report submitted to the Directors General for Customs and Indirect Taxation by the High Level Group on fraud in the tobacco and alcohol sectors in

8 to ensure that the tax debt is collected (owing to the risk inherent in movements of excise goods). Scope and methodology The present study is an external evaluation of Directive 2008/118/EC, and in particular of those aspects which cover the conditions for the holding and movement of excise duty goods under suspension of excise duty 5. It assesses the extent to which the intervention described in Chapters I to IV meets the multiple needs that it aims to satisfy (such as ensuring the proper collection of excise duty, monitoring the movements of excise goods, avoiding conflicts of interest between Member States, preventing abuses and combating fraud, etc.). The evaluation has been conducted under the Regulatory Fitness and Performance Programme (REFIT). Consequently, the main focus is on identifying any particularly burdensome requirements. The evaluation has viewed Directive 2008/118/EC as being a central component of a system which functions on the basis of a wider set of Acts. The resulting assessment has therefore looked at Directive 2008/118/EC not in isolation, but in terms of the functioning of the relevant provisions, obligations or derogations in the wider legislative and practical context in which they are applied. The evaluation covers all excise goods covered by Article 1 of Directive 2008/118/EC (energy products, alcohol and tobacco products.) The time frame covered is , which includes periods both before and after the implementation of the Excise Movement and Control System (EMCS). The study has relied on qualitative and quantitative data, namely existing studies, monitoring data and business statistics, and primary data collected through consultation with all relevant stakeholders (i.e. Member State administrations and economic operators holding and moving excise duty goods under suspension). Primary data collection for the study involved: (i) a written consultation of all Member States administrations, followed up by phone interviews; (ii) an online survey of economic operators, and (iii) case studies in six Member States involving face-to-face meetings with MS authorities and a sample of economic operators. In order to reach its final conclusions, the study has used a transparent analytical strategy (detailed in Appendix 1) and has triangulated evidence from multiple sources and stakeholders. Treatment of authorisations and guarantees The first step for economic operators wishing to hold and move excise duty goods under suspension is to obtain an authorisation. The maximum number of active registered economic operators within the EU amounted to 104,953 in March However, this does not reflect the total number of economic operators (which is likely to be smaller), as a single operator can hold multiple types of authorisation across different Member States and across different types of product. Under the rules of the Directive, operators may apply for a given type of authorisation 6, each of which generates specific rights and obligations. The existence of common definitions for economic operators across the EU is shown to contribute to a clear and consistent framework across the EU, and ensures an equal treatment of businesses. However, the implementation of the authorisation requirements and the 5 The scope of this evaluation corresponds to the arrangements of Directive 2008/118/EC for the holding and movement of excise duty goods under suspension. The arrangements for the holding and movement of duty-paid goods (Chapter V) have been evaluated as part of a separate study which was finalised in early Tax warehouse; tax warehouse keeper; registered consignor; registered consignee. 8

9 simplification provisions between the Member States vary, as authorisations remain a national matter. Despite the variation, the study has shown that, in general, across the Member States, similar types of technical 7, financial 8 and legal 9 requirements have to be fulfilled by economic operators to qualify them to receive an authorisation as a warehouse keeper. With the exception of the obligations relating to the set-up and management of guarantees, the economic operators surveyed 10 did not consider the authorisation requirements to be particularly burdensome. On the authorities side, processing time has been reported to be relatively lengthy (between one and three months), and the thorough checking of each application was found to require significant resources. The authorities emphasised that the time invested was not driven by the requirements of the Directive, but by their individual needs to reduce the risk of fraud. This study has shown that a wide range of methods for calculating guarantees are being applied in the Member States. This leads to variation in terms of the actual levels of guarantee that economic operators must establish. Economic operators considered these to be significant burdens, despite the fact that reductions and waivers of guarantees are widely implemented in order to support smaller operators, particular products and tax-compliant operators. General arrangements for the holding and movement of excise duty goods Once authorised, economic operators can use an electronic monitoring and reporting system (the EMCS) for the cross-border dispatch and/or receipt of excise duty goods under suspension of excise duty. Almost 99% of all intra-eu movements of excise duty goods take place under suspension of excise duty. Annually, this amounts to approximately 3.5 million individual movements of energy, alcohol and tobacco products with a total financial value of EUR 270 billion and an associated excise duty of EUR 90 billion. Cost-effectiveness of the current arrangements The EMCS was designed to provide a smooth transition to a paperless (electronic) environment, removing taxation-related obstacles to the movement of excise duty goods across borders by minimising costs both for economic operators and for tax administrations. Since its introduction between January 2010 and May 2015, over 13.6 million movements under duty suspension were recorded, 98.1% of which completed normally. The EMCS has reduced the overall administrative costs for many Member States; Our analysis shows that EMCS has resulted in savings for Member States of between EUR 27.5 and 37 million in 2014 alone; however, it is clear that its advantages cannot merely be viewed in cost terms. The elimination of paper and the associated increase in efficiency, the freeing up of resources in order to focus on higher-risk movements, and the improved control of movements, have all been identified as clear advantages that accrue from the electronic environment. For the economic operators, the main 7 Systems of management and supervisory controls, security of premises, licences for machinery and equipment, recordkeeping, site set-up and organisation, etc. 8 Financial guarantees, thresholds for turnover, minimum stock, etc. 9 Documentary proofs of establishment, of the ownership of the premises, fiscal and criminal records, incorporation documents, etc. 10 Findings based on a survey of economic operators already possessing authorisations to hold and move excise duty goods. 9

10 benefits relate to the ability to follow up movements (for both sender and receiver), and the facilitation of auditing and control through more efficient and higher-quality movement documentation. Effectiveness of the current arrangements in terms of combating fraud To understand the extent to which the EMCS has addressed the need for a control and early warning tool for the intra-eu movements of excise goods under duty suspension, it was necessary to study the extent to which fraud involving excise duty goods still takes place, and the extent with which the general arrangements contribute to the prevention and/or the reduction of fraud. Concerning the estimates of smuggling and fraud, the study findings show a lack of consistent reporting of illicit trade (and fraud) across Member States, or with the exception of recorded seizures even a lack of information about the extent of the problem. There is general agreement that the introduction of the EMCS has reduced the cost of audits, and that its main advantages relate to the access to information and risk analysis/monitoring that the system facilitates. Importantly, the system has also improved coordination and cooperation between Member States in cross-border fraud cases. Overall, it can be concluded that the arrangements do indeed contribute to the protection of the financial interests of the Member States, and that similar results relating to the fight against fraud could not have been achieved in the absence of EU action. Despite this positive conclusion, a number of shortcomings (e.g. the flexible travel time) and potential enhancements (e.g. a European risk analysis system) have been identified and are presented in this report. The EU added value of the EMCS The EMCS is one of a number of trans-european IT systems partly financed by the EU s Fiscalis programmes. Clear efficiency gains accrue from having a common infrastructure that allows the secure and rapid exchange of electronic tax information between Member States. From both a cost and control perspective, the evidence indicates that only a Europe-wide system can provide the uniformity and harmonised conditions necessary to ensure the proper functioning of the internal market. Furthermore, the central coordination role played by the Commission, plus the governance of the EMCS, which covers all 28 Member States, produces clear gains in efficiency compared with any possible bilateral or international initiatives. Having a forum for the agreement and central coordination of common rules (i.e. the legal aspects) and specifications (i.e. the technical aspects) for the functioning of the arrangements helps to prevent duplication of effort. Practical problems While the vast majority of movements under duty suspension complete normally and without any problems, evidence collected in the context of this study confirmed that stakeholders continue to face operational problems in a few areas. Shortages There is variation between Member States in how shortages are dealt with, leading to uncertainty both for Member States and for economic operators. Member States and traders both clearly signalled that the arrangements around shortages and losses 10

11 (particularly Article 10) need to be clarified, in order to ensure certainty regarding which Member State is competent to levy the tax on any shortages. Errors in the e-ad Amending data in the e-ad is not possible once it has been validated and assigned an ARC number. This is intended as a fraud prevention feature. Human data-entry errors (e.g. quantity, type of good) are primarily resolved through communication between the relevant administration and traders. Some stakeholders have pointed to a need for flexibility regarding the modification of non-critical data, so as to increase the efficiency of procedures. Coherence with customs procedures The procedures for excise duty goods under suspension have to be coordinated with the customs procedures that are in place where excise duty goods are exported or imported. Member State authorities and economic operators recognise the absence of coherence between the excise and export procedures as being problematic. The main difficulty associated with the lack of coordination between export and excise procedures is that information is not transferred from one set of procedures to the next. This is particularly important when the Member State of dispatch is different to the Member State of export. Where the confirmation of exit from ECS is not received by the authorities of the Member State of dispatch, the EMCS movement remains open and often has to be closed manually by the authorities, creating an administrative burden and even carrying a risk of liability for the consignor. The impact of the reported practical problems with regard to the coherence between customs and export procedures is significant. These issues increase administrative costs for the Member State administrations, create obstacles to trade, and increase the risk of fraud. Specific movement procedures for a range of products Directive 2008/118/EC specifies which goods are subject to the movement and control provisions by reference to specific Directives that cover alcohol and alcoholic beverages, manufactured tobacco, and energy products and electricity 11. However, the required movement and control provisions can vary depending on the type of product, or on who is moving the product. Movement and control of particular energy products Both Member States and economic operators reported problems relating to the movement and control of particular energy products. These issues stem from the interaction between Directive 2003/96/EC (Energy Tax Directive) and Directive 2008/118/EC, meaning that it is not always clear in practice which provisions of the Directive 2008/118/EC should apply. The problem appears to result from uncertainty stemming from classification rather than the choice of procedure. Movement and control of denatured alcohol Directive 92/83/EEC exempts denatured alcohol from excise duty: Article 27(1)(a) of the Directive states that completely denatured alcohol (CDA) shall be exempted from excise duty, and Article 27(1)(b) provides for the exemption of alcohol denatured in accordance with the requirements of any Member State and used for the manufacture of any product not intended for human consumption. The main problem with the exemption of denatured alcohol does not directly concern the movement, but the 11 Article 1 of Directive 2008/118/EC refers to the specific Directives. Energy products and electricity are covered by Directive 2003/96/EC; alcohol and alcoholic beverages are covered by Directives 92/83/EEC and 92/84/EEC; and manufactured tobacco is covered by Directive 2011/64/EU. 11

12 classification of the product itself. It is the basis for the exemption in Article 27(1) of Directive 92/83/EEC that creates practical problems and inconsistencies. For CDA (which is normally moved under the cover of a SAAD), some Member States only accept those denaturants listed by name in the Annex to Regulation 3199/93, whereas others exempt alcohol treated using any of the denaturing methods listed. The case of the exemption of alcohol in accordance with Article 27(1)(b) is even more complex, since the term not intended for human consumption is not interpreted consistently across the Member States. Recommendations Improvements and solutions to practical problems which still exist have also been sought, and have resulted in a number of recommendations. The ones which aim to further reduce administrative and compliance burdens for administrations and economic operators, improve the functioning of the internal market and reduce the risk of fraud are summarised in the table below. They are directed equally towards the Member States and the European Commission: Table 2: Summary of recommendations Recommendation Member States should ensure that information on authorisation requirements and procedures is clear, transparent and made available to economic operators (preferably by being published online). Member States should ensure that guarantees are set at a level which is adequate to cover the risk of holding and moving the goods, but not to the extent that they discourage entry into the market by legitimate economic operators. In order to ensure that EMCS is an effective tool for combating fraud, the European Commission and Member States should explore how the maximum journey time for a movement can be reduced, possibly by adapting it to the mode of transport and/or estimated journey distance. The European Commission and Member States should explore the feasibility of implementing a European risk analysis system. Such a system could include, inter alia, a database of movements, as well as the development of risk parameters for detecting unusual patterns (e.g. an alcohol producer intending to move cigarettes), with data being provided by all Member States in relation to how long an operator has been in operation, where else it trades, and whether there are any current investigations involving the operator. The European Commission should take steps to clarify Article 10 of the Directive, so that the competence to collect the tax is clear in the case of exceptions (e.g. irregularities, shortages). Such a clarification may require revision of the Directive. Administrations and traders should seek to make full use of the existing message options available in the EMCS to ensure effective communication between actors (e.g. between consignor and Member State of destination; or between consignor and consignee in the case of a change of destination). Based on careful cost-benefit analysis, additional EMCS functionality to aid communication should be considered (e.g. a standardised form or template). The European Commission should clarify the application of Directive 2008/118/EC to specific energy products, particularly those not mentioned in Article 20(1) Directive 2003/96/EC. In addition, in order to improve control, the European Commission and Member States should consider bringing particular products into the scope of the EMCS (e.g. lubricating oils). The European Commission and Member States should continue their efforts to clarify the categorisation of denatured alcohol. The on-going work of the Fiscalis and Customs 2020 Project Group for Coordination of Excise and Customs procedures in relation to movements of excise goods under EMCS should be continued, and its solutions should be implemented by the European Commission and Member States. Legal notice The information and views set out in this report are those of the author(s) and do not necessarily reflect the official opinion of the Commission. The Commission does not 12

13 guarantee the accuracy of the data included in this study. Neither the Commission nor any person acting on the Commission s behalf may be held responsible for the use which may be made of the information contained therein. 13

14 1. Introduction 1.1 Structure and content of the report This is the final report of the evaluation of current arrangements for the holding and moving of excise goods under excise duty suspension. This report presents the findings of the evaluation following the logical sequence of the arrangements for holding and movement (i.e. from authorisation and guarantees, holding and movement, to the treatment of special circumstances, shortages, excesses, exemptions and, finally, export and exit from customs territory). Table 3 provides an overview of how the information in this report is structured. Table 3: Structure and content of the report Section Content 1 This section provides a brief overview of the objectives, scope and overall approach of the evaluation. This section also references relevant appendices that contain detailed methodological considerations. 2 Chapter 2 presents the legal and operational context for the evaluation. It introduces readers to the objectives and main provisions of Directive 2008/118/EC, while briefly presenting the development and implementation of the EMCS. As in the section above, appendices are referenced in order to reduce the length of the section. 3 Section 3 discusses all aspects of the treatment of authorisations and guarantees. Following a presentation of the number and types of authorisation across the EU in all relevant sectors, it analyses the impact of the existence of common definitions contained in the Directive, the manner in which they have been implemented by the Member States and the requirements for obtaining authorisations within this framework. On the basis of an analysis of the compliance costs borne by administrations and operators, the final part of this chapter considers potential simplification measures. 4 The general arrangements for the holding and movement of excise duty goods under suspension are evaluated in Section 4 from an internal market perspective. The analysis begins with a description of the economic importance of the arrangements. Following an analysis of the impact of the current arrangements for Member States as well as for economic operators, the section presents conclusions on the EU added value of the arrangements. 5 Section 5 complements the previous chapter by providing an evaluation of the general arrangements from the perspective of combating fraud. 6 Building on the general conclusions elaborated in the previous chapters, Section 6 presents, in reasonable detail, a series of practical problems associated with the functioning of the current arrangements. These include: the treatment of excesses and shortages, acceptable losses, errors, etc. For each problem, the report contains an explanation of the nature of the problem, its immediate outcome, and suggestions for remedying it. 7 Section 7 considers the existence of specific movement and control procedures for a series of excisable and non-excisable products. The evaluation presents the current procedures in place for these products, and it analyses their continued relevance and whether they might hinder the effective and efficient achievement of the objectives of the Directive. 8 Section 8 analyses the coherence of the current excise arrangements and procedures with those applicable in the area of customs. In line with the findings of this evaluation, this section focuses on the problems identified in the area of export. 14

15 Section Content 0 The final section is dedicated to presenting conclusions and recommendations. Firstly, final conclusions are presented for each evaluation criterion (effectiveness, efficiency, relevance and EU added value). Finally, it includes some precise recommendations that are intended to respond to or mitigate the problems identified, or to maximise the observed benefits already achieved by the Directive.. The analytical sections have been designed to facilitate reading while still transparently and comprehensively presenting the full evidence base for the conclusions. They each begin with a brief summarising sentence (contained in a green box) before continuing with the presentation of the supporting evidence. Each analytical section ends with a schematic presentation of the key points that can be derived. 1.2 Objectives and scope of the evaluation The present study is an evaluation of the provisions contained in Chapters I to IV of Directive 2008/118/EC, hereafter referred to as the Directive. The objectives of this present study are as follows: This study assesses the extent to which the intervention embodied in Chapters I to IV 12 of the Directive has met the multiple needs it aimed to satisfy (such as ensuring the proper collection of taxes, monitoring the movements of excise goods, avoiding conflicts of interest between Member States, preventing abuses and combating fraud, etc.). The study builds on existing data, supplementing it with quantitative and qualitative data from all the stakeholder types concerned, in order to conduct an in-depth analysis of the problems identified and their impact on the stakeholders in question. Finally, the study formulates recommendations that address the underlying problems and provide sustainable solutions for the longer term. The recommendations are not limited to measures which can exclusively be taken at the EU level, but include measures which can be adopted by Member States on a bilateral or multilateral basis, and they therefore include improved or good practices in Member State transposition and implementation. The functioning of the mechanisms prescribed by Directive 2008/118/EC is complemented by, and relies on, synergies with a number of other arrangements contained in other legislative acts. The evaluation has viewed Directive 2008/118/EC as being a core component of a system which functions on the basis of a wider set of acts. The resulting assessment has therefore looked at Directive 2008/118/EC not in isolation, but in terms of the functioning of the relevant provisions, obligations or derogations in the wider legislative and practical context in which they are applied. The evaluation covers all the excise goods covered by Article 1 of Directive 2008/118/EC (energy products, alcohol and tobacco products.) The time frame covered is , which includes periods both before and after the implementation of the EMCS. 12 The scope of this evaluation corresponds to the arrangements of Directive 2008/118/EC for the holding and movement of excise duty goods under suspension. The arrangements for the holding and movement of duty-paid goods (Chapter V) were evaluated as part of a separate study which was finalised in early

16 As one of the evaluations conducted as part of the on-going REFIT (Regulatory Fitness and Performance) programme, the current study has been scoped with the aim of generating recommendations whose purpose is to reduce regulatory costs. Consequently, particular attention has been paid to: The identification of particularly burdensome requirements Sources, effects and potential solutions to practical problems The focus on the further reduction of regulatory costs is reflected in the recommendations issued in this study. 1.3 Overall approach to the assignment This chapter briefly describes the methodological approach used for this evaluation. It offers a simplified overview of the data collection steps implemented. A more detailed insight into the conceptual design and the analytical strategy is annexed to this report as part of Appendix 1 Evaluation Matrix and Evaluation Design As Figure 1 shows, the study revolves around three main phases: Figure 1: Overall organisation of the work Phase 1 Inception During the inception phase, a review of existing literature and reports was conducted (See Appendix 9 List of Literature) and a number of exploratory interviews with Commission staff, Member States representatives and economic operators from all three sectors (alcohol, tobacco, energy) were conducted. The above have inter alia contributed to the achievement of the following tasks: Reconstruction of the intervention logic of the Directive Identification of key aspects to be investigated in depth Development of a comprehensive and clear evaluation matrix. 16

17 1.3.2 Phase 2 Data collection Survey of Member States In the first phase of data collection, a broad consultation of national tax authorities was undertaken by means of a survey questionnaire. A copy of the questionnaire can be found in Appendix 2 Questionnaire to Member States. The consultation of Member States took place between mid-february 2015 and July Member States were invited to respond in writing, and answers were followed up by phone in order to ensure consistency and avoid any possible misunderstandings. The three working languages of the European Commission (English, French and German) were used while consulting with the Member States. 27 out of 28 Member States 13 participated in the study, providing detailed answers to the questionnaire and taking part in follow-up interviews. Survey of economic operators A consultation of economic operators was conducted by means of an online survey between February and September The online survey was delivered in English, but respondents were able to download PDF versions of the questionnaire in English, French and German. A PDF copy of the survey is attached in Appendix 3 Survey of economic operators. The survey was distributed to the European industry associations/federations of relevant sectors, as well as to all the members of the Excise Contact Group. All contacts were invited to disseminate the survey link further to all interested economic operators. The total number of replies to the survey was 343, and included individual economic operators as well as trade associations and federations. A detailed description of the survey population and the delivery methods can be found in Appendix 4 Survey population description. Case studies Six countries (Belgium, France, Germany, Lithuania, Sweden and the United Kingdom) were selected as case study countries. They were chosen on the basis of a preanalysis of the results of the first round of consultation, as well as of an analysis of the authorisation (SEED) and the operational statistics for the EMCS messages exchanged (CS/MISE). The case study selection was based on a wider range of criteria, including: Countries which are most involved in the holding and movement of excise duty goods (as indicated by the total number of authorisations, the total number of dispatches, and receipts of EMCS movements) 14 Countries which appeared to experience the highest number of movements undergoing changes after their movements had started (as indicated by the number of cancellations and the number of movement changes) Malta did not provide answers to the questionnaire (as the small number of EMCS dispatches / receipts suggests, the non-participation of Malta may be due to the relatively insignificant number of cross-border movements of excise duty goods under suspension of excise duty for the country). 14 In order of the number of dispatches: FR; DE; IT; BE; ES; NL; UK; AT; CZ; SI; in order of the number of receipts: DE; FR; UK; BE; AT; NL; PL; IT. 17

18 Countries most involved in export and which appear to experience the highest number of issues associated with export procedures (as indicated by notifications of accepted export; customs rejections of e-ad) 16. Countries which experienced the highest number of movements which appeared to deviate from the normal sequence of events (as indicated by an alert or rejection of an e-ad; the number of manually closed movements; errors and exception handling) 17. Countries which reported facing difficulties in implementing various aspects of the acquis (as indicated by the early findings from the survey of Member States) 18. The case studies were conducted through a series of face-to-face interviews with representatives from Member State authorities and economic operators. 19 face-to-face interviews were conducted with all the relevant types of economic operator. The coverage of sectors is presented below. Table 4: Coverage of sectors in the case studies Member State Alcohol BE FR DE LT SE UK Producer/distributor of alcoholic beverages Producer/distributor of denatured alcohol Energy Producer/distributor of mineral oils or biofuels/fats and vegetable oils Tobacco Manufacturer of tobacco products (all sub-sectors) *X represents one interview with a particular economic operator. X X X X X X X X X X X X X X X X X X The results from each case study are summarised and included in Appendix 5 - Case study reports. X Phase 3 Analysis The analytical strategy for the evaluation followed the outlines defined in the tender and inception report. It is annexed as an appendix to this report (Appendix 1 Evaluation Matrix and Evaluation Design). 1.4 Potential limitations of the evaluation approach Although they were partially mitigated, the data collection and analytical approach exhibit a number of inherent limitations which are worth mentioning. 15 Top cancellations as a proportion of dispatches: MT, CY, FI, PL, ES, HU, DK, BG, IE, EL; and top changes of destination as a proportion of dispatches: PT, BE, CY, NL, UK, LV, SE, FR. 16 Top notifications of accepted export: FR, BE, IT, LT, LV; and top notifications of customs rejection: UK, LU, LT, AT, HR. 17 Top rejections of an e-ad as a proportion of dispatches: CY, MT, SE, GB, LU, RO, LV out of 27 MSs (AT, BE, DE, FI, IE, LT, LU, LV, NL, SI) indicated that there were particularly time-consuming activities. Dealing with shortages and irregularities was identified as time-consuming by a number of Member States. (Specifically, BE, DE, SI and LV gave detailed accounts of such problems.) 18

19 Representativeness of answers Firstly, as with all surveys, the findings of the survey of economic operators are based on the answers from a sample of the population of the stakeholders affected, and not on the answers given by the entire population. Taking the survey design into consideration, overall the sample size and composition is considered to be fairly representative. The respondents cover well the three product categories and all countries. The coverage also included operators at different levels of the logistics chain 19. In this context, we believe that the analysis performed at EU level and for each sector can be considered sufficiently accurate. But with the individual questions, the survey sample does not allow a detailed analysis of the issues reported at the level of each Member State and sector. However, it should be noted that the survey was designed to provide an EU-wide picture based on a central distribution of the questionnaire. The starting point was not the individual MS. On the other hand, other factors may be responsible for any errors in the results: for example, respondents may have been unable to answer a question accurately or unwilling to respond honestly. The former was mitigated by including the option "do not know"/ not applicable or "other" as an option with most questions. The latter risk is more difficult to avoid, but can to a certain extent be inferred through the analytical process connected with the data triangulation. It is also important to consider that those economic operators who were most willing to invest time responding to the survey were those who were generally less satisfied with the provisions of the Directive, thus contributing to a more negative picture than would otherwise be apparent if the entire population had been sampled. Stakeholder bias The design of the evaluation assumed that each stakeholder would present a view of the functioning of the Directive from their own individual perspective. This should be seen not as a limitation of the evaluation, but as a characteristic of the analytical method which has allowed the functioning of the Directive to be investigated from the viewpoints of all legitimate interests. While perspectives and viewpoints are presented that reflect the type of stakeholder expressing them, whenever relevant (e.g. Member States, different types of economic operator, trade associations), the final conclusions are based on the triangulation of data from several sources and from different types of stakeholder, and have been subject to the interpretation and judgement of the authors of this study. 19 For a full description of the survey population, please refer to Appendix 4 Survey population description. 19

20 2. Legal and operational context This chapter presents Directive 2008/118/EC (known as the horizontal Directive) and the role it plays in the supervision of the holding and movement of excise goods within the EU. It also describes the transition from the paper-based procedure that was previously used for monitoring and controlling movements to the electronic Excise Movement and Control System (EMCS). The EMCS completely replaced the previous paper-based system on 1 January Directive 2008/118/EC EU rules apply to certain products which are subject to excise duty in all EU Member States: alcohol and alcoholic beverages, manufactured tobacco, and energy products and electricity. The EU s right to act in the area of excise duties is established in Article 113 of the Treaty on the Functioning of the European Union, which permits the EU to lay down harmonised rules in order to ensure the proper functioning of the internal market. 20 After the establishment of the internal market and the abolition of border controls between Member States, provisions were made for excise goods to be moved without first being taxed in the Member State of dispatch (i.e. excise duty was suspended ), to ensure the possibility of the free movement of excise goods. In order to allow free movement of goods while at the same time ensuring the correct tax debt was ultimately collected by the Member States, a system had to be put in place that would ensure adequate supervision of the goods movements. For this purpose, Directive 92/12/EEC was adopted in order to set out general arrangements for products subject to excise duty; it concerns particularly the production, storage and movement of excise goods between Member States. Directive 2008/118/EC 21 (hereafter referred to as the Directive ) repeals Directive 92/12/EEC 22, and is designed to simplify and modernise the arrangements for the holding and movement of excise goods while transitioning from a paper-based procedure to electronic supervision. Importantly, it provides a legal basis for the use of the Excise Movement and Control System (EMCS), which was introduced following Decision 1152/2003/EC 23 to computerise the movement and surveillance of excise products 24. The overall objectives of the Directive are thus to: Ensure the proper functioning of the internal market, and Safeguard the budgetary interests of the Member States (i.e. to ensure the excise duty revenue is properly collected). 20 Article 113, TFEU. The Council shall adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition. 21 Council Directive 2008/118/EC concerning the general arrangements for excise duty and repealing Directive 92/12/EEC. 22 Council Directive 92/12/EEC of 25 February 1992 on the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such goods. 23 Decision No 1152/2003/EC of the European Parliament and of the Council of 16 June 2003 on computerising the movement and surveillance of excisable products, Official Journal of the European Union L 162/5, The decision to introduce the EMCS was taken following a report submitted to the Directors General for Customs and Indirect Taxation by the High Level Group on fraud in the tobacco and alcohol sectors in

21 In pursuing these objectives, the Directive seeks to achieve a balance between the need to facilitate cross-border trade and the need to ensure that effective controls are in place in order to monitor the holding and movement of excise goods, and ultimately to ensure that the tax debt will be collected (owing to the risk inherent in movements of excise goods). Intervention logic The intervention logic, far from being a purely theoretical exercise, guides the development of the evaluation matrix and forms the basis for assessing the effectiveness, efficiency and relevance of the interventions embodied in the legal base. By laying down and describing the theoretical linkages between the interventions (provisions) of the legal base, their operational objectives, and (very importantly) the delivery mechanisms by which general objectives are pursued, it is possible to use qualitative evidence to provide answers to the required evaluation questions in a coherent, transparent and confident manner. The EU s right to act in the area of excise duties is established in Article 113 of the Treaty on the Functioning of the European Union, which stipulates that the Council shall adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition 25. EU provisions apply to those products which are subject to excise duty in all EU Member States, including alcohol and alcoholic beverages, manufactured tobacco, and energy products and electricity. After the establishment of the internal market and the abolition of border controls between Member States, provisions were made for excise goods to be moved without first being taxed in the Member State of dispatch, to ensure that the free movement of excise goods was possible. In order to allow this free movement of goods while at the same time ensuring that the correct tax debt would ultimately be collected by the Member States, a system had to be put in place in order to ensure the adequate supervision of the movements. For this purpose, Directive 92/12/EEC was adopted in order to set out general arrangements for products subject to excise duty; it concerns particularly the production, storage and movement of excise goods between Member States. The global objectives of the Directive are thus to ensure the proper functioning of the internal market and to safeguard the financial interests of the Member States (i.e. to ensure the excise duty revenue is properly collected). In pursuing these objectives, the Directive seeks to achieve a balance between the need to facilitate cross-border trade and the need to ensure that effective controls are in place in order to monitor the holding and movement of excise goods, and ultimately to ensure the tax debt is collected (owing to the risk inherent in cross-border movements of excise goods). Figure 1 presents the overall intervention logic for Directive 2008/118/EC. This simplified figure presents only the main relationships between the provisions of the Directive and the objectives they seek to achieve. Both are further described in Appendix 1 Evaluation Matrix and Evaluation Design. 25 Article 113, TFEU. 21

22 Figure 2: The overall intervention logic of Directive 2008/118/EC 1.2 The EMCS (Excise Movement and Control System) The Excise Movement and Control System (EMCS) is one of a number of trans- European IT systems currently operated by the European Commission (DG TAXUD). It is owned both by the national administrations and by the Commission, with the latter playing a central coordinating role. In order to establish the legal basis for the use of EMCS, the Directive sets up a system of tax warehouses where excise goods may be held and produced under excise duty suspension, facilitating checks of the production and storage facilities. The detailed rules for authorisation are decided nationally, but the system as a whole is set out in Chapter III of the Directive. Each authorised warehouse keeper receives a unique excise number. The data provided by SEED (System for Exchange of Excise Data) permits validation of whether an authorisation for the excise number exists; and if it does, it states the number of authorised products, as well as which excise products are authorised to be handled by the trader or tax warehouse 26. Both consignor and consignee are registered in the SEED database by their respective Member State administration. 26 The Commission and economic operators have no access to the name and address details of other warehouse keepers or tax warehouses, although the Member States have full access to this information. 22

23 Table 5: Key terms actors Member State of dispatch Member State of destination Consignor Consignee Competent authorities The Member State from which the goods are sent. The Member State where the goods are received. The authorised economic operator who is sending the goods under duty suspension (covers both the registered consignor as well the tax warehouse from which goods are dispatched). The authorised economic operator who is receiving the goods under duty suspension (covers both the registered consignee as well the tax warehouse into which goods are received). The relevant tax or customs authorities in each Member State. Much of the control and supervision is typically at regional or local level Transition to an electronic tax environment Before the introduction of the computerised EMCS system, the movement of excise products within the EU was covered by Directive 92/12/EEC, which required the use of a paper Accompanying Administrative Document. According to Directive 92/12/EEC, traders had to use this document to inform the tax authorities of the Member States of deliveries dispatched or received. This meant that all consignments between Member States were accompanied by an AAD drawn up by the consignor. The following copies were required: one to be kept by the consignor, one for the consignee, one to be returned to the consignor for discharge, one for the competent authorities of the Member State of destination. The relevant AAD copies accompanied the consignment. A copy of the AAD (or commercial document), duly annotated, then had to be returned by the consignee to the consignor for discharge, within 15 days following receipt of the consignment by the consignee. The Member State of destination had the option to oblige the copy to be returned to the consignor for discharge to be certified or endorsed by its national authorities for control purposes. After a transition period (April 2010 Jan 2011) the EMCS completely replaced the previous paper-based system; from 1 January 2011 onwards, the use of an electronic Administrative Document (e-ad) was compulsory. Article 21 of Directive 2008/118/EC sets out the basic procedure for the movement of excise goods under suspension of excise duty. The procedure is set out in greater detail in Regulation (EC) No 684/ , which also details the content of the messages to be used. The procedure is mirrored in the Functional Excise System Specifications (FESS), which describe the rules and conditions for the exchange of messages in more detail Commission Regulation 684/2009 implementing Council Directive 2008/118/EC as regards the computerised procedures for the movement of excise goods under suspension of excise duty. 28 FESS v3.61, Section 2 Core Business Basic Scenario. 23

24 The figure below provides a visual representation of the tasks described above for each of the actors involved. A full description of both the paper and electronic movement procedure are included in Appendix 6: Operational Context). Figure 3: EMCS basic movement scenario as set out in Directive 2008/118/EC (compulsory use of e-ad from 1 Jan 2011 onwards) Sources: FESS v3.61 (Section 2 Core Business Basic Scenario); Directive 2008/118/EC. On 1 January 2012, Phase II of the EMCS was put into operation. This incorporated the recording of control actions, the reporting of events that occurred during movements, and the exchange of information for facilitating administrative cooperation between the Member States Implementing measures While Directive 2008/118/EC comprises the legal basis for the functioning of the EMCS, more detailed rules and procedures relating to the exchange of such messages, as well as the structure and content of the messages, are set out in Commission Implementing Regulation 684/ In order to describe all the computerised tools provided to economic operators and administrations, the Functional Excise System Specification (FESS) has been produced by the Excise Computerisation Project (ECP) and by the EMCS Computerisation Working Party (ECWP), which falls under the supervision of the 29 As amended by Commission Implementing Regulation 76/2014 of 28 January 2014 amending Regulation (EC) No. 684/2009 as regards the data to be submitted under the computerised procedure for the movement of excise goods under the suspension of excise duty. 24

25 Committee on Excise Duty (CED) 30. The functional specifications closely mirror the requirements laid out in Implementing Regulation 684/2009. Figure 4 sets out the hierarchy of detail for the main relevant pieces of legislation and documentation. Figure 4: Main legislation and documentation describing EMCS functionality and messages Directive 2008/118/EC Provides for the scenarios to occur (beginning and end of movement; release for consumption; change of destination; cancellation etc.); Specifies broad rules to be adhered to (e.g. the total quantity of goods cannot change). Regulation 684/2009 Determines the structure and content of the message to be used (e.g. e-ad); Sets out the procedural aspects regarding the exchange of messages. Functional specifications (FESS) Describes the detailed content of the information to be exchanged between actors in the functional message; Describes detailed rules and conditions for the exchange of messages. 30 The competence of the CED is provided for in Articles 44 and 45 of Directive 2008/118/EC. 25

26 3. Treatment of authorisations and guarantees For economic operators, the first step towards holding and moving excise duty goods under suspension is to obtain an authorisation. The number of authorised operators per Member State, per type of operator and per sector provides an overall picture of the stakeholders affected by the provisions regarding the holding and movement of excise duty goods under suspension. The types of authorisation are defined in Directive 2008/118/EC. These definitions are intended to create a framework that is clear and consistent but also ensures that operators have an equal access to the market. Moreover, access to the market is determined by the conditions that need to be fulfilled in order to be granted a guarantee. Where these are difficult to meet, simplifying the requirements is a possible remedy. This chapter assesses the practices for authorising economic operators to hold and move excise duty goods under suspension. To this end, the following topics are examined: The number and types of authorisations across the EU The effect of common definitions of registered economic operators The conditions for granting authorisation and managing guarantees Simplification and the reduction of administrative burdens. 1.1 Number and type of authorisations across the EU The purpose of this section is to describe the size of the three sectors governed by the provisions relevant to this study, namely alcohol and alcoholic beverages, manufactured tobacco, and energy products and electricity. To this end, a summary of available statistics regarding registered (active) economic operators is presented. More detailed information can be found in Appendix 7 - Number and types of authorisation. Table 6: Key terms authorisations Tax warehouse Tax warehouse keeper Registered consignor Registered consignee Any premises approved for the production, holding and movement of excise goods. A natural or legal person authorised by the competent authorities of a Member State, in the course of his business, to produce, process, hold, receive or dispatch excise goods under a duty suspension arrangement in a tax warehouse. A natural or legal person authorised by the competent authorities of the Member State of importation, in the course of his business and under the conditions specified by those authorities, to only dispatch excise goods under a duty suspension arrangement upon their release for free circulation. A natural or legal person authorised by the competent authorities of the Member State of destination, in the course of his business and under the conditions specified by those authorities, to receive excise goods moving under a duty suspension arrangement from another Member State. The analysis of SEED statistics led to the conclusion that the maximum number of registered economic operators within the EU amounted to 104,953 in March 26

27 2015. For a breakdown of the figures by type of operator authorisation across EU-28, see Table 7 below. Table 7: Breakdown of authorisation by type of operator in EU-28 Type of operator Number of authorisations Proportion of total number of authorisations in EU-28 Authorised warehouse keeper 75,486 72% Registered consignee 25,147 24% Temporary registered consignee 2,143 2% Registered consignor 2,177 2% Note: the number of authorisations does not refer to physical persons but to total authorisations per economic operator type. Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.52. France has the greatest number of registered operators by far, accounting for 38% of all authorisations across EU-28, followed by Germany (9.7%), Italy (9.6%), Hungary (7.4%) and Spain (7.3%). Focusing on the types of economic operator authorisations in each Member State, the data shows that Hungary, France and Spain possess a high concentration of authorised warehouse keepers relative to other types of authorisation. Countries like Slovakia and the Netherlands have a very high proportion of registered consignees. Sweden is the Member State with the highest proportion of registered consignors 31 relative to its total number of authorisations, while Finland has a relatively high share of temporarily registered consignees. Combining both the qualitative and quantitative data in the context analysis makes it possible to identify some clear tendencies in the three sectors handling products which can be moved under duty suspension. First, the tobacco industry is highly concentrated, having few large players and relatively few authorisations. The alcohol sector is highly fragmented in some sub-sectors, particularly the wine industry, which is characterised by many small producers. The energy sector is characterised by specialised operators and evidence of greater concentration upstream in the value chain, while downstream the market becomes more fragmented, with a variety of types of involvement in wholesale, retail and distribution activities. 1.2 Common definition of registered economic operators Directive 2008/118/EC sets common definitions at EU level for the different types of economic operator authorised to hold and move excise goods under duty suspension. As was shown in the previous section, Member States use these categories for the authorisation of operators. The existence of common definitions for economic operators across the EU is shown to contribute to a clear and consistent framework across the EU, and ensures an equal treatment of businesses. 31 This is due to the fact that authorised warehouse keepers automatically receive an authorisation as a registered consignor. 27

28 As Figure 5 below shows, economic operators are to a large extent satisfied with the harmonised definitions in terms of the structure they provide. The small share of operators that were shown as being dissatisfied with the current definitions referred to persistent differences between the Member States regarding the authorisation processes and the rights that an authorisation gave the economic operators. This is discussed in Section 3 below. Figure 66 indicates that the common definitions are also able to ensure an equal treatment of business. However, 21% of the economic operators disagree or strongly disagree that the definitions could create a level playing field. This seems to be a particular concern for operators handling energy products and electricity. Among these operators, 41% were not of the opinion that an equal treatment of businesses was ensured. Besides mentioning high levels of guarantees and complex authorisation procedures as the primary reasons for their dissatisfaction, the economic operators also noted that differences between the Member States in the qualifying conditions for receiving an authorisation had led to the unequal treatment of businesses. Among the trade associations that took part in the survey, 61% did not think that the definitions of types of operator were capable of ensuring the equal treatment of businesses. This suggests that small businesses in particular (represented by larger associations) did not see themselves as occupying a level playing field with larger companies. Figure 5: Have harmonised definitions contributed to a clear and consistent framework? (N=321) 32 70% 64% 60% 50% 40% 30% 20% 14% 10% 8% 7% 6% 2% 0% Strongly agree (N= 44 ) Agree (N= 204 ) Neither agree nor disagree (N= 26 ) Disagree (N= 22 ) Strongly disagree (N= 5 ) Don t know (N= 20 ) 32 Respondents were asked: Overall, do you believe that harmonised definitions of the types of authorised operators at EU level (e.g. authorised warehouse keeper, registered consignee etc.) have contributed to: - A clear and consistent framework for the holding and movement of excise goods within the EU? 28

29 Source: Survey of economic operators, March-September Figure 6: Have harmonised definitions contributed to an equal treatment of businesses? (N=321) 33 50% 45% 44% 40% 35% 30% 25% 20% 16% 17% 15% 11% 10% 7% 5% 4% 0% Strongly agree (N= 35 ) Agree (N= 142 ) Neither agree nor disagree (N= 52 ) Disagree (N= 56 ) Strongly disagree (N= 13 ) Don t know (N= 23 ) Source: Survey of economic operators, March-September Conditions for granting and managing authorisations and guarantees With the exception of obligations relating to the set-up and management of guarantees, the economic operators surveyed did not consider the authorisation requirements to be particularly burdensome. Across the Member States, similar types of technical 34, financial 35 and legal 36 requirements have to be fulfilled by economic operators in order to receive an authorisation as a warehouse keeper, both for opening a tax warehouse and for becoming a registered consignor or consignee. A comparison with the requirements suggested in the Commission Recommendation on the subject 37 shows strong similarities. However, the implementation of these requirements and of simplifications vary across the Member States, as authorisations remain a national matter. 33 Respondents were asked: Overall, do you believe that harmonised definitions of the types of authorised operators at EU level (e.g. authorised warehouse keeper, registered consignee etc.) have contributed to: - Ensuring an equal treatment of businesses? 34 Systems of management and supervisory controls, security of premises, licences for machinery and equipment, record keeping, site set-up and organisation, etc. 35 Financial guarantees, thresholds for turnover, minimum stock, etc. 36 Documentary proofs of establishment; of the ownership of the premises; fiscal and criminal records; incorporation documents, etc. 37 Commission Recommendation of 29 November 2000 setting out guidelines for the authorisation of warehouse keepers under Council Directive 92/12/EEC in relation to products subject to excise duty (2000/789/EC) 29

30 For example, these concern the differences between the authorisations for different types of product and the particular roles that authorised operators can take in the logistics chain (e.g. producer, distributor, and retailer), as well as the large variations across the Member States in terms of turnover and storage thresholds. The following analysis focuses on the findings with regard to the conditions for granting authorisations to tax warehouses and warehouse keepers. 38 In the case of opening and operating a tax warehouse, the potential for variations across the Member States stems from Art 16(1) of Directive 2008/118/EC which states that such authorisation shall be subject to the conditions that the authorities are entitled to lay down for the purposes of preventing any possible evasion or abuse. The Commission provides recommendations with regards to the information to be obtained from operators and invites the Member States to apply strict criteria when granting authorisations. At the same time, they need to achieve a balance between facilitating trade and exercising effective control 39. By maintaining control over the authorisation and guarantee procedures, the Member States can maintain the integrity of the tax warehouse system and ensure that the number of economic operators with such fiscal privileges is limited to those operators who can fulfil core requirements. However, setting stringent requirements for the establishment of a tax warehouse may in practice restrict market entry and participation in duty-suspended transactions. When setting the requirements for the authorisations, the Member States therefore have to strike a balance between providing fair market access to all operators on the one hand, and on the other hand ensuring that market participation is only possible for compliant operators, in order to safeguard fiscal income. While there is a theoretical possibility that the absence in the EU of mandatory minimum standards for granting authorisations and monitoring registries will result in an uneven playing field in which some Member States apply milder measures than the rest and thereby create room for the system to be abused, no evidence has been found that this is actually happening. Neither the Member State authorities consulted nor the economic operators surveyed referred to any distortion of competition due to so-called procedure shopping whereby economic operators would establish their business in those Member States with the most attractive conditions for authorisation Authorisation requirements for economic operators Although the Member States are in principle free to choose the requirements applicable to the authorisation of economic operators, in practice they all follow a very similar approach. This includes requiring economic operators to inform the authorities in detail about their intended activity, pre-authorisation visits by the authorities, and detailed bookkeeping once an authorisation is received. Across the Member States, respondents were of the opinion that the technical and legal requirements related to authorisation were not particularly burdensome. 38 Among the different types of authorisations, applications for warehouses were demonstrably the most complex, and the authorisation requirements that warehouses and warehouse keepers must fulfil also apply to some extent to other types of authorisation. Furthermore, 53% of the respondents in the survey were warehouse keepers, and the Member States mainly reported on the procedure for the authorisation of warehouses in the questionnaire. 39 Commission Recommendation of 29 November 2000 setting out guidelines for the authorisation of warehouse keepers under Council Directive 92/12/EEC in relation to products subject to excise duty (2000/789/EC), Article

31 Figure 7: Activities considered particularly burdensome when obtaining authorisation technical requirements (N=512) Note: Respondents may select multiple answers for each of their respective countries. Source: Survey to economic operators, March-September Figure 8: Activities considered particularly burdensome when obtaining authorisation legal requirements (N=469) Note: Respondents may select multiple answers for each of their respective countries. Source: Survey to economic operators, March-September Of the different requirements, a few stood out in the survey of economic operators as being relatively more burdensome. These were: 31

32 The provision of a site map (reported by 17% of the respondents as being particularly burdensome) The record-keeping requirements (mentioned by 25% of the respondents) Requirements relating to systems of management and supervisory control (21% of the respondents). Economic operators from all Member States were equally concerned about the recordkeeping requirements. The provision of a detailed map of their site was reported to be particularly burdensome by a comparatively large number of German and Romanian operators. Management systems and supervisory controls were considered to be burdensome, especially by operators from Bulgaria. They were of concern for only a few operators from Sweden and Belgium 40. More than half of the respondents (52%) did not consider the financial requirements to be particularly burdensome. However, an aggregate 40% of economic operators from all Member States considered guarantees to be an important burden and were concerned about them. Guarantees are discussed further in Section 0. Figure 9: Activities considered particularly burdensome when obtaining authorisation economic requirements (N=346) Note: Respondents may select multiple answers for each of their respective countries. Source: Survey to economic operators, March-September The interviews conducted with economic operators in the context of the case studies showed that the overall requirements were not considered to be particularly burdensome. The only onerous requirement mentioned by economic operators from all case study countries except Lithuania was the need to provide guarantees. The operators from Germany and the UK who were interviewed reported that the documents and information necessary for the authorisation process were collected in the context of their daily business and created no additional work for them. However, there was criticism from these Member States and Belgium that in some cases information that was already available to the authorities would have to be resubmitted, creating unnecessary work. An example was the case of small changes in company structures that required a completely new application for authorisation (or in the case of the UK, the need for regular authorisation renewals). 40 Only countries for which more than ten responses were received were taken into account for this assessment. 32

33 However, it should be noted that the economic operators surveyed as part of this study were ones which already possessed an authorisation and would thus no longer be concerned with the existence of onerous or burdensome authorisation criteria, or might even encourage them so as to maintain market entry barriers. However, an in-depth analysis of the degree to which certain requirements (in particular, turnover and storage thresholds) affect market access lies beyond the scope of this assignment Resources required to complete authorisation procedures For both economic operators and Member State authorities, fulfilling authorisation procedures was manageable in terms of the resources to be invested. Few economic operators needed more than ten working days to complete administrative requirements. Almost all Member States reported that they were able to process authorisations within one month. As Figure 1010 shows, the majority of economic operators who responded to the survey (59%) complied with all the administrative requirements associated with obtaining authorisations at a human resource cost of less than 10 man days. Only 14% of respondents reported spending more than 15 man days fulfilling all the requirements. Figure 10: The amount of time spent on complying with all the administrative requirements associated with obtaining authorisation (N=277) 35% 31% 30% 25% 20% 18% 18% 15% 10% 5% 10% 8% 4% 6% 4% 0% < 1 manday (N= 27 ) 1 to 5 man days (N= 87 ) 5 to 10 man-days (N= 50 ) 10 to 15 man-days (N= 22 ) 15 to 20 man-days (N= 12 ) 20 to 25 man-days (N= 18 ) > 25 mandays (N= 10 ) Don t know (N= 51 ) Note: The N in the title refers to the unique number of respondents answering the question, whereas the N for each answer refers to the number of responses relating to the answer in question. These may differ when the respondents are operating in more than one industry. Source: Survey of economic operators, March-September During the case studies, it proved to be difficult to collect data on the time spent and the number of employees involved in satisfying the authorisation requirements, since many operators had been established in the market for a long time and thus had no recollection of the authorisation process. The following information was collected. 33

34 In the survey, no discernible differences across Member States were identified when analysing the answers of economic operators from different countries. Across the three sectors comprising alcohol and alcoholic beverages, manufactured tobacco, and energy products and electricity, the operators reported comparable amounts of time spent complying with the administrative requirements. Simplified procedures, e.g. for small wine producers (as under Article 40 of the Directive) take between two and three days. A normal procedure such as for a warehouse takes five to ten days. For big warehouses, the process is more complex and longer. Austrian customs Member State authorities indicated that processing an authorisation could take between a few days and six weeks, while the majority mentioned one month. The speed of the process depends on the type of authorisation requested (authorisations for tax warehouses take longer than those for registered consignors/consignees); the type of product; and whether the economic operator is already known to the competent administration. The case studies suggested that the time needed to handle authorisation requests could be longer than indicated in the questionnaires. An application process could take between one and three months. Authorities carry out tasks that go beyond the verification of the applications submitted to them: many assist economic operators en route to submitting an application, explaining the legislation, indicating where to submit necessary documents and helping them to complete forms. This was mentioned by Member State authorities from Germany, Belgium, France and Sweden in the context of the case studies. The thorough check of each application requires significant resources, but the authorities emphasised that the time they invested was not driven by the requirements of the Directive, but by their individual needs to reduce the risk of fraud Management of financial guarantees In an ideal case, the approval of an authorisation request could be done in less than a day, but missing documents and the lack of knowledge of economic operators that demands an additional exchange between the authorities and the companies makes this task much more time- and resource-intensive. German customs This section discusses two types of financial guarantees: The first type relates to the risk inherent in the dispatch/movement of the excise goods, while the second covers the risk inherent in the production, processing or holding of excise goods. As was indicated above, these guarantees were considered to be particularly burdensome by many of the operators responding to the survey (40%) and by those consulted for the case studies. Among the countries for which more than ten survey respondents provided answers, it was mostly operators from Italy (60%) and Hungary (50%) that considered guarantees to be a particularly onerous burden; on the opposite side of the scale were operators from Bulgaria (25%) and the Netherlands (28%). General guarantees Guarantees usually depend on the nature and quantity of the goods that the operator is allowed to handle. They can be based on a percentage of the value of the products or a percentage of the excise duty due for those products that are held or moved during a particular period. In other cases, they are based on the percentage of a maximum quantity of movements or goods stored during a specified period. In some cases, tax-compliant behaviours or risk assessments are taken into account when calculating the amount of the guarantee (a practice applied in at least eight Member States). 34

35 Minimum guarantee levels were identified as being applied in at least six Member States. Maximum levels are applied in at least seven Member States. Some countries apply both a maximum and a minimum. A few Member States have general minimum and maximum levels for all warehouses; in other Member States, their level depends on the category of the products held. This study has shown that a wide range of individual methods for calculating guarantees is being applied in the Member States. This leads to considerable variation in the levels of the actual guarantees that economic operators have to establish. The case studies underlined the findings from the survey that most economic operators considered the amounts to be significant. Nevertheless, the high number of authorisations indicates that guarantees are not set at a level where economic operators would be unable to comply with them. At the same time, the survey only reached out to established companies. A comparison of the methods for calculating guarantees in the four countries where guarantees are seen as burdensome by the highest (IT, HU) and lowest (BG, NL) number of economic operators cannot lead to the conclusion that where the guarantee levels are lower, they would be considered to be less burdensome. In Hungary, for example, the highest maximum amount of guarantee is HUF 2 billion (EUR 6.5 million) for an authorised operator of more than one warehouse that handles energy-related products. The maximum guarantee amount in the Netherlands is EUR 9 million, which can apply to an operator with only one warehouse. These numbers certainly underline the potential significance of general guarantees, but they do not explain why a much higher percentage of operators from Hungary than from the Netherlands considered guarantees to be a particularly burdensome requirement 41. One of the consequences of high guarantees is the limiting of market access, as Figure 11 below shows. One third of all respondents consider guarantees to be a barrier to entering the market, while only 16% think they could encourage market access This underlines the general limitation of the survey, insofar as many questions captured the subjective perceptions of economic operators which do business in very specific economic conditions, rather than capturing objective facts. 42 Although it is clear that the economic operators have an economic interest in reducing the financial costs of guarantees through a reduction of the mandatory thresholds, there is a risk of understating the market-access consequences, because the responses come from operators who are already established, and who may arguably have an interest in maintaining market barriers. 35

36 Figure 11: Respondents opinion on the conditions of the financial guarantee or security necessary for authorisation (N=253) 0% 10% 20% 30% The conditions of the authorisation guarantee encourage market entry to a high degree (N= 16 ) 6% The conditions of the authorisation guarantee encourage market entry to some degree (N= 25 ) 10% The conditions of the authorisation guarantee neither encourage or is a barrier to market entry (N= 64 ) The conditions of the authorisation guarantee are a barrier to enter the market to some degree (N= 60 ) 24% 25% The conditions of the authorisation guarantee are a barrier to enter the market to a high degree (N= 22 ) 9% Don t know / not applicable (N= 66 ) 26% Note: The N in the title refers to the unique number of respondents answering the question, whereas the N for each answer refers to the number of responses relating to the answer in question. These may differ when the respondents are operating in more than one industry. Source: Survey of economic operators, March-September A cross-analysis between the methods used to calculate the level of guarantees and the opinion of economic operators about the impact of financial guarantees on market access reveals that some methods allow for market access more easily than others, suggesting that economic operators can more easily comply with them. Of the operators which reported that their guarantees were calculated on the basis of stock levels, 40% thought that guarantees could encourage market access to some (or even a high) degree. At the other end, 49% of those operators which reported that their guarantee was based on their monthly excise liability, and more than 73% of those operators which said their guarantees were based on their storage capacity, indicated that guarantees could be a barrier to market entry. This suggests that guarantees based on stock levels can be set up more easily by operators than ones based on a monthly excise liability, or on storage capacity The validity of this comparison may be limited. Contradictory answers from operators from the same Member State that are active in the same sector concerning the way their guarantees were calculated indicate that some operators may not have indicated the type of guarantee that actually applies to them. 36

37 Figure 12: Opinions on the conditions of the financial guarantee or security relative to how the financial guarantee is calculated (N=253) The conditions of the authorisation guarantee encourage market entry to a high degree 0% 20% 40% 60% 80% 100% The conditions of the authorisation guarantee encourage market entry to some degree The conditions of the authorisation guarantee neither encourage or is a barrier to market entry The conditions of the authorisation guarantee are a barrier to enter the market to some degree The conditions of the authorisation guarantee are a barrier to enter the market to a high degree Don t know / not applicable Annual turnover (N=65) Monthly turnover (N=10) Annual excise liability (N=50) Monthly excise liability (N=51) Stock level (N=10) Storage capacity (N=41) Other (N=81) Note: The N in the title refers to the unique number of respondents answering the question, whereas the N for each answer refers to the number of responses relating to the specific answer. These may differ when the respondents are operating in more than one industry. Source: Survey to economic operators, March-September Very limited information from the case studies was available regarding the level of guarantees. Most operators had either been established for a long time or were unaware of the exact amount of their guarantee. Nevertheless, they were considered to create a significant burden in terms not only of the amount of the guarantee, but also the methods of calculation, the limited options available for setting up guarantees and the fees to be paid to banks. The findings available are presented below: Movement guarantees Movement guarantees for warehouse keepers are mostly calculated or based on a percentage of the average or actual amount of excise goods transported/dispatched under suspension. However, they can also be based on the potential liability to duty over an average timespan, e.g. for one week's movement of goods. Again, provisions vary significantly across the Member States. Economic operators had an opinion with regard to movement guarantees that was similar to their opinion regarding general guarantees. 35% of economic operators had a negative opinion of the guarantees, considering that they would represent a barrier to intra-eu trade. In particular, operators from the energy and electricity sector considered that movement guarantees represented a barrier (44%). 37

38 Figure 13: Opinion on the conditions of the guarantees associated with the movement of goods under suspension (N=249) 0% 5% 10% 15% 20% 25% 30% The conditions of the movement guarantee encourage intra EU trade to a high degree (N= 22 ) 9% The conditions of the movement guarantee encourage intra EU trade to some degree (N= 30 ) 12% The conditions of the movement guarantee neither encourage or is a barrier to intra EU trade (N= 59 ) 24% The conditions of the movement guarantee are a barrier to intra EU trade to some degree (N= 71 ) 29% The conditions of the movement guarantee are a barrier to intra EU trade to a high degree (N= 15 ) 6% Don t know / not applicable (N= 52 ) 21% Note: The N in the title refers to the unique number of respondents answering the question, whereas the N for each answer refers to the number of responses relating to the specific answer. These may differ when the respondents are operating in more than one industry. Source: Survey of economic operators, March-September It should be kept in mind that in Denmark and the Netherlands, but also to some extent in Portugal, Greece and Spain, movement guarantees are not used; instead, a global guarantee is established. Furthermore, the Slovakian authorities mentioned that if the guarantee for an authorisation covers the tax guarantee, no additional movement guarantee is needed. In Hungary too, a movement guarantee can be provided, up to the amount of the authorisation guarantee. A particular problem involving movement guarantees was identified for bioethanol. Movement guarantees are particularly high for this product, as it is based on the rates for alcohol even though the bioethanol is intended as an energy product. Methods of payment Most commonly, guarantees are set up with banks. Some Member States also accept guarantees in the form of escrow accounts or insurance. The case studies have shown that economic operators tend to consider bank guarantees as being more complicated to establish and not always flexible enough to allow the guarantee level to be adjusted when necessary. Operators from Sweden reported that in the past, they were able to use insurance arrangements as guarantees, in this way lowering their guarantee costs. Guarantee monitoring mechanisms Not all Member States have a mechanism in place that automatically monitors guarantees when a movement takes place. Where such a mechanism is used, it normally only covers the existence of a guarantee. Member States have not developed a systematic check regarding whether the current level of the guarantee covers the value of a movement. However, authorities that had no monitoring mechanism in 38

39 place at all noted that the introduction of an automatic check regarding whether a movement guarantee has been set up would already facilitate their work. Among the Member State authorities consulted in the context of the case studies, only Sweden referred to its monitoring mechanism. When an economic operator establishes a movement guarantee, this will become visible in the EMCS. In the absence of a movement guarantee, the e-ad would not be validated. The Swedish authorities suggested that it would be useful to have access to the value of the guarantee in order to achieve improved control over movements. However, according to the interviewee, this would be very difficult to implement Benefits of the authorisation process Despite the different requirements that operators need to comply with (in particular, their dissatisfaction with the guarantees), 60% of the economic operators thought the benefits of being an authorised excise operator outweighed these costs, while another 20% were neutral on the subject. Figure 14: Opinions on whether the benefits of becoming an authorised excise operator outweigh the costs (and obligations) associated with obtaining authorisation 44 (N=275) 35% 30% 29% 31% 25% 20% 20% 15% 10% 5% 7% 5% 8% 0% The benefits The benefits of outweigh the authorisation costs significantly (N= 85 ) outweigh the costs of authorisation (N= 81 ) Neutral (N= 54 ) The costs The costs of outweigh theauthorisation benefits are a (N= 19 ) significant barrier to conducting trade (N= 13 ) Don t know (N= 23 ) Note: The N in the title refers to the unique number of respondents answering the question, whereas the N for each answer refers to the number of responses relating to each individual answer. These may differ when the respondents are operating in more than one industry. Source: Survey of economic operators, March-September For the Member States, the different requirements are a tool for ensuring the integrity of their tax warehouse system, and have to be adapted to their own specific circumstances. Overall, the current provisions are flexible enough to allow Member States to handle authorisations according to their needs. 44 Respondents were asked: Overall, to what extent do you believe that the benefits of becoming an authorised excise operator (e.g. authorised warehouse keeper, registered consignee etc.) outweigh the costs (and obligations) associated with obtaining authorisation? 39

40 In particular, the guarantees need to fulfil their function of protecting the financial interests of the Member States by covering the fiscal risk associated with movements under duty suspension. As Figure 155 below shows, a majority of Member States considered that the guarantees cover the fiscal risk of the movements. Only three Member States disagreed, referring to the generally high risk of movements of goods under duty suspension which could not be avoided despite the setting of high guarantee requirements. Figure 15: The level of the guarantee or security associated with the movement of goods under suspension covers the actual fiscal risk involved in moving goods under suspension Source: Questionnaire to Member State authorities 1.4 The scope for simplifying and reducing administrative burdens Though established economic operators did not report major problems resulting from the authorisation requirements overall, some scope has been identified for measures to simplify authorisation procedures and alleviate administrative burdens. These concern both established and potential entrants (e.g. the provision of information on requirements and their clarification, the reduction and waivers of guarantees based on reliability), or they take the form of specifically supporting small operators through limited requirements and reduced guarantees Accessibility and the clarity of requirements The analysis above has shown the complexity of the requirements that must be satisfied in order to receive an authorisation. This can create obstacles for economic operators in the application process and thus make it more time-consuming than would otherwise be necessary. When they were asked about the rules for calculating the guarantees applicable to them, many operators indicated that they did not know them (24%). When analysed by Member State, the data also showed that operators from the same countries, operating in the same sector have provided contradictory information. For example, operators active in Germany (the Member State with the highest participation in the survey) stated that their warehouse guarantees were calculated on the basis of annual turnover (34%), monthly turnover (3%), annual excise liability (16%) and monthly excise liability (21%). This suggests that some of the requirements and provisions are highly complex. 40

41 The complexity of accessing and understanding the provisions was also underlined in the case studies. Stakeholders from four Member States reported that economic operators often did not submit complete applications, which required additional working hours to be spent by the authorities. The desk research also showed that there are still Member States for which there is either no, or only little and very complex, information available online regarding the authorisation application requirements. This creates additional work for authorities who have to assist operators to complete their applications (a problem referred to by the German authorities see above), and it creates obstacles in accessing the market, especially for operators that are new to the sector. A particular burden is created for economic operators in Poland and Romania, where all authorisations last only for a certain period and must then be renewed. This also applies to some authorisations in UK and Ireland. In all other Member States, authorisations can only be revoked if the requirements are no longer fulfilled. In the context of the current arrangements, making the requirements clearer and more accessible would be a task for the individual Member States, as the practical arrangements and conditions connected with the issuing of authorisations are a national responsibility A level playing field for all economic operators The assessment showed that the Member States follow different approaches for alleviating the burdens on smaller operators. For instance, in some countries (e.g. Sweden, Belgium and the Netherlands) it is possible for operators who do not meet the minimum requirements for opening a tax warehouse in terms of turnover or stock to use the tax warehouse of another company. Other Member States make provision for specific conditions for the production of alcohol and alcoholic beverages for own consumption or in limited quantities, where requirements for a set of special records that is separate from normal accounting records can be waived, or where no minimum volumes of dispatch are necessary. Despite varying conditions for producers, no cases were identified where economic operators had decided to set up their business in one Member State rather than another due to the existence of requirements that could be met more easily there. Socalled procedure shopping was not identified, most likely because the overall requirements for authorisation are similar across the EU. Reduction and waivers of guarantees are possible, as the following sections show Reductions and waivers of guarantees Guarantees are considered one of the most important burdens connected with authorisation, despite the fact that Member States allow for reductions of the rate of guarantee, while in some instances they even waive this requirement entirely. 25% of economic operators responding to the survey benefited either from a reduction of up to 75% of their guarantee or a waiver. Reductions or waivers are possible in 75% of the Member States. 41

42 Table 8: Waivers and discounts of guarantees or security Waiver or discount Member States that allow waivers or discounts of guarantees or security Member States that do not allow waivers or discounts of guarantees or security Member State AT, BG, CZ, DE, EE, EL, ES, FI, FR, HU, HR, IE, IT, LV, NL, PL, RO, SI, SK, SE, UK BE, CY, LT, LU, PT The Member States listed three different grounds on which guarantees can be reduced or waived: Small operators and those producing for their own consumption (mentioned by five Member States) Operators holding and moving excise goods with a zero tax rate, in particular in those Member States that do not levy an excise duty on still wine (mentioned by four Member States) On the basis of trust, good conduct and the track record of the economic operator (mentioned by 13 Member States). The most common basis for granting reduced rates or waivers is an operator s track record. However, in some Member States the basis is simply the length of time that an operator has been in business. That means that new operators may be less likely to receive such a reduction or a waiver. In that sense, guarantees can present a burden for new businesses that are still growing. Findings from the case studies show that economic operators that do not currently benefit from a reduction or waiver of the guarantee would be very interested in doing so. In particular, Belgian operators highlighted this issue, and referred to the fact that in their country no reduction based on tax-compliant behaviour was available. Those Member State authorities that reported granting waivers and reductions did not report any problems with such arrangements. As Figure 16 shows, 25% of economic operators responding to the survey (excluding the answers from trade associations) benefited from a waiver or a reduction in their rate of guarantee. This shows that Member States not only provide for an option to reduce or waive guarantees, but they are widely implemented in practice, mainly in the form of reductions. Only five operators out of 57 reported benefiting from a total waiver. 42

43 Figure 16: Number of respondents benefiting from a reduced rate of guarantee or a waiver of the obligation to provide a guarantee (N=233) (without trade associations) 40% 25% Yes (N= 57 ) No (N= 82 ) 35% Don't know/ not applicable (N= 94 ) Source: Survey of economic operators, March-September A cross-analysis between the information regarding whether operators were benefiting from a waiver or reduction of their guarantee on the one hand, with the extent to which they considered guarantees to be a barrier to market entry on the other hand, shows that even when they were under a lower financial burden, operators still considered guarantees to be an impediment to market entry. Among those operators who were benefiting from a reduction or waiver of the rate of guarantee, 55% thought that guarantees were limiting market entry. Two factors could explain this: On the one hand, companies might be fully aware of the reduction they had received, and therefore considered the non-reduced level of the guarantee when they answered this question. On the other hand, most economic operators receive a reduction of their rate of guarantee, not a waiver. This means that despite experiencing less financial cost, the administrative procedures to set up the guarantee (which some economic operators in the case studies emphasised were burdensome) still have to be completed. Indeed, most companies only benefit from a reduction after a certain time in the market. Therefore high guarantees can be considered to be a barrier to market access. 43

44 Figure 17: Opinions regarding the conditions of the financial guarantee or security necessary for authorisation analysed relative to whether respondents were granted a reduced rate of guarantee or a waiver of the obligation to provide a guarantee (N=231) (without trade associations) The conditions of the authorisation guarantee encourage market entry to a high degree The conditions of the authorisation guarantee encourage market entry to some degree The conditions of the authorisation guarantee neither encourage or is a barrier to market entry The conditions of the authorisation guarantee are a barrier to enter the market to some degree The conditions of the authorisation guarantee are a barrier to enter the market to a high degree Don t know / not applicable 0% 20% 40% 60% 80% 100% Yes (N=58) No (N=84) Don't know/ not applicable (N=144) Note: The N in the title refers to the unique number of respondents answering the question. Source: Survey of economic operators, March-September Some Member States also waive guarantees for movements when they take place entirely on their own territory, following Article 18(4a) or Directive 2008/118/EC. The Directive provides for the option to waive guarantees in the case of movements of energy products within the European Union by sea or by fixed pipeline, where all the Member States concerned agree on doing so (Article 18(4b)). This option is implemented by ten Member States. Table 9: Guarantee waivers in relation to movements of energy products by sea or fixed pipeline Waiver Member States where the obligation to provide guarantees for movements of energy products by sea or fixed pipeline has been waived Member States where the obligation to provide guarantees for movements of energy products by fixed pipeline has been waived Member States where the obligation to provide guarantees for movements of energy products by sea or fixed pipeline has not been waived n/a Member State BE, FI, HR, HU, SE, UK CZ, DE, SI, PL AT, BG, CY, EE, EL, ES, FR, IE, LV, LU, NL, PT, SK, DK, IT, LT, MT, RO 44

45 Out of the ten Member States that make this waiver available, Poland, the Czech Republic, Germany and Slovenia only apply it to movements by pipeline and not by sea. In practice, the waiver is mostly implemented for movements within one Member State or where particular agreements between partner countries are in place. Economic operators criticised this practice, suggesting that the guarantee waiver should be implemented more widely in order to actually facilitate energy product movements. In conclusion, the reduction of guarantees can be a way to alleviate the burden of authorisation procedures for economic operators. As was discussed in Section 0, only three Member States were concerned that the guarantees would not cover the actual fiscal risk of movements. Consequently, even where Member States allow reductions and waivers of guarantees they are still convinced that the risk of fraud inherent in these movements is covered. 1.5 Key points Directive 2008/118/EC establishes common EU-level definitions of the different types of economic operator authorised to hold and move excise goods under duty suspension. These definitions contribute to a clear and consistent framework for the holding and movement of excise goods, and ensure an equal treatment of businesses. The implementation of authorisation requirements, as well as any simplification provisions, vary across the Member States, as authorisations remain a national matter. Processing authorisation applications can be time-consuming for Member State authorities, but it is considered necessary for fraud prevention. In most Member States, operators have to lodge both a movement guarantee and an authorisation guarantee. Economic operators considered these to be significant burdens, despite the fact that reductions and waivers of guarantees are widely implemented in order to support smaller operators, particular products and tax-compliant operators. 45

46 4. General arrangements for the holding and movement of excise duty goods Once authorised, economic operators can use the EMCS to dispatch and/or receive consignments under suspension of excise duty. This chapter analyses the usage of the EMCS within the EU before assessing the impact of the EMCS s introduction. The functioning of the electronic environment is assessed in comparison to the previous paper-based arrangements. Member States and traders were asked to make the comparison assuming the movement completes as intended under the normal scenario. The analysis is as follows: The economic importance of movements under duty suspension; The cost impact of the EMCS on administrations; The cost impact of the EMCS on economic operators; The impact of the EMCS on trade; The EU added value of the EMCS. 1.1 Economic importance of movements under duty suspension The present section assesses the economic importance of movements under duty suspension in the EU, based on the number of movements and the value of moved goods Number of movements under duty suspension Since the introduction of EMCS in 2010, operational statistics have been collected automatically by DG TAXUD and made available to the Member States 45. The figures show that between January 2010 and May 2015, over 13.6 million movements under duty suspension were recorded (this figure reflects the number of IE801 messages, which corresponds to the number of e-ads generated). Table 10: Key terms movements e-ad Report of Receipt (RoR) Statistics and monitoring platform (CS/MISE) The electronic administrative document (e-ad) which must be generated for each consignment of goods. Also known as message IE801. The electronic message submitted by the consignee to confirm receipt of the goods. Also known as message IE818. Collects information on the EMCS operational statistics, e.g. the number of e-ads generated. The Commission operates this service to monitor the types of messages sent, but has no access to the content of the messages themselves. The number of IE801 messages (e-ads) corresponds to the number of movements dispatched from Member States that are reported within the EMCS. From 1 January 2011, the use of the EMCS became compulsory, which resulted in a rapid increase in the number of movements registered under it (approximately 3 million in 2011). Between 2011 and 2014, the number of messages exchanged has slowly increased, reaching approximately 3.4 million in Using CS/MISE (Movement tracking and statistics service). 46

47 Figure 18: Number of dispatches (IE801) Over the period January 2010-May 2015, approximately 98.1% of movements completed normally and without any change of original consignee. Movements involving a change of destination (98,080) accounted for about 0.7% of the total number of movements 46. The number of cancelled movements (164,534) represents about 1.2% of the total movements 47. Cancellations and changes of destination are discussed further in Section According to the annual overview, IE801 messages (e-ad) in 2014 (the latest full year for which figures are available), the Member States with the most dispatches were France (525,393), Germany (492,582), and Italy (338,488). Cyprus (240) and Malta (300) were the Member States with the least dispatches during this period. 46 A change of destination is possible either in the normal course of the movement (a new consignee or a new place of delivery) or following a refusal at delivery or a rejection of the e-ad. 47 Cancellation messages are sent due to data errors whereby the e-ad does not correctly describe the consignment, or because the physical movement has been cancelled for business reasons. 47

48 Figure 19: Number of e-ads dispatched per MS (IE801) in 2014 Source: CS/MISE/ITSM statistics platform The Report of Receipt (RoR, or IE818) message gives an overview of the movements under duty suspension that were received in Germany (532,372), France (280,131) and Great Britain (243,464) are the Member States which saw the most receipts over this period. Cyprus (6,123) and Malta (5,096) were the Member States with the lowest number of receipts. The figure below presents an overview of the exchanges of e-ads (IE801 messages) between the Member States during A total of almost 2.95 million e-ads were generated over this period. Each line connecting two Member States is equivalent to 1,000 IE801 messages exchanged (both sent and received). 48 The biggest flows of messages go to and originate from Germany, France and the Benelux countries. 48 The flows do not represent the geographical reality of the flows, but visually represent the number of exchanges between the individual Member States. 48

49 Figure 20: Total flows of e-ads between EU Member States in 2014 The highest flows registered were between Belgium and France, with more than 200,000 messages in Other high-volume exchanges took place between Germany and Austria (more than 150,000 messages), Germany and Italy (more than 150,000 messages), Germany and France (almost 150,000 messages) and France and the UK (more than 100,000 messages). IE801s were also frequently interchanged between the Benelux countries. The countries of eastern and northern Europe saw relatively lower numbers of exchanges Economic importance of movements under duty suspension Almost all the Member States reported a very low volume of duty-paid movements, of the order of less than 1% (implying that duty-suspended movements accounted for close to 99% of all trade). Eurostat s international trade databases have been used to estimate the economic value and quantities of goods being moved under suspension. Energy accounts for the highest figures in terms of the value of goods moved under duty suspension: it totals around EUR 240 billion of received goods and EUR 225 billion of dispatched goods 49 (these are equivalent to intra-eu 50 imports and exports) 51. The value of the alcohol and tobacco moved is much smaller (close to EUR 21 and 10 billion for receipts and dispatches respectively). In terms of extra-eu trade energy also dominates, with imports of more than EUR 400 billion and exports of around This is respectively 240*10 9 and 225* Eurostat uses intra-eu imports/exports to refer to what excise duty terminology calls receipts/dispatches. 51 The difference between the two values (receipts vs. dispatches) is the result of discrepancies within the Eurostat data (probably due to different classification systems being used in the different Member States). The reported EU28 totals for the selected energy codes are 250 billion Euros (intra-eu imports) and 233 billion (intra- EU exports). 49

50 Extra Intra Evaluation of Directive 2008/118/EC billion. The extra-eu movements are smaller for alcohol (EUR 4 billion and 21 billion respectively) and tobacco (0.2bn and 3bn). In terms of quantities, energy also dominates both intra- and extra-eu trade Estimations of duty values (duties and similar charges other than VAT) have been calculated based on the estimated quantities and duty rates 52. The total duty of received goods (intra-eu imports 53 ) is in the order of EUR 21 billion for tobacco and energy, and EUR 15 billion for alcohol. The tax value from extra-eu imports is EUR 29 billion for energy and much less for alcohol and tobacco (in the order of EUR 5 billion and 0.3 billion respectively) 54. Table 11: Total intra-eu and extra-eu movements under duty suspension in 2014; values in EUR 000, (volumes in 1,000 Kg), [duty revenues, in EUR 000] Alcohol Tobacco Energy Imp. Exp. Imp. Exp. Imp. Exp. 21,364,451 21,697,194 9,192,871 8,867, ,196, ,755,220 (13,650,469) (13,887,369) (524,602) (537,902) (397,039,201) (377,444,952) [14,924,603] [21,308,620] [20,857,735] 4,396,705 21,810, ,421 3,178, ,501, ,050,117 (2,468,900) (6,923,540) (19,694) (257,116) (961,977,662) (165,631,781) [5,005,882] [257,521] [28,594,524] Note: Alcohol and alcoholic beverages include the following CN codes: 2203, 2204, 2205, 2206, 2207 and 2208 (as defined in Directive 92/84/EC). Manufactured tobacco includes the following CN codes: , , , , and (as defined in Directive 95/59/EC). Energy products and electricity include the following CN codes: , 2701, 2702, , 2901, 2902, , 3403, 3811, 3817, and 2716 (as defined in Directive 2003/96/EC). A full presentation of the estimated economic value, quantities and taxation values of excise duty goods in suspension is annexed as part of Appendix 8 - Economic value of movements under suspension (detailed figures). 52 In the case of alcohol, we have assumed an alcoholic strength for those products that are taxed based on degrees of alcohol; in the case of tobacco, revenues are estimated on the basis of cigarettes, cigars and cigarillos; for energy, we have used different conversion factors to be able to convert duties expressed in gigajoules to kilograms. 53 Eurostat terminology for receipts. 54 Because Eurostat s statistical values do not include taxes on exports or imports (customs duties, value added tax, excise duty, levies, export refunds or other taxes with similar effects), the values and estimates of duty are not directly comparable. 50

51 1.2 Impact of the EMCS on administrations The EMCS was designed to provide a smooth transition to a paperless (electronic) environment, removing tax obstacles to the movement of excise duty goods across borders by minimising costs both for economic operators and for tax administrations. 55 The introduction of the EMCS has clearly achieved the objective of simplifying and modernising excise procedures. The EMCS has reduced overall administrative costs for many Member States, although this is not the case for all of them; however, it is clear that the advantages cannot be seen merely in terms of cost. The elimination of paper and increase in efficiency, the freeing up of resources to focus on higher-risk movements, and the improved control of movements (see Chapter 5 on combating fraud) have all been identified as clear advantages accruing from the electronic environment Transition to a paperless (electronic) tax environment A clear majority of the Member States indicated that the transition to EMCS has reduced their administrative costs compared to the previous system based on the paper AAD. 19 out of Member States agree (CY, EE, ES, HR, IE, IT, NL, PL, PT, SK) or strongly agree (BG, CZ, EL, It [the EMCS] has resulted in less paperwork and administrative handling of procedures. FR, HU, LT, LV, RO, SI) that the EMCS has contributed to reducing the administrative costs in their administrations for the handling of movements of excise duty goods under suspension compared to the previous paper-based system. Advantages identified included: reducing labour costs for tasks associated with communicating with economic operators; freeing up human resources; eliminating the need to handle paper, and more time available for officials to control particularly risky movements. 55 According to the proposal for Directive 2008/118/EC 55, an amendment to Directive 92/12/EEC was considered necessary to simplify and modernise the excise procedures, with the aim of reducing excise obligations for traders in particular for traders carrying out cross-border business without compromising excise controls. 56 No response to the questionnaire was submitted by Malta. 51

52 Figure 21: The introduction of the EMCS has contributed to reducing administrative costs compared to the previous paper-based system Three Member States neither agreed nor disagreed (DE, DK, SE). Germany, for example, noted that the introduction of the EMCS had led to an increased surveillance and administrative workload in those cases where results were not compatible (e.g. excesses and shortages; goods not matching the description in e-ad). They also explained that the increased workload was related to the increase in transparency stemming from the EMCS, the largely standardised application procedures, and a number of technically prescribed processes (e.g. the immediate involvement of Member State authorities, no opportunities for the parties involved to make changes after the start of the transportation process). The Member States (FI, LU, UK) which disagreed that the EMCS had reduced their administrative costs pointed to a number of reasons. Finland reported an increase in costs due to the increased control involved with the movements, although it explained that this was not considered an issue. This was also the case for AT, which strongly disagreed, stating that the introduction of the EMCS has not led to a reduction in administrative costs, as data is now checked electronically and every irregularity discovered needs to be examined manually (leading to increased staff expenditure). The UK disagreed with the statement because they had had no routine intervention in movement handling before or after the introduction of the EMCS. It has actually increased the amount of administrative costs and work, since there are more controls involved with the movements. Finnish customs The changes regarding the control of movements in the business model were so dramatic that we cannot look at it solely from the perspective of cost reduction. Portugal These findings show that more Member States now think that the EMCS has reduced administrative costs than did those which responded to the survey conducted by the Commission in the context of a report on Decision No. 1152/2003/EC which covered the creation of the EMCS: then, 8 out of 23 Member States (35%) thought that the 52

53 administrative costs of operating the EMCS compared with the costs of operating the previous arrangements under Directive 92/12/EEC were lower; 9 out of 23 Member States (39%) thought they were higher; and 6 out of 23 MSs (26%) didn t know Costs of implementing EMCS The administrations of each Member State are responsible for covering the costs of setting up their respective national excise applications (i.e. the hardware and network connections necessary for the national domain). There were very few national studies or data available on the costs of setting up the EMCS the administrations reported that they simply did not perform this kind of cost-benefit analysis. However, Member States were able to provide qualitative estimations. In the context of the case studies, some administrations also brought forward a quantification of the costs of setting up and running the EMCS system (converted to EUR where relevant): The Swedish administration reported the initial cost for setting up the system to have been approximately 3.3 million EUR 58. Further developments have been made, which have amounted to a further million EUR) 59. Minor upgrades and software patches cost a few million Swedish kronor per year. The Swedish administration stated that the benefits absolutely outweigh the costs, due to the fact that significantly more information is now available in the electronic format, resulting in their having the ability to act sooner to conduct checks and controls. The German customs administration estimated its costs for the introduction of EMCS at EUR 25 million. A cost-benefit analysis was conducted prior to the introduction and arrived at a positive result (i.e. the benefits would outweigh the costs). EMCS is also used for tracking the movements of excise duty goods in suspension within Germany. The UK s set-up of EMCS cost approximately EUR 68 million 60. This excludes the cost of setting up EMRA, HMRC s own risk analysis system, which was developed to maximise use of EMCS data. However, some countries considered the costs to have been disproportionate to the expected benefits. For instance, Luxembourg indicated that, although they had not yet performed a comparison between the price for the Less customer-customs meetings; costeffective, targeted controls; automated validation/ endorsement. The only cost is running the IT system. Hungarian customs development of the system and the results obtained, the financial cost of the EMCS is disproportionate, especially in light of the fact that the same features are to be implemented in every country irrespective of the size of the country or whether they are required. As a result, they considered the costs as too high in relation to the benefits of the system. 57 Staff Working Document SWD(2013) 490 accompanying the final Report to the European Parliament and to the Council (COM 2013(850)) on the current arrangements million Swedish Kr million Swedish Kr. 60 GBP 50 million; no more data was available on what this cost covered. 53

54 4.2.3 Resources required to operate the arrangements The EMCS The Member States were asked to estimate the amount of resources needed to process a typical movement as a Member State of dispatch, before and after the introduction of EMCS. 13 out of 27 Member States (BE, BG, CY, DK, EL, ES, FR, HR, IE, IT, NL, PT, SE) were unable to answer, either because they simply did not collect this information or because it was not available 61. Five Member States (CY, EE, ES, IE, SE) indicated that they believed the automated process of EMCS to be more efficient than the previous paper system, although they had collected no data on this. Officers now devote more time to analysing and evaluating data and information relating to movements when previously they had to spend their time in transmitting paper documents into an electronic system. Lithuanian customs For the 15 Member States which were able to provide some data, the following table shows the times provided, with no irregularities connected with the movement being assumed. A very wide range of times is given for processing a typical movement using the paper-based system (from 0 to 5 hours), while the time taken to process a typical movement using EMCS ranged from 0 to 10 minutes. Those Member States which answered 0 for both pre-and post-emcs situations (AT, DE, EE, UK) were not included in the table. Table 12: Time taken (in terms of staff resources) to process a typical movement as an MS of dispatch, before and after the introduction of EMCS Member State Time per movement (paper-based procedure) BG No data 5 min. CZ 30 min. 10 min. FI 6 min. 0 HU 120 min 6 min. Time per movement (EMCS) LT 30 min. 9 min. (0.15 hrs) LV 20 min. No data PL 3-5 hrs (for alcohol); 0.5 hr (for other goods) RO No data 0 SI 3 min. 1 min. SK 60 min 10 min. Source: Questionnaire to Member States, Q hrs (for alcohol); 0.25 hrs (for other goods) Those Member States which gave answers of 0 for the paper-based arrangements clarified that this was because no resources had been required, as they had not been systematically handling the AAD when the paper-based arrangements were in place. For those answering 0 for handling EMCS movements, it was generally indicated that this was because there was no manual intervention in the processing of e-ads. The average time saved in hours per movement was reported to be 35 minutes (0.59 hours) 62. This means that in 2014 alone, the EMCS should be credited with saving 61 Several administrations explained that such procedures were often done by regional/local customs offices with no central aggregation of information. 62 This is the average time saved calculated on the basis of those countries which provided data (excluding the outlier of Poland). 54

55 more than 1,267,026 hours 63 (about 720 full-time individuals, assuming 8 working hours per working day and 220 working days per year) for those administrations of the Member States which reported a positive change. Economically quantified, this means that the EMCS has resulted in savings of between EUR 27.5 million 64 or EUR 37 million 65 (depending of the job profiles of the persons involved) in 2014 alone. Other aspects of the Directive 10 out of 27 Member States (AT, BE, DE, FI, IE, LT, LU, LV, NL, SI) indicated that some particularly time-consuming activities were involved when implementing the requirements of Directive 2008/118/EC. Dealing with shortages and irregularities was the most frequent aspect identified as time-consuming by a number of Member States. The time-consuming issues identified included: Dealing with shortages, excesses and irregularities; Member States having a different understanding of the beginning, duration and completion of a transport process under duty suspension; Issues related to information exchange covered by EU Regulation 389/2012 (e.g. following the cancellation of an e-ad, or change of destination); Customer service: informing new customers about EMCS and its use; Customs and excise coordination. From the evidence collected, it appears that the vast majority of resource-intensive issues are related to specific aspects of the EMCS (these issues, such as shortages and errors, are discussed in Chapter 6 Practical Problems) rather than any routine aspect of EMCS movement. Overall, as an electronic system EMCS is clearly more efficient than the previous paper-based arrangements. 1.3 Impact of the EMCS on economic operators EMCS represents a significant improvement on the paper-based system. The main benefits reported related to the ability to follow up movements (for both sender and receiver), to ease auditing, and to monitor any increase in the efficiency and quality of movement documentation. The responses were mixed in terms of the impact of the EMCS on the costs of compliance with the rules; evidence collected in the context of the study suggests that when movements are completing normally and there are no practical problems, the EMCS is more efficient than the previous paper-based arrangements. 63 Average time saved per movement * number of movements - Based on the assumption that the average time saved has also applied to those countries which have reported a positive impact on time-per-movement saved between the paperbased system and the EMCS but have not provided a precise quantification of it. The MSs which reported no change (AT, DE, EE, UK), in addition to the outlier of Poland, have been excluded from this calculation. 64 This is based on the average hourly ISCO Major group 3 cost (calculated after excluding AT, DE, EE, PL and UK). As far as the business and administration sector is concerned, the ISCO Major group 3 includes administrative and specialized secretaries and regulatory professionals associated with the government. 65 This is based on the average hourly ISCO Major group 2 cost (calculated after excluding AT, DE, EE, PL and UK). As far as the business and administration sector is concerned, the ISCO Major group 2 includes finance professionals, administrative professionals and sales, marketing and public-relations professionals. 55

56 4.3.1 Transition to a paperless (electronic) tax environment Once they have access to the EMCS, operators can fill in the draft e-ad in electronic format, which is then electronically validated by the Member State of dispatch before being sent to the Member State of destination. This replaces the previous paper-based arrangements using the Accompanying Administrative Document (AAD); with those, the Member State of dispatch could optionally ask for an extra copy of the AAD. When asked directly about the impact of the EMCS on the costs of complying with the rules as compared to the previous paper-based system, the economic operators gave a wide range of responses. 17% of the respondents (n=228) indicated a significant reduction of costs, and 24% indicated a reduction of costs. However, 22% of respondents signalled that the EMCS had led to additional costs, and 8% thought it had generated significant additional costs 66. Figure 22: The cost impact of EMCS compared to the previous paper-based arrangements (N=228) This pattern is remarkably similar to the findings from a consultation of traders conducted by DG TAXUD in the context of a report on Decision No 1152/2003/EC which covered the creation of the EMCS 67 : 38% of the trader respondents thought that the administrative costs of the operation of the EMCS compared with the costs of operating the previous arrangements under Directive 92/12/EEC were lower (24% - higher; 38% - don t know.) 68 When the responses are broken down further by size of business, the distribution of answers remains similar, although it appears that slightly more small businesses (those with between employees) perceived a significant reduction in costs. 66 The remaining responses were: No impact: 18%, Don t know/not applicable: 11% 67 However, it must be remembered that the present study is evaluating the legal basis for the use of EMCS, and not just the system itself. 68 Staff Working Document SWD(2013) 490 accompanying the final Report to the European Parliament and to the Council (COM 2013(850)) on the current arrangements, p

57 When we look at the responses per sector of activity, a greater number of respondents from the energy sector perceived additional costs compared to the previous paperbased system. Evidence from the survey indicates that the EMCS has only marginally reduced the time spent by businesses on fulfilling administrative requirements per movement. The figure below shows an increase in the lower time ranges after the introduction of EMCS: 0-2 minutes; 2-5 minutes; 5-20 minutes), with the largest change being seen in the 2-5 minute category. Figure 23: For your business, could you please estimate the average amount of time spent on fulfilling administrative requirements per movement before and after introduction of the EMCS (January 2011)? (N=227) Source: Survey of economic operators, Q29, March-September The in-depth case studies have also analysed the average time spent by companies in order to dispatch excise goods under the EMCS. (see Table 13). The findings from the case studies show that, although the amount of time required to dispatch goods under the EMCS depends on a number of factors (most importantly, the economic sector and the manner in which the EMCS is accessed), the time required ranged between 2-5 minutes in straightforward cases and minutes in more complex situations. In only one exceptional circumstance was the time required reported to be higher than this. In the context of the case studies, all economic operators reported a reduction of time as compared with the paper-based system, (although some were not able to quantify this due to the time passed since last using the paper-based procedures). Those who were able to quantify the saved time reported an improvement of 3 to 15 minutes per movement as a result of the EMCS. If these reported estimates would apply to all economic operators and all movements, it would mean that the EMCS would be credited for helping reduce compliance costs for economic operators by 442, hours (approx. 251 FTE 70 ) in 2014 alone. In monetary terms, this would be the equivalent of savings of EUR million. 69 Average time saved per movement * number of movements in 2014 (approx. 2,950,000 dispatches) Figure based on the assumption that the average time saved applied to all dispatches effected in This could otherwise be stated as being between 147,500 and 737,500 hours of saved time. 57

58 Table 13: Resources needed to effect movements under the EMCS case study examples Sector Turnover FTE involved / Time per movement Alcohol (spirits) EUR 65 mn FTE* (of a third-party provider) for all movements Alcohol (industrial/ denatured) > EUR 100 mn 4-5 FTE; 10 min./movement (previously 15 min. with paper) Alcohol n/k 6 FTE; 5-10 min. / movement Alcohol EUR 1.3 bn 8 FTE; 10 min. / movement Energy EUR 1 bn 20 FTE* A few minutes/movement Energy EUR 530 mn 7 FTE* min./movement EMCS access Service is outsourced 72 Third-party software Third-party software (outsourced) 73 Platform provided by authorities Integrated system Web-platform Energy EUR mn Energy EUR 1.5 bn 43 FTE* 2-5 minutes Energy products (gas oil/jet fuel etc.) EUR mn Tobacco EUR 1.4 bn 6 FTE* 15 min. Tobacco EUR mn 2 FTE* 15 min./movement by ship or road; 60 min./movement by train 1 FTE* 2-5 minutes per movement (previously 5-20 min. with paper) 3 FTE* 2-5 minutes per movement (previously 5-20 min. with paper) Platform provided by authorities Own software Third-party software Third-party software Third-party software *FTE = Full-time employees: staff employed to use the EMCS and ensure compliance with the current excise legislation. However, when the respondents were asked about the advantages of EMCS, the benefits of an electronic system are more clearly signalled. From a list of options, the respondents (n=203) ranked the top 3 benefits of EMCS in terms of how they have facilitated intra-eu trade 74. The most frequently mentioned benefits were: It is less time-consuming (84 respondents); It is easier to monitor movements (80 respondents); It decreases the use of paper (39 respondents). 70 Assuming 8 working hours per working day and 220 working days per year 71 Figure based on ISCO 2 average EU hourly earnings of 32.1 EUR/hour. If ISCO 3 average EU hourly earnings of 23,2 EUR/hour would be used, this would amount to EUR 10.2 million. 72 Cost: approx. 11,500 EUR / year. 73 Costs 7,500-8,500 EUR / month. 74 The option of no particular advantage as compared to the previous paper-based system was also available. 58

59 4.3.2 Costs of setting up the EMCS The variation in cost impact on businesses of the introduction of the EMCS can potentially partly be explained by the perceived costs of setting up the EMCS for a business: 31% of respondents (n=227) consider that the IT set-up and running costs of the EMCS were particularly resource-intensive. This was actually perceived to be a bigger problem for larger businesses: 45% of large businesses pointed to this aspect as being resource-intensive. For smaller businesses, access to the EMCS seemed to be a bigger concern. A greater proportion of smallbusiness respondents identified this as being resource-intensive compared with other size categories. When asked, the respondents also considered the costs of setting up the system to be the main disadvantage of the EMCS. 75 However, almost twice as many respondents reported no disadvantages with EMCS compared to the previous paper-based system. Economic operators typically have the option to connect to the EMCS using either a web-based application provided by the tax or customs authorities, or third-party software. Just under half of the respondents (48%; n= 240) reported connecting using the application provided by their tax or customs authority. As one might expect, the IT set-up and running costs were identified as being more resource-intensive by those running third-party software, although those who accessed the EMCS in this way also reported that generating the e-ad was a less resource-intensive activity than did those who accessed it using a web-based platform provided by the authorities. Operators responding to the survey were asked to estimate the total costs of complying with the rules, distinguishing between the total costs of setting up EMCS and the subsequent annual running costs. Figure 24 shows that the set-up costs of the EMCS are considered significant in relation to the annual running costs. 75 I see no disadvantages [with the EMCS] when compared to the previous paper-based system : 82 respondents. The costs of setting up the system are too high : 40 respondents. 59

60 Figure 24: Please give a rough estimation of the total costs for your organisation in terms of purchasing and operating technological equipment (IT hardware, software, etc.) with the specific purpose of complying with the current excise arrangements (i.e. EMCS) (N = 226) 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% Total set-up costs Total annual running costs 5.0% 0.0% Source: Survey of economic operators, March-September For micro-enterprises (between 1-9 employees), the set-up cost frequently appeared to be below EUR 500, although the majority of respondents in all size categories responded that they did not know the total set-up costs. Nor did the majority of respondents 76 know the annual running costs. However, of those that provided an estimate, the most frequent was below EUR 500, although the estimates ranged widely. In some cases, estimates rose to between EUR 5,000 and 10,000 for certain small businesses (between 10 and 50 employees) Most resource-intensive activities when complying with the rules Identifying the most resource-intensive activities when complying with the current arrangements shows that the correction of errors in the e-ad (selected by 54% of respondents) and communication with the relevant tax or customs authorities (46% of respondents) were considered to be the most resource-intensive activities. 76 N=226 (total respondents to the question); 96 respondents did not know the total annual running costs. 60

61 Figure 25: Which activities do you consider particularly resource-intensive (in terms of time spent and/or direct costs associated with them) in complying with the current excise legislation? (N=227) 0% 20% 40% 60% Gaining access to the use of EMCS (N= 33 ) 15% IT set up and running costs of EMCS (N= 70 ) 31% Filling out and submission of the e-ad (N= 32 ) 14% Correction of errors in the e-ad (N= 123 ) 54% Communication with the relevant tax or customs authorities (N= 104 ) 46% Other (please specify) (N= 31 ) No activities are particularly resource intensive (N= 22 ) 10% 14% Don t know / not applicable (N= 11 ) 5% * Respondents could select multiple answers; therefore the percentages shown in the figure may exceed 100%. The N in the title refers to the unique number of respondents answering the question, whereas the N for each answer refers to the number of responses relating to each individual answer. These may differ when the respondents are operating in more than country. Source: Survey of economic operators, March-September The IT set-up and running costs of EMCS (31%) and gaining access to the EMCS (15%) are considered to be less resource-intensive than error correction and communication with the authorities 77. Considering that the vast majority of movements complete normally (see Section 4.1), this suggests that overall the transition to a paperless environment has had a positive impact, but that practical issues with a small number of movements may imply a significant expenditure of resources to rectify them. (Operational issues are discussed further in Chapter 6.) 77 However, it must be remembered that all respondents to the survey were already authorised and using the EMCS, and therefore the focus of their attention was likely to be on issues connected with its day-to-day functioning, rather than on the initial set-up costs. 61

62 1.4 The EU added value of the EMCS From the perspectives of both cost and control, the evidence indicates that only a European-wide system can provide the uniformity and harmonised conditions necessary to ensure the proper functioning of the internal market Efficiency gains from acting at EU level The European added value is understood as the additional gains stemming from acting at the EU level versus a national initiative, a multilateral initiative, or even a different international initiative. Any analysis of EU added value in the context of Directive 2008/118/EC must take into account the fact that excise duties are levied on excise duty goods while they are allowed to move freely within the EU s customs territory. The EMCS is one of several trans-european IT systems partly financed by the EU Fiscalis programmes. There are clear efficiency gains in having a common infrastructure that allows the secure and rapid exchange of electronic tax information between Member States. The added value from working at EU level through common IT platforms was assessed in the Final Evaluation of the Fiscalis Programme (2013). Without an EU-wide programme such as Fiscalis 2013, to develop these systems commonly, ensuring the necessary interoperability between Member State applications would be very challenging in terms of technical sophistication and associated financial cost. 78 Furthermore, the central coordination role played by the Commission, and the governance of the EMCS that brings together all 28 Member States, brings clear efficiency gains compared with any possible bilateral or international initiatives. Having a forum for the agreement and central coordination of common rules (the legal aspects) and specifications (the technical aspects) for the functioning of the arrangements helps to prevent duplication of effort. One example is the cost savings associated with the development of common conformance testing tools (to help Member States ensure their systems meet the necessary functional and technical requirements). A description of EMCS governance and set-up can be found in Appendix 6: Operational Context. A clear majority of the Member States stated that the results achieved by the EMCS (in terms of costs) could not have been reached by national or international initiatives. Just under half (13/27) of the Member States (AT, CY, DE, DK, FR, HU, IE, LU, LV, NL, RO, SI, [Without the EMCS] it would have been almost impossible to exchange data on a real-time basis between two or more Member States. Spanish tax agency (AEAT) SK) disagreed that similar results could have been achieved by national or international initiatives Final Evaluation of the Fiscalis 2013 programme, June 2014, Ramboll, p. 111, p 129. See also discussion on page 117: Currently, approximately 60 European IT applications/systems use the CCN network, an approach which, according to DG TAXUD, has yielded savings as a result of the sharing of the same infrastructure and service structure. 79 Seven Member States (CZ, FI, HR, IT, PL, SE, UK) neither agreed nor disagreed with the statement, and two (BE, EE) responded don t know. One Member State (EL) agreed, though with the qualification that Bilateral or international initiatives could contribute additionally to the fight against fraud, but they cannot replace the EU action. 62

63 Figure 26: Possible cost reductions through bilateral or international initiatives 80 Four Member States (BG, ES, LT, PT) strongly disagreed with the proposition that bilateral or international initiatives could have reduced administrative costs, stating that EU action is the optimum way of achieving this result, and that having bilateral or international agreements would have led to as many systems as there are trade relations between countries. One administration stated it would have been impossible to exchange real-time data without EMCS, as no interconnection of national excise applications would actually be possible Increased effectiveness from acting at EU level The requirements of the internal market dictate that any movement and control system must provide effective supervision across the entire EU customs territory. Therefore, a system that can be used EU-wide with the same (or near) predictability and uniformity by all established economic operators is vital. For the vast majority of products and movements, the arrangements have provided a clear and consistent framework for economic operators involved in the moving and holding of excise goods. (See Section for a fuller discussion of the contribution of the arrangements on the functioning of the internal market. A key advantage identified by Member States of acting at EU level was the uniformity provided by EU rules. Uniformity was also considered important in terms of preventing fraud. One Member State (IE) noted that the existing system, with its EU-wide link Uniformity on all aspects of EMCS throughout the EU is essential. Irish Revenue to SEED, provides a degree of assurance that the other party in each movement is a legitimate trader. Several Member States (e.g. DE, SI, SK) also indicated that if only bilateral or international initiatives were in place, additional efforts and costs would be involved in establishing different systems in different Member States, and that an EUwide consistent implementation could not be guaranteed. An effective enforcement system is also necessary to ensure that rules establishing a clear and consistent framework are enforced. The EU is the optimum forum for implementing rules that apply to all Member States in the internal market, as it has 80 Q19, The same reductions of administrative costs for your administration could have been achieved through a national/bilateral or international initiative (i.e. in the absence of EU action). 63

64 the institutions and enforcement mechanisms required for ensuring legal certainty across all the Member States. There is also evidence to suggest that developing the necessary IT systems (e.g. the EMCS) within the EU mechanisms and forums available also helps to ensure the better application of EU tax law. The Fiscalis 2013 evaluation concludes: While the development of the functional and technical specifications of the IT systems was done mainly in more formal forums such as the EMCS Computerization Working Party or the Standing Committee on Administrative Cooperation (SCAC), Fiscalis 2013 joint actions (e.g. seminars, project groups) permitted Member States to align themselves on the interpretation of certain legislation necessary for IT systems to be implemented.. A coordinated fight against fraud Because of the cross-border nature of tax fraud in Europe, a coordinated response for tackling it is also necessary. Just fewer than half (14/27) of Member States disagreed (AT, DE, EL, ES, FR, IE, LU, NL, PL, PT, RO, SE) or strongly disagreed (LT, SI) that similar results could have been achieved in the fight against fraud through bilateral or international initiatives 81. These Member States indicated the importance of EU action to combat fraud. Only action at EU level could allow the creation of a common, unified system, which is an essential condition for effective action in this area. (PL) Only a consistent, binding regulation would be a useful and efficient basis. (AT) A consistent implementation could not be guaranteed; a complete Europe-wide surveillance without gaps would probably not be possible. (DE) PT also disagreed with the statement, but pointed out that sometimes bilateral/international initiatives allow for more extensive investigations. The Netherlands indicated the need to also incorporate risk management at the EU level in order to achieve a general approach in all Member States. In this respect, they stated the need for an EMCS Strategic and Tactical plan. Sustainability of impacts One aspect of EU added value is the sustainability of impacts if the intervention were to be discontinued (i.e. if EU action hypothetically were to cease). If central coordination by the Commission ceased, the maintenance and operation of the Common Domain would no longer continue, and all 28 Member States would be responsible for mutually connecting their respective national excise applications themselves, a feat that would be virtually inconceivable in terms of cost and consistency. Similarly, with no common legal basis to govern the movement and control procedures, one could imagine many more disputes and costly resolution procedures. In this sense, the continued coordination and action at EU level is vital to the successful functioning of the arrangements Member States neither agreed nor disagreed with this statement (BG, CY, CZ, FI, HR, HU, IT, LV, UK). One Member State (SK) agreed, and 3 Member States (BE, DK, EE) responded don t know. 64

65 4.4.3 Impact on trade Businesses were asked directly whether the introduction of the EMCS had helped to increase their business s intra-eu trade of excise goods (Q32); fewer than one respondent in five (17.5%) agreed or strongly agreed with the statement 82. The share of respondents who agreed (17.5%) were further asked to estimate the increase in intra-eu trade as a result of the introduction of the EMCS (Q33). On average, economic operators estimated that their own intra-eu trade had increased by an average of 16.13% 83. However, the economic operators provided more unified responses when asked whether the current arrangements offered clear and consistent rules for the intra-eu movements of excise goods (Q34). 49.5% strongly agreed or agreed with the statement, while 31.3% strongly disagreed or disagreed 84. While we cannot draw clear conclusions from this, it can reasonably be assumed that an impact on operating costs and clear and consistent rules are features which help to create favourable conditions for trade within the internal market. 1.5 Key points The EMCS is used to supervise the vast majority of movements of excise goods between EU Member States. It is estimated that approximately 99% of excise duty goods moving within the EU travel under duty suspension. The electronic tax environment is clearly more efficient for tax and customs administrations, eliminating paper and freeing up resources for other activities such as better-targeted control of high-risk movements. Evidence suggests that the time and resources required for traders to comply with the rules have been somewhat reduced by the EMCS; however, the benefits of the electronic system include the elimination of paper and an easier overview of open movements. These benefits are recognised by both small and large businesses. The EU added value of the current arrangements cannot be overstated. The conditions necessary to allow traders to move goods between Member States whilst ensuring adequate control could not reasonably be achieved (in terms of effectiveness or cost) through bilateral or international initiatives. 82 A larger proportion were indifferent or did not know. One third of the respondents (33.6%) neither agreed nor disagreed with the statement, and slightly more than one quarter (26%) declared they could not give an answer. 22.9% disagreed or strongly disagreed with it. 83 This figure does not take into consideration inapplicable responses, namely the responses of those economic operators who stated they could not estimate the increase in intra-eu trade; those who after selecting the option Other did not specify the amount of estimated increase in intra EU trade; and those who provided a contradictory response, estimating an increase in intra EU trade of 0% after agreeing with question % strongly agreed with the statement, 39.5% agreed, 12.6% neither agreed nor disagreed, 29.1% disagreed, 2.2% strongly disagreed, and 6.7% responded don t know. 65

66 5. The fight against fraud This section contains the findings of the evaluation in relation to the effectiveness of the current arrangements in terms of combating fraud. The section begins with an overall description of the extent of fraud movements, as reported by Member States. Following this contextual section, the report presents the findings related to the impact of the arrangements in general, and of the EMCS in particular on the fight against fraud, highlighting inter alia the advantages and disadvantages reported. 1.1 Current estimated levels of fraud Tax fraud To understand the extent to which the EMCS has addressed the need for a control and early warning tool for intra-eu movements of excise goods under duty suspension, in the survey of national tax authorities we asked for estimates of the presence and extent of smuggling in the Member States. In particular, the following information was sought: volumes smuggled, tax revenue lost (in local currency), and the percentage from extra-eu countries (as a percentage of the total value) for each of the three categories comprising alcohol, tobacco and energy. It should be noted that the availability of estimates of smuggling and fraud in general depends very much on the resources that the Member States devote to such problems. Because of the illegal nature of the variable being measured (illicit trade), data is also recorded in very different ways: it may measure volumes seized, the value of the duty and/or VAT if the seizures were all sold, or measures of the tax gap for the total population (based on estimates for the total population). In the survey, we asked for information or estimates regarding the circumvention of domestic taxes in the Member States (including smuggling, but excluding intra-eu shopping), and the responses given were very different. Most Member States reported amounts relating to the amounts seized by their investigation services. Adding the total amounts seized for the several responses obtained (from BE, BG, CZ, DE, DK, EE, FI, HR, HU, LT, LV, NL, RO, SE, SK), we calculated a total volume of the order of 105 and 144 million litres of alcohol and energy products respectively, and 13,000 tonnes of tobacco. It is also worth mentioning that in 2 Member States (LU and CY), no fraud was detected in the territory 85. The implied tax revenues lost also has different reporting practices across Member States: in some cases only revenues from excise duties are reported, in other cases, data also include revenues from VAT (HU), for some other Member States data is only available as estimates. The total lost tax revenue reported by BE, BG, CZ, CY, DE, DK, EE, FI, HR, HU, LT, LV, NL, RO, SE, and SK is of the order of 31 (alcohol), 232 (tobacco), and EUR 67 (energy) million. In IE, survey estimates indicate that 11% of cigarettes consumed are illicit (which implies a lost tax revenue of approximately EUR 210 million in 2013, using the unrealistic assumption that smokers would consume the same amount of more 85 Although in CY, local companies have been set up to illegitimately buy and sell across EU Member States. 66

67 expensive tax-paid cigarettes). In the UK, tax gap estimates put the lost tax revenue in the order of 1.6 (alcohol), 2.6 (tobacco), and EUR 0.5 (energy) billion. These findings reveal the absence of consistent reporting of illicit trade (and fraud) across the Member States, or even a lack of empirical information about the extent of the problem (with the exception of recorded seizures).estimates differ across Member States and also the methodology used for estimating fraud. In many instances (and with the exception of the UK and Ireland) information is based on seizures which would underestimate the magnitude of the problem (as they do not account for undetected fraud). As a result, Member States have no clear evidence of the total amount of excise and VAT lost in the EU on alcohol, tobacco and energy products. In some cases, market studies have reported higher figures for the lost tax revenues. For example, Project SUN 86 has estimated a tax revenue loss of EUR 10.1 billion if the total volume of counterfeit and contraband (C&C) tobacco had been consumed legally in the various Member States 87. Channels of fraud We have also investigated the main Member States of origin and destination of detected fraudulent movements. Our information is based on the responses given by the national authorities regarding the origin and destination of fraudulent movements (including the top five Member States from which fraudulent movements of goods originate; and the top five destinations for fraudulent movements, depicted by order of magnitude of the fraud, from greatest to least). Most of the fraudulent movements detected were from trade going to FR, PL, IT, BE, DE, NL, and UK, all of which were reported as being among the top five destinations in the responses of six or more national authorities. The movements originated mainly in IT, DE, BE, SK, UK and PL (see Figure 26 below). It should be noted that this analysis is based on ordinal responses (ranking) provided by Member States which do not allow a comparison of the volume of movements across jurisdictions. In any case, the results do not show differences which allow a separation of Member States or a clear delimitation of channels of fraud. 86 KPMG: Project SUN: A study of the illicit cigarette market in the European Union, Norway and Switzerland 2014 Results. 87 Estimated volumes of tax lost (in million Euros in descending order, assuming all C&C had been consumed legally): France: 2,400; United Kingdom: 1,980; Germany: 1,500; Spain: 810; Italy: 770; Poland: 730; Greece: 666; Romania: 463; Bulgaria: 247; Ireland: 238; Netherlands: 192; Sweden: 149; Finland: 123; Lithuania: 103; Hungary: 100; Belgium: 94; Latvia: 80; Austria: 56; Croatia: 53; Czech Republic: 48; Estonia: 41; Slovenia: 31; Denmark: 21; Portugal: 16; Cyprus: 9; Slovakia: 7; Malta: 6, Luxembourg: 3. 67

68 Figure 26: Origin and destination of the fraudulent movements detected (counts, in relation to reporting Member State) Countries of destination Countries of origin Source: Survey of national tax authorities; answer to Q To what extent do the general arrangements contribute to the reduction of fraud? Effectiveness of audits There is some uncertainty as to how anti-fraud operations have evolved as a consequence of introducing the EMCS. On the one hand, it may be that such operations have decreased because of more effective monitoring; on the other, it could be that the EMCS has given the Member States information about fraudulent movements that was previously unavailable, or has allowed more audits to be undertaken using the same resources, all of which may have resulted in an increase in the number of audits. There is general agreement that the introduction of the EMCS has reduced the cost of audits. 17 Member States agree or strongly agree with a statement to that effect (DE, DK, EL, IT, LV, PL, PT, CY, RO, BG, CZ, HR, SK, UK). Another 7 Member States (FI, IE, SE, LU, AT, EE, and FR) neither agree nor disagree, or do not know, and only NL and ES disagree. The responses from NL and ES should be qualified accordingly: In the case of NL, in a follow-up interview the respondent noted the clear advantage in EMCS compared to the paper-based system. The main point of disagreement arises from the fact that audits have not diminished, as these still require physical visits. There is no further explanation from ES, although the authorities noted in other questions that the overall handling of intra-eu movements is overall more efficient, compared to previously, as everything is done automatically. 88 We would appreciate if you could provide the name of the Member States of origin and destination of detected fraudulent movements in relation to your country. Please provide, to the best of your knowledge, the top 5 Member States from which fraudulent movements of goods originate and whereby your Member State is the destination (in order of magnitude of the fraud). Please also provide the top 5 destination Member States that are used as a destination for fraudulent movement of goods where the starting point of movement is your Member State (in order of magnitude of the fraud). 68

69 Analysis of control reports As part of the follow-up and administrative cooperation between administrations, EMCS allows the creation of control reports (IE717). Such reports are linked to a specific movement via the ARC, and are created with the purpose of requesting additional information or requesting some form of action (e.g. a physical check). Introduced in January 2012, the usage of control reports is still limited, and is used by just a few Member States, although the numbers are on the rise (total control reports went from 11,259 to 15,171 between 2012 and 2014). In 2014, three Member States requested more than 13,118 reports (representing 85% of the total reports): PL (7,493), RO (3,270) and UK (2,355). Other Member States (FR, CZ, HU, AT, DE, BE, PT, SE) requested less than 1,000 control reports in 2014, and a further 12 requested less than 10 reports (NL, IT, SK, EL, LU), or no reports at all (BG, CY, DK, EE, ES, FI, HR, IE, LT, LV, MT, SI). On average, the number of control reports is around 0.5% of all e-ads in the EU, the major exceptions being PL and RO (control reports represent 15% and 17.5% respectively of all their e-ads), and to a lesser extent the UK (1.6% of all e-ads 89 ). Business Statistics Reports also makes it possible to examine the types of control, the reasons for control, and the control conclusion for 2014 at an EU aggregate level 90 : The types of controls requested were unevenly split between physical controls (62%) and documentary controls (37%). The reasons for control are mainly random controls (about 50%), or following a request for assistance (only 9%). All remaining controls are for other reasons that are not specified. The control conclusions show satisfactory results (80%) or minor discrepancies (18%), and only in less than 1% of cases is interruption recommended. Advantages of the EMCS We also investigated the main advantages and disadvantages of the EMCS system as an early warning system for detecting irregularities. The results of the survey showed that: The main advantages of the EMCS relate to the access to information and risk analysis/monitoring that the system facilitates. Hence, around 16 Member States highlighted such advantages as basic data is available at earlier point in time, early access to information, or information available online and in real-time. Similarly, 16 Member States point to the increased availability of information that is used for efficient monitoring and risk analysis. 3 Member States specifically mention that EMCS allows better administrative cooperation, strengthening of the cooperation between Member States, and the facilitation and enhancement of inter-community trade through electronic means. Finally, one Member State noted the clear advantage compared to the paper-based system, while 2 other respondents highlighted the better quality of the data (accurate trade statistics and low error rates). 89 See Table 8 in Appendix 8 for detailed figures. 90 See Table 9 in Appendix 8 for detailed figures. 69

70 Specific weaknesses of the EMCS Respondents were also asked to identify the main shortcomings (problems) from using EMCS as an early warning system. The majority of responses related to the type of data being recorded in the system, and the reporting system s inconsistencies: There is a lack of important data, according to respondents in SI, DE, FR and SK. This includes the inability to update the data if the transport method is changed, and the absence of checks on the validity of vehicle registration plates or details regarding the transport routes. Other Member States mention that data for monitoring and risk analysis are lacking or are not compulsory (AT); the data are flawed (UK); or entries are inconsistent (IE); and the fact that not all data are included (for example, according to the HU respondent the fact that wine consignments are not covered is a limitation). Five Member States (DE, FR, BE, SI and EE) pointed to the absence of a requirement to provide information regarding the start and end times of the transport process, and the lack of an automatic check of the time limits for trips is reported to be a shortcoming. This is reflected in such views as it is almost impossible to have a good overview of what really happens with the goods, and sometimes the movement is marked as taking too long, but in fact this is not the case. Another major concern relates to the recording of fictitious movements according to respondents in SK, BE, IE and HR (such as making multiple use of a single e- AD), plus the fact that the system allows incorrectly identified transport units to be entered (SI). Four Member States (SI, NL, LV and EL) pointed to the lack of risk analysis at the EU level, or the lack of common risk parameters. Some other comments relate to the fact that legal issues concerning the EMCS aspects of Directive 2008/118/EC which remain unclarified sometimes lead to Member States adopting different approaches. This may affect the handling of irregularities which have occurred or been detected during the intra-community movement of excise goods (according to EL); different CN codes being used (EE); or specifications not always being respected, or messages not being implemented by the Member States (LU). (These issues are discussed in detail in the relevant sections of this report.) Other issues relate to the absence of a legislative basis for performing some administrative actions (such as control reports or event reports); and unsatisfactory links and interconnections between the EMCS and other customs applications (especially export and import procedures when different Member States are involved), leading to manual interventions by economic operators and administrations. The administration in HU would like to see duty-paid movements recorded in the EMCS; DK reports problems with products that evaporate naturally; and FI notes the problem with shipments going overseas (because it is difficult to check whether products have left the EU s external borders). (These particular issues are also discussed in detail in the relevant sections of this report.) Finally, two respondents mentioned the management of guarantees in particular, the fact that guarantees are only managed nationally, and that on some occasions operators may request a small guarantee (for example for a single carton of cigarettes) and then establish movements for millions of cigarettes. (However, in the latter case, authorities have solved the problem by performing a technical correction 70

71 in the EMCS that disallows the reception of goods if the quantities are bigger than those reported by the operator to the authority.) It is worth mentioning that in three instances (PT, CY and SE) the authorities reported no shortcomings or disadvantages, and that the system is superior to the previous one. There was no significant variance in responses for the various product categories (alcohol, tobacco or energy). The survey of national authorities asked for ratings of the specific weaknesses of the EMCS as a monitoring tool, and the extent to which of the following are perceived as factors that facilitate fraud with duty-suspended goods: Flexibility for traders to define travel time in the EMCS; False data in the EMCS regarding the registration mark of the vehicle; False data in the EMCS regarding the goods being moved; Differences in the granting of authorisation to registered traders (such as guarantee requirements); Difficulties in receiving necessary information from other Member States; Movements of non-harmonised goods (which do not have to be recorded in EMCS); False confirmations of the receipt of goods (for movements that started in the respondent s Member State); Absence of a standardised EU-wide risk assessment procedure for assessing the risks connected with traders, movements etc. All of these factors were considered to be of high or medium relevance for more than 20 Member States. This is reflected in Table 15 below. Table 13: Factors that contribute to facilitating fraud Factor High Medium Low Flexibility for traders to define travel time in the EMCS False data in the EMCS regarding the registration mark of the vehicle False data in the EMCS regarding the goods being moved Differences in the granting of authorisation to registered traders Difficulties in receiving necessary information from other Member States Movements of non-harmonised goods False confirmations of the receipt of goods for movements that started in the respondent s Member State Absence of a standardised EU-wide risk assessment procedure for assessing the risks connected with traders, movements, etc Source: Survey of Member States (Q12): For each of the following aspects, please mark the extent to which it is a factor in facilitating fraud with duty-suspended goods. The most likely factors were the flexibility for traders to define travel time in EMCS and the possibility to introduce false data regarding the registration mark of the vehicle (22 Member States believed these were high or medium factors in facilitating fraud, with more than 15 having a high belief that it is a contributing factor). The absence of a standardised EU-wide risk assessment was assessed as high or medium by 24 Member States, although only 13 thought it was a high contributor. 71

72 Other aspects mentioned were the possibility of multiple movements using an ARC code on accompanying document ; a lack of Europe-wide access to all EMCS processes, the lack of interconnection between the EMCS and other customs applications (e.g. ECS, ICS) and received goods with total excise duty exceeding the guarantee. Although it was not specifically mentioned by any Member States, the analysis of the data collected in the study suggests that the inability to identify the denaturant used for S400 could also be regarded as a weakness of the system, especially if correlated with the problems identified concerning the classification of denatured alcohol. EMCS increased coordination between Member States Almost all Member States (25) agreed or strongly agreed that the introduction of the EMCS has contributed to stronger coordination between the Member States in relation to combating fraud. No Member States disagreed with this proposition 91. The most frequent explanations are the advantages relating to: easier cooperation (exchange of information, joint operations, cross-border investigations), real-time data benefits, facilitation of the fight against fraud, monitoring and risk management, and the possibility of an overview of the movements from and to Member States. The UK noted that they would like to see greater use of control reports, explaining that this could help to combat mirror loads (multiple fraudulent shipments using a single ARC). When a roadside check intercepts a fraudulent load, a control report could be generated to flag the corresponding ARC and ensure that it cannot be used elsewhere. The EMCS is protecting the financial interests of the Member States 15 Member States agreed or strongly agreed that the EMCS is protecting the financial interests of their respective countries through effective responses to the types of fraud it is intended to combat. The EMCS makes fraudulent movements more difficult, and better risk analysis can be undertaken. However, though the EMCS has made life harder for fraudsters compared with the old paper-based system, new ways of committing fraud are being observed, and it is relatively easy to avoid the use EMCS. The implementation of a risk management system to improve the effectiveness of the EMCS was also suggested. 5 Member States disagreed that the EMCS has protected their financial interests. This is because "fraud is still possible even in spite of the use of EMCS, although this respondent agreed that since the introduction of EMCS more controls are possible, and that it has helped to regulate many companies, get them out of an area where fraud was easily possible. The main criticism is the belief that the types of fraud which the EMCS is intended to combat are less important today, because much of the fraud has mutated into new forms (mainly involving fictitious movements). A further 6 Member States neither agreed or disagreed, or responded don t know. The main reasons given were that the EMCS does not prevent all types of fraud (in particular, the movement of many risky goods such as lubricants that fall under CN 91 One MS (DK) responded don t know, although they did indicate that EMCS had made it easy to cooperate with other Member States. UK neither agreed nor disagreed, because they believed that coordination and cooperation takes place regardless, irrespective of whether the EMCS or the paper system is being used. 72

73 code , of which 99 are not covered by the EMCS 92 ), and the need for a coordinated risk analysis, because currently it is not possible to track shipments in the supply chain in other MS warehouses, so that it is difficult to have an overall picture of the movements across the EU (which would improve the information available for risk analysis). The suggestions for improvement mentioned by the Member States were: establishing a normal duration of transport in the EMCS (if there are incompatibilities, the operator that had registered the movement would have to explain the delay) and a European risk analysis system which would include: a database of movements; the developing of risk parameters for detecting unusual patterns (e.g. an alcohol producer intending to move cigarettes); and data provided by all Member States in relation to how long a particular operator has been in operation, where else they trade, and whether they are currently subject to any investigations. Relevance 19 Member States believed (agreeing or strongly agreeing) that there is still a need for the EMCS in their country, despite the evolution in certain types of fraud. Only 1 Member State disagreed 93, while the rest of the respondents did not know, or neither agreed nor disagreed 94. The need for the EMCS is reinforced by opinions that call for widening the scope of the EMCS to include fraud in lubricating oils, raw tobacco, the need for analysing the functional specifications of EMCS and to continue the development, developing a system to include duty-paid movements, and noting that the evolution in the types of fraud does not reduce the need for the EMCS and that EMCS needs to be strengthened. It was recognised that whatever EMCS changes are proposed, they need to strike a balance between fraud prevention and trade facilitation, so as to maximise the benefits of the EMCS. EU action As many as 14 Member States disagreed (AT, DE, EL, ES, FR, IE, LU, NL, PL, PT, RO, SE) or strongly disagreed (LT, SI) that similar results relating to the fight against fraud could have been achieved without EU action (i.e. through a national / bilateral or international initiative). This is because only a consistent, binding regulation would be a useful and efficient basis, a consistent implementation could not be guaranteed across the EU, there is lack of interest for international cooperation in some MSs, and multitude bilateral agreements would be needed which are difficult to negotiate because of divergent national interests. As a result, bilateral or international initiatives cannot replace the EU action and EU action is needed in this area. However, as many as 12 Member States neither agreed nor disagreed with the proposition or responded don t know. One (SK) stated that cooperation through multilateral control could be achieved, but acknowledged that overall, cooperation 92 EMCS does not track these goods, because they are not currently considered to be excise goods. 93 There is only one instance (BG) where the authorities believed that the evolution in fraud had reduced the need for the EMCS, although they did recognise that the information obtained through it has been helpful for gathering additional evidence for any violation Member States (EL, LU, PL, DK and LV) neither agreed nor disagreed with the statement or responded don t know, although in some cases it was recognised that the EMCS is still an important tool in order to combat fraud. 73

74 across the EU was better achieved on the basis of a clearly defined legislative framework. Some of these responses did clarify that it was more effective to have an EU system instead of bilateral / national [cooperation agreements], and that fight against fraud was better achieved at EU level, as this ensured consistency (because at the national level, there are different aspects and problems ). One Member State believed that the EMCS works well as an extra tool but can be an additional tool to working on a bilateral level, while another stated that bilateral initiatives are currently useful to help fight fraud involving mineral oils, but at the same time EMCS is helpful for determining new contacts between warehouses that store alcohol. Only 2 Member States (EL, SK) believed that similar results connected with combating fraud could have been achieved through a national / bilateral or international initiative, but they did not provide any explanations about how this would have been achieved. 1.3 Key points The EMCS is protecting the financial interests of Member States. The main advantages of the EMCS are those relating to the access to information and the risk analysis/monitoring facilitated by the system. There is scope for improvement with respect to the type of data being recorded in the system and the inconsistencies in the reporting system. There is general agreement that the introduction of the EMCS has reduced the cost of audits. The EMCS has increased coordination between the Member States. Across the EU and among the Member States, there is still a need for the EMCS. Similar results relating to the combat of fraud could have not have been achieved without EU action. 74

75 6. Practical problems with the current arrangements While the vast majority of movements under duty suspension complete normally and without problems, evidence collected in the context of this study confirmed that stakeholders continue to face operational problems in a limited number of areas. The survey of stakeholders conducted by the Commission on EMCS in identified areas where stakeholders had experienced practical issues and perceived problems with the operation of the EMCS. This study examined the following: Shortages and excesses Losses during transport (and tolerances) Errors in the e-ad Change of destination (following rejection/refusal) Splitting of movements of energy products. This chapter describes each in more detail, explores the impact of the problem, and puts forward suggestions for potential improvements that are based on consultation with administrations and traders. The current arrangements for determining the liability for paying the excise duty due when shortages occur are a source of confusion both for Member States and for economic operators, leading to increased administrative burdens for both. 1.1 Shortages and excesses While excesses appear to occur less frequently and are less problematic, variation exists between Member States in how excesses are dealt with, leading to uncertainty for both sets of stakeholders What is the problem? The goods delivered may not match what is described in the e-ad (shortages, excesses or discrepancies). In this case, Directive 2008/118/EC (Article 10) lays down the rules for assessing which Member State has the right to claim the corresponding excise duties, depending on where the irregularity is deemed to have occurred This was done in the context of evaluating Decision 1152/2003/EC to computerize the movement and surveillance of excise products. The results are detailed in Staff Working Document SWD(2013) 490 final. 96 Paragraph 11 of the preamble to the Directive 2008/118/EC explains the logic: Excise duty should be due in the Member State on whose territory the irregularity has been committed which has led to the release for consumption or, if it is not possible to establish where the irregularity has been committed, it should be due in the Member State where it has been detected. Where excise goods do not arrive at their destination and no irregularity has been detected, the irregularity shall be deemed to have occurred in the Member State of dispatch. 75

76 Table 14: Key terms shortages and excesses Loss Shortage Excess Irregularity Release for consumption No excise duty is chargeable on goods which are totally destroyed or irretrievably lost during the course of a consignment. Member States are competent to decide what constitutes an acceptable loss (applying tolerance thresholds to some goods), and at what point it is considered to be a shortage. The amount of goods delivered is less than that identified in the e-ad, and excise duty can become chargeable on this amount if it is deemed to be released for consumption. The amount of goods delivered is greater than that identified in the e-ad. Any situation occurring during a movement (other than loss or destruction of goods) due to which the movement, or part of the movement, has not ended as required (i.e. all the goods were received or exported). Excise duty becomes chargeable at the time of, and in the Member State of, release for consumption. Release for consumption means: (a) the departure of excise goods, including irregular departure, from duty suspension. 97 The Directive sets out two possibilities: either Article 10(2) or Article 10(4) applies. The provisions of the Directive and a short explanation of what they mean in practice can be found in Appendix 6: Operational Context. The current procedure for shortages or excesses as provided for in the arrangements is the following, as described by the functional specifications (FESS) 98. It must be noted that the FESS assumes that this procedure is being followed by traders. In practice, the communication details may vary from Member State to Member State. Upon receipt of goods, the consignee issues a Report of Receipt (IE818), in which he indicates any discrepancy, shortage or excess he has observed relating to the delivered goods; the consignor and the consignee have the opportunity to submit explanations regarding these shortages or excesses. The consignor sends these explanations to the Member State of dispatch, which in turn forwards them to the Member State of destination. Similarly, the consignee sends the explanations to the Member State of destination, which in turn forwards them to the Member State of dispatch. At any time during the movement, but in particular after its completion (issuance and receipt of the Report of Receipt), any Member State that thinks it has the right to claim duties in respect of any possible shortages may send the results of its observations to the Member State of dispatch, in order to help the latter to further assist in the recovery of duties. 97 Release for consumption also means: (b) the holding (storing) of excise goods outside duty suspension, (c) the production of excise goods, including irregular production, outside duty suspension, (d) the importation of excise goods, including irregular importation, unless they are placed immediately under duty suspension. 98 FESS v3.61, Section 2 Core Business. 76

77 The following is a visual representation of the procedure to be followed when accounting for shortages (depending on where they occurred), as set out in the Directive and functional specifications 99. Figure 27: Which Member State can charge the excise duty due on the shortage? Sources: Directive 2008/118/EC and FESS v3.61 Core Business; Own analysis. However, in practice the detection of shortages can be a source of increased administrative burden for Member States, and it can also create issues for economic operators. A minority of Member States treat the detection of shortages as taking place after the movement has ended. If the goods are deemed not to have arrived at their destination, and no irregularity has been detected during the movement, then Article 10(4) applies (see figure above). However, Directive 2008/118/EC does not clearly define the end of the movement, as there is no clear event which marks the arrival of the goods. Another practice considers the movement as ending when the consignee takes delivery, with delivery being defined as the handing over of a receipt to the carrier. The receipt can include an endorsement indicating visible losses which are considered to have occurred during the movement. The shortage would therefore be deemed to have taken place during the movement in the Member State where the irregularity was detected, meaning that Article 10(2) can be invoked. In the absence of a claim shortage being submitted within 7 days, once the commercial receipt is given to the carrier, any further losses not visible until unloading could be considered as falling under Article 10(4) FESS v3.61, Section 2 Core Business. 100 According to the Commission, both of these approaches are subject to legal and technical objections. From a technical point of view, the EMCS does not provide for multiple Reports of Receipt, which would be necessary to allow for the handling of multiple partial deliveries. This is the subject of ongoing discussion in the Committee on Excise Duties (CED). 77

78 According to the Commission, the majority of Member States hold that the movement includes the process of taking delivery of the goods, and that shortages discovered during the unloading and inventorying of the goods should be treated as irregularities discovered during the movement. This interpretation is supported by the international practice mentioned above in which the consignee has one week from the arrival and acceptance of the goods to inform the carrier of losses that were discovered during inventorying. The main argument against this interpretation is that sometimes the term end implies that the inventorying process occurs at the time of arrival. The distinction is important, because the location where the irregularity takes place determines which Member State is liable to charge the excise duty when a release for consumption is deemed to have occurred, i.e. when the goods come out of duty suspension. Any uncertainty here could lead to lengthy consultation procedures or even tax assessments being issued by more than one Member State (double taxation) Practical impacts Impacts on administrations When asked what the practical problems were in relation to the current rules, eight Member States (CY, DK, EE, ES, FI, HU, IT, UK) reported no practical problems related to shortages or irregularities. 101 However, other Member States did identify problems connected primarily with a lack of clarity regarding when the shortage is deemed to have occurred, i.e. after the end of the movement or during the movement itself. 8 Member States (AT, BE, BG, FR, In Belgium we make use of paragraph 2, while certain other Member States use paragraph 4. Therefore some problems can occur concerning forfeited/confiscated excise goods, because the Member State of Departure doesn't know if a recovery of claims will take place or already took place. Belgian customs and excise FPS finance HR, LT, NL, SI) indicated that the current arrangements lack clarity regarding when the movement begins or ends. It appears that there is a lack of agreement between Member States regarding which paragraph of Article 10 is applicable, which creates uncertainty regarding which Member State is entitled to collect the excise duty due when the consignee declares a shortage. 101 Q34, What are the practical problems created by the current rules regarding the treatment of shortages and other irregularities? 78

79 Figure 28: Practical problems with the rules regarding shortages and other irregularities Seven Member States (AT, BE, FR, HR, NL, RO, SI) also indicated a lack of clarity on when the release for consumption after an irregularity is deemed to have occurred. Dealing with shortages and irregularities was identified by a number of Member States as one of the most time-consuming aspects of implementing the requirements of the Directive 102. If the Member State of destination decides not to provide an exemption for shortages, the recovery of claims takes place in the Member State of dispatch. Belgium explained that this is a cumbersome administrative procedure, and that the Member State of dispatch does not know if a recovery of claims will take place or has already taken place, as there is no legal obligation to submit a message updating the status information relating to the procedure (i.e. regarding whether a Member State has begun a claims procedure). Germany also identified the interpretation of Article 10 as resulting in time-consuming activities, explaining that issues arose from the fact that the competence to raise taxes is located in the Member State of arrival, while the entity liable for tax payments is usually the sender, which is resident in the Member State of departure out of 27 MS (AT, BE, DE, FI, IE, LT, LU, LV, NL, SI) indicated that there were particularly time-consuming activities connected with implementing the requirements of Directive 2008/118/EC. 79

80 The Swedish administration expressed its need for a clearer Article 10 which specifies when and on what grounds the Member State should take action (e.g. how long it must wait before deciding that it has the right to claim excise duty). The lack of clarity regarding Article 10 leads both to time lost for the authorities and loss of excise duty. Despite the existence of provisions to cover such instances (i.e. Directive 2010/24/EU 103 ), one authority has reported cases where it chose not to proceed with its claim because of the lack of clarity surrounding the actions to be taken (even leading to no taxation in some cases). Fourteen Member States indicated that there were other problems relating to shortages and irregularities (see Figure 28 above). The explanations given included: A lack of coordination between administrations and difficulty for administrations in communicating with traders from other Member States in relation to duty claims; A time-consuming procedure for collecting excise duty from economic operators from other Member States; A shortage is sometimes described as a partial refusal by consignees. Latvia explained in more detail the impact of the lack of harmonised provisions for duty collection from the guarantors of international movements when shortages occurred. Box 1: The administrative burden created by international claims Latvia The international claims process is very hard, it takes a lot of administrative resources. Many cases are started and ended without results. We consider that the reason is the lack of possibility to exchange information regarding the reasons of shortage between actors of different Member States. Traders from other Member States usually aren t aware that they are responsible for shortages in other countries and aren t informed about duty rates, tolerances of loss requirements of other Member States etc. Traders usually don t submit the message of Explanations of Reason of Shortage IE871. We think that to improve the situation the EMCS could be updated with information exchange regarding recovery of duty. The Duty Claiming message IE861 is an insufficient tool as it is now. (Latvian Customs) Under the current arrangements, traders can use a message in EMCS (explanations of Reason for Shortage IE871) to submit explanations to their own administration to explain the reasons for shortages. However, monitoring data taken from CS/MISE shows that in all the Member States, this tool is little used. During 2014, Member States sent a total of 11,248 IE871 messages (explanation for reason of shortage). The national systems in 8 Member States did not send reasons for shortages between Member States (BG, CY, ES, HR, IT, MT, PT, SI). Usage by the remaining Member States ranged from 0.01% of the number of e-ads sent in each Member State in the same year 104 up to 1.54% 105. Even the figure for the messages exchanged within Member States is only slightly greater, at 12, Council Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures, Official Journal of the European Union L 84/1, HU 3 messages sent. 105 CZ 1,234 messages sent. There was one outlier (EE 11.09% messages sent). 80

81 Excesses The arrangements for handling excesses appear to be less contentious than those for shortages: 12 Member States (AT, CY, DK, EE, ES, FI, HR, HU, IT, LT, LV, SI) indicated no practical problems with the current arrangements. However, 8 Member States (BE, CZ, FR, NL, PL, RO, SK, SE) indicated a lack of clarity regarding the procedure for handling excesses. In practice, it appears that Member States apply different procedures for identifying liability and what to do with the goods. Some Member States took the approach that excesses should be mentioned in the Report of Receipt, i.e. the consignee simply accepts the excess goods and excise duty is accounted for when the goods are released for consumption. However, other Member States appear to take a different approach, whereby excess goods cannot be considered to have been moved under duty suspension, with the result that excise duty on the excess is due immediately. Some examples of each of these two approaches are given below: Excesses should be accounted for in the Report of Receipt. But the Directive does not give any further rules on place and time of the release for consumption for the goods in excess. We assume that the consignee takes into account the total quantity (i.e. the quantity mentioned in the e-ad plus the excess). (NL) According to our local understanding, excesses cannot be moved under duty suspension and are therefore released for consumption after the departure from the warehouse. For reasons of consistent application of law, this should definitely be clarified. (DE). Findings from the case studies indicate that excesses cause fewer problems than shortages. They appear to occur less frequently, and the administrations have found pragmatic solutions for dealing with them using the tools currently in existence (i.e. the Report of Receipt). The UK administration (HMRC) described how information regarding shortages, losses and excesses can be entered onto the Report of Receipt. However, one Member State (IE) raised the concern that there is no possibility for adding an extra line item in the e-ad in respect of the excess amount, and that amending an existing line item represents a weakness in the control mechanism. The German authorities described how reimbursement can be made after an excess of goods is moved to another Member State, provided that basic accompanying documents can be presented. However, as this does not apply to excise goods that are taxable in another Member State, they reported that such decisions need to be taken on a case-by-case basis, which creates additional administrative work. The Swedish authorities considered that the solutions currently in place were pragmatic, and that it would be more complicated to try to introduce provisions regarding excesses because it would harder to establish that they had been released for consumption in the Member State of dispatch. Impacts on economic operators Following an initial filter question where over half of the 232 respondents (52%) indicated that they had experienced practical problems with the handling of exceptions to the normal sequence of events, the economic operators were asked for further details (see Figure 29: Which practical problems have you experienced related to the handling of exceptions (e.g. irregularities including shortages and excesses)? Please 81

82 tick all that apply (N=120)]. The most prevalent problem identified related to uncertainty regarding how losses are determined in another Member State (75% of respondents), followed by lack of clarity about where the excise duty should be charged (68%). Figure 29: Which practical problems have you experienced related to the handling of exceptions (e.g. irregularities including shortages and excesses)? Please tick all that apply (N=120) 0% 10% 20% 30% 40% 50% 60% 70% 80% The consultation procedure (when shortages occur) increases costs of compliance (N= 60 ) Uncertainty on how losses are determined in another Member State (N= 90 ) Lack of clarity on where the excise duty should be charged may result in unexpected tax Lack of clarity on who is liable for the payment of excise duties when excesses occur (N= 69 ) Uncertainty on what procedure to follow when excesses occur (N= 67 ) 50% 58% 56% 68% 75% Other (N= 8 ) Don t know / not applicable (N= 9 ) 7% 8% * Respondents could select multiple answers, and therefore the total of the percentages shown in the figure can exceed 100. N in the title refers to the unique number of respondents answering the question, whereas the N for each answer refers to the number of responses relating to the specific answer. These may differ when the respondents are operating in more than one country/industry. Only respondents who mentioned that they had experienced practical problems with the handling of exceptions to the normal sequence of events were asked this question. Source: Survey of economic operators, March-September

83 Respondents were then asked about the cost implications of each of these issues (loss tolerances are discussed further in Section 6.2). Traders considered the rules governing the place where excise duty should be charged as being problematic because of the potential for an unexpected tax assessment 106. The consultation procedure for when shortages occur was also considered to create considerable additional administrative costs for businesses 107. Box 2: Trade associations (mineral oils) Impact of Article 10 The wording of Article 10 (irregularities) is ambiguous and pretty complicated. It leads to a lot of different interpretations by the Member States and sometimes to a double taxation. We would very appreciate it if Article 10 would be reviewed and reformulated. It would provide clarity regarding responsibilities of Member States in case of irregularities. In practice it is not clear in all cases what Member State is competent to levy the excise duties. Sometimes this leads to more than one energy duty assessment regarding transport losses or at least two demands to explain the transport loss. This causes unnecessary administrative burden for both customs authorities and authorised warehouse keepers/registered consignees/registered consignors. Findings from across the case studies shed more light on the practical impacts of this issue. Overall, it was confirmed as being one of the most problematic aspects of the current arrangements. Most companies appeared to have established processes to deal with shortages within the current framework. However, it appeared to affect some traders more than others, depending on the type of product being moved and the mode of transport. For example, one large oil tanker business in Germany reported handling approximately 20 explanations for shortages per week. The company encountered a particularly high number of shortages and excesses due to fluctuations during transport and differences in measurement methods from one Member State to another. As a consequence, three full-time employees were needed to handle these types of irregularities. The operator concerned considered the investigations of the authorities to be excessive, and suggested limiting their requests for explanations to those cases where there were obvious volumetric discrepancies % of respondents (N=81) strongly agreed and 35% agreed that a lack of clarity on where the excise duty should be charged could result in unexpected tax liability, 10% neither agreed nor disagreed, 1% disagreed, 0% strongly disagreed, and 7% responded don t know % of respondents (N=60) strongly agreed and 33% agreed that the consultation procedure increases the cost of compliance. 7% neither agreed nor disagreed, 7% disagreed, 2% strongly disagreed, and 0% responded don t know. 83

84 Box 3: Example - Alcohol movements from France to Belgium (FR case study) One French-based alcohol producer acting as a consignor for movements from France to Belgium described how when a shortage is identified in Belgium, it has no information on how the shortage has been calculated, and may therefore incur an unexpected tax assessment from the Belgian authorities. They noted that they cannot communicate directly with the Belgian authorities, as they are obliged to go through the French customs first. The operator wanted to ensure that the authorities of the Member State of destination take into account the explanations and evidence for a shortage (documentation, measurements, calibrations used etc.) from both the consignee and consignor before issuing a tax assessment, as shortages can arise from differences in tank calibration etc. They highlighted that any unforeseen tax assessment is potentially quite serious for the business because of the relatively high tax on alcohol. Other examples from the case studies included traders in various sectors (alcohol, mineral oil) who experienced between 1-4 incidents of this type per month. However, one trader in mineral oils clarified that limited additional time was required to resolve them, as the shortages that tended to occur were below the threshold for further assessment by the authorities (UK case study). Another operator broadly estimated that the cost of shortages could reach EUR 5,000 to 10,000, with two hours needed each time to explain the reasons and then make the payment if the explanation was not accepted by the authorities (BE case study). For operators in another Member State (DE), the time taken to handle irregularities was reported to depend on the case, but could take between one hour and two days. As with the customs officials, the economic operators noted that the time to resolve issues depended on the cooperation between them and the authorities. Also noted was the dependency on the cooperation between the Member States authorities (DE case study) Potential improvements It was clearly signalled by both Member States and traders that the arrangements surrounding shortages and losses need to be clarified (particularly Article 10) in order to ensure there is certainty about which Member State is competent to levy the tax on any shortages. The evidence collected suggests that a key problem is deciding when the detection of shortages takes place, and what constitutes the arrival of the goods. Increased clarity could be achieved by changes to the Directive (Article 10); there is ongoing discussion on this in the Committee on Excise Duty (CED). A prominent concern seems to be the absence of communication channels between a trader and the customs administration of another Member State. The current arrangements only permit explanations to be submitted to a trader s owncountry administration. A number of stakeholders suggested expanding the EMCS s communication options. This would make it possible to link messages to the movement in question instead of communicating with the authorities via in parallel to the e-ad. Providing a field for comments in EMCS could reduce some of the time needed for coordination. Several 84

85 economic operators also suggested using a standardised letter to facilitate communication and help overcome language barriers. A third focus area seems to be communication between the Member States on the status of the recovery of duty. Although a set of tools to allow communication already exists, one Member State (LV) indicated that the Duty Claiming message IE861 was an inadequate tool in its current form. Belgium mentioned that there was no declined or stopped function for updating the status of the claims procedure. 1.2 Losses during transport (and national tolerances) A lack of knowledge regarding how losses are determined in other Member States can cause uncertainty for economic operators about how measurement calibrations are performed, potentially leading to increased compliance costs when they have to investigate a possible shortage What is the problem? While a consignment is underway, excise goods under duty suspension may be totally destroyed or irretrievably lost. In such cases, no excise duty is chargeable on the goods. Under the current arrangements, the Member States are competent to decide what constitutes an acceptable loss 108. In practice, Member States may apply a normal allowance threshold (e.g. losses which are considered to have occurred due to normal circumstances, such as evaporation etc.). The rules and measurement tolerances for establishing acceptable losses vary across Member States. The Commission advises that Member States should apply the EU metrology acquis 109. Applying the metrology acquis means that the maximum measurement accuracy of the measuring systems has to be taken into account before a national allowable allowance for losses is applied. In practice, Member States apply a variety of loss tolerances. Based on a selection of available loss tolerances collected from Member States, it appears that many Member States calculate loss tolerances as a percentage value that is based on the product type (e.g. bulk movements of diesel oil) or the mode of transport used (e.g. road, rail, ship) 110. For example, Member States could apply one normal allowance (e.g. 2%) before excise duty is charged for a tanker ship transporting oil, and a different one (e.g. 0.5%) in the road transport sector. 108 Article 7(5) of Directive 2008/118/EC states that each Member State may lay down the rules and conditions under which losses are determined. 109 The EU acquis related to measuring instruments includes Directive 2009/34/EC relating to common provisions for both measuring instruments and methods of metrological control (Recast), replacing Framework Directive 71/316/EEC. Directive 2004/22/EC on Measuring Instruments, amended by Directive 2009/137/EC, covers 10 categories of measuring instruments, and abolishes the corresponding previous legislation. Directive 2011/17/EU repeals 8 old-approach legal metrology Directives. 110 Some arrangements can be more complex, and different percentages can be applied depending on factors such as i) the type of repository where fuel/alcohol is being stored, ii) the month of the year (e.g. warm vs. cold season), and iii) the type of manufacturing process used. 85

86 6.2.2 Practical impacts Impacts on administrations The data collected indicated a lack of uniformity of loss tolerances across Member States; some Member States don t apply set amounts or tolerances, while others do have set tolerances, and at different levels. It is therefore very difficult for control officers to determine whether a loss is within the limits of the Member State of dispatch. The issue of differing practices across Europe was raised by a number of Member States (CZ, DE, IE, PL). PL points to the lack of knowledge on how losses will be determined in another Member State: A consignor of excise goods, deposing a guarantee for a movement, as the person responsible for the payment of excise duty in case of losses, has no knowledge about the allowances applied in Member States in which the goods will be taxed (in general in the Member State of destination). The CZ representative explains that it is not always clear if traders are already adjusting the reported shortages after taking into account the acceptable loss tolerance. It is not clear whether the shortage mentioned in the Report of Receipt is the total amount, or only the part of which is over losses inherent in the nature of excise goods (normal allowances). Looking across the case study findings, the loss tolerances did not appear to cause substantial problems for the administrations consulted, and the responses rapidly focused on the aspect of explaining shortages and establishing responsibility for them. Administrations promoted the use of the Report of Receipt to notify any discrepancies. However, one administration did point to the fact that shortages and excesses were not established uniformly across the Member States, which also meant that economic operators were not treated equally (DE case study). Impacts on economic operators Those respondents who reported that they had experienced uncertainty regarding how losses are determined in other Member States (75%) were asked about the cost implications. 42% strongly agreed, and 36% agreed, that this uncertainty creates additional administrative costs 111. One respondent to the survey explained how the unclear wording of Article 10 not only led to the risk of double taxation because of the potential for different interpretations, but that the problem was compounded by a lack of knowledge concerning what constituted acceptable losses in a different Member State. The issue of losses is closely linked to the problems of shortages, and many of the problems identified for shortages also apply, particularly in terms of the difficulties between traders and administrations of other Member States in being able to physically communicate with each other. As regards explaining shortages, there were reports of some traders simply paying the excise duty, because they found it too timeconsuming to explain them to the relevant administration in another Member State. Evidence from the case studies indicated that the varying loss tolerances were a concern for economic operators. Particularly in the energy sector, some operators noted that there were frequently small differences between the quantity of goods shipped and received when moving energy products, and indicated that the % neither agreed nor disagreed, 2% disagreed, 0% strongly disagree, and 7% responded don t know. 86

87 harmonisation of requirements across the EU would therefore be highly welcome (LT case study). Energy operators from Sweden also reported this to be the case, with Member States taking very different positions on the accepted tolerances (reportedly ranging from 3-4% in some countries down to 0.2% in other countries). Providing explanations (when required) was reported to be a costly operation in terms of the human resources required. The problem involving the lack of feedback regarding explanations was also raised, because it creates uncertainty for traders (SE case study). 1.3 Errors in the e-ad Amending data in an e-ad is not possible once it has been validated and assigned an ARC number. This feature is designed to prevent fraud. Human data-entry errors (e.g. quantity, type of good) are primarily resolved by communication between the relevant customs and traders. A few stakeholders have pointed to a need for flexibility regarding the modification of non-critical data (such as vehicle registration mark information) in order to ensure the EMCS can more easily take into account the changes required in the course of normal business operations What is the problem? If a human error in the e-ad is detected before the actual dispatch of goods, the consignor may send a cancellation message concerning a recently submitted and validated e-ad 112. However, after the physical departure of the goods from the tax warehouse of dispatch, the corresponding e-ad can no longer be cancelled. Once the e-ad has been validated and assigned an ARC number, the current arrangements do not permit any changes, for obvious reasons relating to fraud prevention. The following possibilities (for the consignor) are described in the FESS 113 : If the e-ad is found to be incorrect after the goods have left, the consignor may either submit an event report (message IE840 if the Member State of dispatch agrees to record it) or an explanatory message following the receipt of goods; If the commercial transaction is cancelled after the goods have left, the consignor first has to order the return of the goods through a change of destination, and then receives them back after submitting a Report of Receipt. It is evident from the data collected that human data errors in the e-ad do regularly occur. The below is an indication of some of the most common errors: Commercial description of goods (incorrect quantity, CN code, net and gross weight, alcoholic strength); Change of destination; Data relating to the mode of transport (e.g. a vehicle registration mark). Levels of usage of the event report message appear to be inconsistent. In 2014, only 1,160 event reports were sent between Member States 114, or approximately 0.04% of the 2.95 million e-ads generated in the same year. Event reports sent as a proportion 112 Looking at the business statistics for message IE810 reason for cancellation, we can see that the major reason for cancellation is typing errors (meaning data entry errors by the economic operator), followed by other, which could include cancellation of the physical transport. 113 FESS v3.61 Core Business, p The number of IE840 (event reports) increases to 1,196 when including national messages. 87

88 of e-ads sent in each Member State, ranged from between 0.01% to 0.04% out of 28 Member States did not send any event reports (BG, CY, ES, FI, HR, HU, IE, IT, MT, SI, LT, DK, PT). The number of event reports only increases slightly to 1,196 when national messages of the same type are included 116. In some cases, the shortages/excesses procedure can be used, whereby the consignee accepts the consignment but makes the necessary correction in the RoR. Some Member States report the change-of-destination procedure being used as a workaround for correcting errors in the e-ad; in other words, the consignor changes the destination of the e-ad back to themselves, and then creates a new e-ad. It appears that a variety of procedures and practices exist. For instance, some Member States take a zero-tolerance approach and immediately issue a tax assessment for any errors made, while others may wait for an explanation before issuing any tax assessment. This could contribute to a lack of certainty for businesses Practical impacts Impacts on administrations Administrations described their existing procedures for correcting errors, principally involving communication between the trader and the relevant tax or customs authorities (i.e. outside the EMCS framework). Box 4 Resolving errors in the e-ad (Germany) If an error in an e-ad is found after departure, the relevant customs office (HZA) will determine which authority is responsible for the further treatment of the case by identifying whether the movement was taking place under duty suspension or whether it has become excisable due to the error. Correction of an e-ad by the consignor is not possible in Germany. An economic operator who identifies an error in the documents needs to contact the authorities. The customs officials will then handle the mistakes carefully, identifying the source of the mistake and ensuring that it is not linked to potential fraud. They will then cancel the e-ad, and the operator must complete a new one. Some administrations describe taking a very pragmatic approach when allowing e-ads to be corrected. For example, one Member State stated that with minor errors in noncritical data (i.e. excluding quantities and the like), its local offices can request the consignor to correct them. While the legislation foresees a direct release for consumption, the authorities can permit exceptions for honest mistakes. Most Member States considered dealing with such errors to be a necessary cost. Impacts on economic operators A range of options are open to economic operators when handling errors. As well as the options for the consignor described above (event report; change of destination), the consignee can (partially) refuse the delivery, or can include an explanation in the Report of Receipt. From the case studies, further evidence can be adduced regarding how economic operators are affected. Traders consulted described how some Member States took a % in one outlier. 116 The difference is due to Luxembourg and Austria, which in addition to IE840 international messages sent 1 and 34 national messages respectively. 88

89 strict approach towards errors in the event of incorrect excise codes or quantities, obliging the trader to pay the excise duty due for the error up front and then apply for reimbursement an onerous administrative procedure which can have severe financial consequences with certain highly-taxed products. Lithuanian operators stressed that in the case of incorrectly prepared and submitted e- ADs (e.g. containing errors ranging from typing mistakes to missing information), there was nothing to be done but to cancel the e-ad and issue a new one (cancellation of an e-ad being possible before the consignment leaves the place of dispatch). This requires an official request with corresponding explanations to be submitted to the tax authorities, which consumes the time and human resources of both sides in terms of filing and processing the request (LT case study). A more specific problem was identified by producers of alcohol, who noted that the volume of pure alcohol of a consignment is not compulsory information in the e-ad (only volume and strength) 117. However, this causes difficulties if a shortage is reported and there is uncertainty regarding the strength of the alcohol (BE case study) Suggestions for improvement Administrations were not open to any changes being made to excise-duty-sensitive data in the e-ad, because of the obvious fraud risk that this would pose. However, a few Member States indicated that they would welcome the possibility of changing some limited data (if not critical to the excise duty) which are only available just before or during transport (e.g. change of transport number plate, change of means of transportation). Ensuring compliance was a top priority for most economic operators, although many found it burdensome when genuine errors were penalised or assessed for tax. Some stakeholders pointed to the Union Customs Code as representing good practice; it explicitly distinguishes between attempts at deception and genuine errors Change of destination (following rejection/refusal) The rules governing a change of destination (CoD) of a movement appear to be a cause for concern for a few stakeholders. The burden caused was greatest for traders moving mineral oils, where CoDs were quite frequent What is the problem? It is possible to update the destination fields of an e-ad, whether in the normal course of the movement, following a refusal during delivery, or following rejection of the e-ad (see Appendix 6: Operational Context for a description of the procedure for refusal/rejection). The procedure is further set out in Commission Regulation 684/2009, Article 5 and is mirrored in the functional specifications (FESS) 119. The following is a summary of what is set out in the FESS. 117 The workaround is to multiply the volume at 20 degrees Celsius by the strength. 118 Where the customs debt was incurred pursuant to Article 79, it shall be extinguished with regard to the person whose behaviour did not involve any attempt at deception and who contributed to the fight against fraud. Article 124 (7) of Regulation 952/2013 (UCC). 119 FESS v3.61, Section 2 Core Business. 89

90 The consignor submits such a change by giving the identity of a new consignee or only of a new place of delivery. It is preferable that the consignor gets an informal agreement of the consignee (e.g. by phone) before changing the destination. The Member State of dispatch validates the update in accordance with SEED, and possibly to complementary national information. After validation, the e-ad is updated accordingly, and confirmation of the update is returned to the consignor. At the same time, the change of destination is notified to the previous destination (Member State and consignee), and the updated e-ad is sent to the new destination (Member State and consignee). It is obvious that changes of destination do regularly occur. The figure below shows which Member States generated the highest number of CoDs as a proportion of the movements dispatched. Portugal has the relatively greatest number of CoDs (2.02%), followed by Belgium (1.29%) and Cyprus (1.25%). Figure 30: Change of destination as a percentage of dispatches per MS (IE813), 2014 Source: CS/MISE; Ramboll s own analysis 90

91 6.4.2 Practical impacts Impact on administrations The arrangements do not appear to be causing difficulties for the majority of Member States - 19 Member States agreed or strongly agreed that the current arrangements for overseeing a change of destination are adequate. 120 However, the issues described appear to be a cause for concern for some administrations: four Member States (DE, HR, NL, SI) disagreed that the current arrangements are adequate, and three strongly disagreed (BE, DK, UK). The concerns mainly revolved around cases where the consignee rejects or (partially) refuses excise goods. In this case there is no legal obligation for the consignor to submit a Change of Destination following a rejection or (partial) refusal. This is because the procedure to be followed in case of refusals/rejections is not covered by Directive 2008/118/EC. Member States pointed out various impacts arising from this situation: Lack of awareness (from both consignor and consignee) that the change of destination must happen following a rejected or (partially) refused e-ad; In the case of a rejection of excise goods by the consignee, the time limit for the subsequent actions to be taken is insufficiently defined; Control issues: the CoD is usually performed after the action, and does not reflect the true circumstances of the movement. Economic operators The main operators concerned by the arrangements for CoDs were from the oil tanker industry, where CoDs were more frequent and the value chains were more complex and involved more actors. One particular issue involving multiple actors was reported by representatives of the oil tanker industry. Box 5: Change of Destination when there are multiple actors in the value chain In the oil tanker industry, there are often multiple actors in the supply chain, causing problems if a CoD has to take place in this case each actor in the chain has to tell the next one to request the CoD. Under the current arrangements, only the consignor can perform the CoD, and according to the industry many consignors are in practice unaware of the procedure, or refuse to change the destination (particularly if, from their point of view, they are not involved in the commercial chain). The new consignee may not have a contract or a direct commercial link to the consignor, so it cannot ask them directly to change the destination. In the worstcase scenario, the CoD is not made, the consignment is no longer under duty suspension, and the transporter has to pay the excise duty. The consignor does not receive a confirmation that the transport is closed MSs (ES, FR) strongly agreed, 17 MS agreed (AT, BG, CY, CZ, EE, EL, FI, HU, IE, IT, LT, LU, LV, PT, RO, SK, SE), 1 MS (PL) neither agreed nor disagreed. 91

92 6.4.3 Potential improvements Suggestions were made to help ensure that the consignor submits the necessary Change of Destination. For example, one Member State suggested that the EMCS could ensure that a default option will kick in that obliges the consignor to act if necessary: where there is a refusal or rejection, the system defaults a CoD back to the consignor (and it would be up to him/her to override it if necessary). Another MS (DE) suggests that more specific regulations could be implemented through Directive 2008/118/EC, Regulation 684/2009 (EC), or by means of a separate Implementing Regulation. One association representing small- to medium-sized oil traders suggested that the EMCS could be modified to allow the new consignee simply to confirm the change of destination on the basis of direct contact between the consignee and the consignor. For example, an option could be introduced to allow the new consignee to transmit his data (ARC number; excise number etc.) for the change of destination to the consignor Splitting of movements of energy products For certain business reasons, a consignor may split a consignment into one or more movements. In this case, multiple e-ads are issued to replace the original, thus allowing the goods to be delivered to several consignees. Splitting can follow the rejection of a movement. Splitting operations are only permitted for energy products. The Directive (Article 23) provides Member States with the option to allow the consignor to split the movements of energy products into two or more movements. Member States can also choose whether to allow splitting to take place on their territory. Fourteen Member States (CY, DE, DK, FI, FR, IE, LT, LV, MT, NL, PT, RO, SE, UK) permit splitting to take place (applying both options of the Directive). 13 Member States (AT, BE, BG, CZ, EE, EL, ES, HU, IT, LU, PL, SI, SK) do not allow it 121. However, it should be noted that combinations of partial refusals and changes of destination can be used to achieve the effect of splitting a consignment, even though Member States may not permit splitting to take place on their territory. Respondents moving energy products were asked whether they were satisfied with the current rules on splitting of movements of energy products. Over half disagreed (9 respondents) or strongly disagreed (26 respondents) 122. Those respondents who were not satisfied were then asked what practical problems they had experienced. While some signalled uncertainty as to whether splitting was permitted 123, or had experienced increased compliance costs following clarification with the administration 124, the majority of respondents (26) indicated other problems. A number of them provided identical responses, stating that in some Member States there is a requirement to inform the customs authority about the splitting one day (24 hours) beforehand, although there is no legal basis for this in EU law. They explained that as a result, the mineral oil traders cannot exercise this option because 121 Data collected from a working paper from the Committee on Excise Duty, CED 691 rev9, February N=68: 1% strongly agreed, 9% agreed, 21% neither agreed nor disagreed, 13% disagreed, 38% strongly disagreed, and 18% responded don t know respondents respondents. 92

93 the decision to split is made spontaneously for logistic and economic reasons. Another respondent described how difficulties were encountered because they could not divide one shipment into multiple transport units. From the responses, it appears that the current dissatisfaction with the rules on splitting is related to certain national procedures (e.g. a requirement to inform authorities 24 hours in advance of the splitting operation), rather than to any operational restrictions imposed by the EMCS. 1.5 Key points The vast majority of movements complete normally and without incident, and overall the current arrangements appear to be working well. However, a number of specific practical issues can place significant additional burdens on both administrations and economic operators. The arrangements for the detection of shortages are causing both Member States and economic operators additional costs in order to ensure compliance. The rules require clarifications to ensure that the actual situation regarding liability for payment of the excise duty due is clear. Some of the increased burden stems from variations in practices between Member States, e.g. loss tolerances or dealing with errors. However, many issues are linked to a lack of communication options between actors, and this area could be improved. Administrations and traders should ensure full use of the existing message options available in EMCS. However, in some cases effective communication between actors (e.g. between consignor and Member State of destination; or between consignor and consignee in the case of a change of destination) may require additional functionality (e.g. through the use of standard templates). 93

94 7. Arrangements for the movement of specific excise products The Directive 2008/118/EC specifies which goods are subject to the movement and control provisions by means of reference to particular Directives in the areas of alcohol and alcoholic beverages, manufactured tobacco, and energy products and electricity 125. However, the movement and control provisions required can vary, depending on the type of product or on who is moving it. This chapter examines the practical impact and relevance of: Movement and control of specific energy products; Movement and control of denatured alcohol; Provisions for simplified procedures; Exemptions for small wine producers; Exempt consignees (diplomatic; NATO). 1.1 Movement and control of specific energy products Both Member States and economic operators reported problems relating to the movement and control of specific energy products. These issues stem from the interaction between Directive 2003/96/EC (Energy Tax Directive) and Directive 2008/118/EC, meaning that it is not always clear in practice which provisions of Directive 2008/118/EC should apply. In practice, this means potential uncertainty as to which movement procedure should be used (e.g. EMCS, SAAD, no supervision) to oversee the movement of specific energy products. The Member States indicated that the existence of their mutually differing procedures can impede effective monitoring and control, e.g. the movement of energy products not listed in Article 20(1) such as lubricating oils. In this respect, a lack of uniform treatment can impede the detection of fraudulent movements. The scope for differing national interpretations and subsequent variations in the treatment of products by Member States for excise purposes can lead to cases which increase the administrative burden for businesses when ensuring compliance, and can cause distortions of competition (depending on the Member State). It is important to ensure that the rules are clear, so that the same products receive the same treatment in all Member States Movement of low-risk energy products not obliged to move under EMCS Energy products listed in Article 20(1) of Directive 2003/96/EC (Energy Tax Directive or ETD) 126 and in Commission Implementing Decision 2012/209/EU are obliged to be 125 Article 1 of Directive 2008/118/EC refers to the specific Directives. Energy products and electricity are covered by Directive 2003/96/EC, alcohol and alcoholic beverages are covered by Directives 92/83/EEC and 92/84/EEC, and manufactured tobacco is covered by Directive 2011/64/EU. 126 Or in Commission Implementing Decision 2012/209/EU. 94

95 moved under the control of EMCS 127. However, there are a number of goods listed in Article 2(1) (but not in Article 20(1)) of the ETD, and these are therefore not obliged to be moved using EMCS 128. There are two types of energy products: 1) those which are always energy products and; 2) products which are energy products only if used as motor or heating fuel 129. If the product is not going to be used as fuel, no movement and control provisions are foreseen, and they are outside the scope of the ETD 130. However, there is no indication in the Directive as to when these energy products are to be placed outside its scope, i.e. at what point the intended use of these products is declared, and therefore whether they are considered to be an excise good 131. Therefore some energy products which are moved within the EU but are not intended to be used as fuels can still be considered excise goods. Other energy products not listed in Article 20(1) include, inter alia, those falling under such CN codes as the following: CN :and in particular: o CN : certain lubricating oils, mould-release oils or other oils; o CN : medium and heavy mineral oils in which the weight of the aromatic constituents exceeds that of the non-aromatic constituents (originating from the distillation of crude oil). If these products are perceived as excise goods, in the Commission s interpretation the duty paid procedure should apply to the movement 133. This is because the Commission interprets the control and movement provisions referred to in Article 20(1) as covering only Chapters III and IV of Directive 2008/118/EC (EMCS), and therefore any excise good not listed in Article 20(1) or in Commission Implementing Decision 2012/209/EU should, normally 134, be subject to all other provisions of the Directive, in particular Chapters II (chargeability rules) and V (duty-paid arrangements requiring the SAAD). 127 The CN codes are listed in Article 20(1) of Directive 2003/96/EC. 128 Other than coal, electricity and gas, for which Directive 2003/96/EC envisages special rules. 129 These are referred to in Articles 2(a), (d) and (h) of Directive 2003/96/EC. 130 Article 2(4)(b), first indent, puts out of the scope of the Energy Tax Directive non-fuel uses of energy products. 131 It is clear for products mentioned in Article 20(1) of Directive 2003/96/EC and in Commission Implementing Decision 2012/209/EU, but not for the rest. 132 With exceptions as specified in Article 20(1) of Directive /EC. 133 The duty paid procedure covers the movement of excise goods already released for consumption, and which must move under the cover of a Simplified Administrative Accompanying Document (SAAD), Chapter V of Directive 2008/118/EC. 134 Article 21 of the ETD introduces special rules for a number of products (e.g. electricity, natural gas and coal). For them, some certain rules, for example in terms of chargeability, would apply. 95

96 Box 6: Example: How should (oil residues with high aromatic content) be moved within the EU? One example of such a product is residues from the refining of crude oil with a high aromatic content (CN code ). According to information provided by representatives of the refining industry to the Commission, this product is normally used as heating fuel, but is not covered under Article 20(1) of the ETD; therefore Member States are not allowed to require the production, processing and holding of this product to take place in a tax warehouse, nor are they allowed to apply duty-suspension arrangements and move the product under EMCS. In the Commission s view, if it is clear that the product is to be used as heating fuel, then this product should be moved under the duty-paid procedure (SAAD document). Responses from administrations The question arises as to whether these products are always to be treated as excise goods, and how and when the intended use of the product is established. Member States were asked to specify which procedures they used to monitor intra-eu movements of these products (note that the question was relevant for all products not mentioned in Article 20(1)). Table 15: Procedures used to move low-risk energy products not listed in Article 20(1) Procedure Free circulation (no control foreseen) 135 : Member State AT, BE, CY, DE, DK, EE, EL, ES, FI, FR, LU, NL, PL, RO, SI, SE, UK. Duty-paid (SAAD) BG, SK (only energy products with CN code , , ). Other Don t know/not available No response HU (there are no data from the excise systems, but from a bilateral information exchange we obtained information about the movements of the products concerned). HR, LT, LV. CZ, IT. Source: Questionnaire to Member States The levels of perceived risk of fraud associated with these products were reasonably varied. 7 out of 25 Member States (AT, DE, DK, HU, LT, PL, RO) perceived these products as posing a high risk. 3 Member States (BG, ES, SK) perceived them as medium risk, while a further 5 Member States responded that they considered these products as posing a low risk (CY, IE, SI, SE, UK). Ten out of 27 Member States (CZ, DE, FR, HR, HU, IT, LT, NL, PL, SK) disagreed that the current arrangements to move energy products not listed in Article 20(1) 136 met their needs. Most of the explanations from these Member States related to the perceived risk of fraud involving such products that are not currently covered in Article 20(1). 135 Commercial document necessary 136 Or in Commission Implementing Decision 2012/209/EU. 96

97 Figure 31: The arrangements for moving energy products not listed in Art. 20 (1) of Directive 2003/96/EC meet the needs of my administration Source: Questionnaire to Member States Several Member States reported instances where certain lubricating oils and other products have been misused as fuels. 1 MS (SI) strongly disagreed that the current arrangements met their needs, explaining simply that the different systems are inadequate for effective control. Lubricating oils (CN ) were specifically identified in the questionnaire as a high-risk product by a number of Member States (AT, DE, HR, RO, SI), and a further 3 Member States (CY, LV, PL) indicated a high risk when referring to a whole group of products, i.e. lubricating oils, vegetable oils and ethanol-based biofuels. Poland gave the example below regarding illegal fuel use, adding that existing arrangements at the EU level for moving lubricating oils do not ensure adequate control of such movements. Box 7: Illegal use of lubricating oils as fuel The chemical and physical characteristics of low-viscosity lubricating oils falling within CN code and make them similar to gas oil. As a result, lubricating oils can easily be mixed with gas oil and can consequently be used as heating or motor fuel, as they both have similar flashpoint temperatures, densities, viscosities and fractional composition; even thorough examination may not detect the irregularities. In their accompanying explanations, a number of Member States are in favour of including these products in the scope of the EMCS (i.e. identifying them in Article 20(1) of Directive 2003/96/EC), due to the control advantages provided by EMCS. This idea is subject to on-going discussion at the European level (Indirect Tax Expert Group - ITEG). At least 8 out of 27 Member States (AT, CZ, DE, EE, HU, RO, SI, SK) thought that these products (i.e. those not listed in Art. 20(1) of Directive 2003/96/EC) should be included within the scope of the EMCS in order to improve the control of such products MSs either did not know or did not consider this question applicable (BE, CY, DK, ES, FI, IE, LU, LV, PT, SE, UK). 97

98 Besides including these products in the EMCS, a number of other comments were made, including the necessity of harmonising European legislation in this area, and that uniform procedures should be applied in all Member States. Looking across the case studies, it appeared that Member States had varying priorities; four Member States (BE, DE, FR, LT) perceived lubricating oils as posing a relatively high risk. Lithuania s authorities emphasised that the movement procedures for many of these products depend on the declarations made by the economic operators, and in reality these can be very difficult to verify, since the difference in composition of lubricants and certain low-quality motor fuels can be very diffixult to discern. In the view of the authorities, the risk of fraud of this and other cases could be significantly reduced by bringing them under the EMCS (LT case study). The Belgian authorities similarly stated that the movement procedures for many of these products depend on the declarations made by economic operators. Especially for the categories of other specific products when used as fuels, such as lubricants, they assessed that the risk of fraud could be reduced by bringing them under the EMCS (BE case study). Energy products, lubricants and bituminous minerals (e.g and 2700) were considered as potentially high-risk products by the French administration, which favoured including lubricants and bituminous into the scope of the EMCS to improve monitoring during the movement of such products. The administration noted that with bituminous minerals, most operators telephoned beforehand and alerted the administration about their movement (FR case study). Two patterns of fraud involving lubricating oils were reported in Germany. On the one hand, they described how high-boiling oils, gas oils and similar products can be used to create fuel mixtures which are then declared to be lubricants or solvents (CN ). The second pattern involves large quantities of lubricating oils being moved illegally from another Member State to Germany and either sold there or moved again. However, the authorities interviewed insisted that the use of the EMCS should be restricted to lubricating oils that are moved as a loose product 138, to avoid creating additional burdens for honest producers of lubricating oils and for the authorities (DE case study). For certain 2710 products, Directive 2003/96/EC Article 20(1)(c) states that the control and movement provisions [i.e. EMCS] shall only apply to bulk commercial movements. There is currently no legal definition of a bulk movement. However, the Committee on Excise Duty has adopted a guideline definition of bulk movement (including the use of 250-litre standard barrels for transportation), although Member States are not obliged to apply the definition. Two Member States (SE, UK) indicated that they were satisfied with the current arrangements. The UK explained that fraud in these areas mostly tended to be related to substitution of low-duty fuels, such as those for agricultural use (UK case study). The Swedish authorities similarly did not report any issues with the movement procedures for these energy products (SE case study). 138 A loose product is defined by the Implementing Regulation for energy tax (Energiesteuer-Durchführungsverordnung) as an unpacked energy product in a container that is either part of its means of transport or an ISO tank container or an energy product that is in any other container having a volume of less than 210 litres. 98

99 Responses from economic operators Economic operators were asked to what extent they agreed with the statement: I am satisfied with the arrangements for moving energy goods listed in Article 2 of Directive 2003/96/EC, but not Article 20(1). 6 respondents (out of 65) disagreed, while 14 strongly disagreed. However, the highest proportion (24 out of 65 respondents moving energy products, i.e. 37%) responded don t know ; 17 of 65 respondents (26%) neither agreed nor disagreed 139. The results were clearer when they were asked about practical problems; the main issues were associated with the movement of particular products. Economic operators were asked what practical problems they had experienced in connection with movements of any of these low-risk energy products. 21 out of 47 respondents who moved energy products reported no practical problems. However, 21 respondents selected the response other 140. Many of the other comments were identical, and came from multiple respondents in the energy sector: Liquefied natural gas (LNG) and medium and heavy mineral oils (CN ) should be included under Article 20 of ETD. The regulations for these products are not harmonized so that an intra-community delivery is hampered by the different national requirements. The regulations for these products are not harmonized so that intra-community deliveries have to deal with different national requirements. Some respondents explained further about the variations between Member States, and the resultant compliance costs. Box 8: Variations in the national treatment of CN (anonymous respondent from the survey) Although some products, such as lubricants and products falling under CN code , are not energy products in the sense of Art. 20 ETD, these products are handled differently. Some Member States (e.g. Germany) allow transport to other Member States without special paper documentation, as long as these products are not intended to be used as fuel or for heating. Other Member States (Netherlands, Bulgaria) require traders to pay energy duties (e.g. CN products), and to send the products to the other Member State along with a simplified administrative document. After providing them with a proof of receipt in the other Member State the energy duty will be refunded Establishing whether products are intended for use as fuel Products listed in Article 20(1) of Directive 2003/96/EC or Commission Implementing Decision 2012/209/EU must be moved under the EMCS 141. Some of them are required to do so regardless of their intended use; however, for others the movement procedure to be used depends on whether they are to be used as fuel. 139 N=65: 0 respondents strongly agreed, 4 agreed, 17 neither agreed nor disagreed, 6 disagreed, 14 strongly disagreed, and 24 responded don t know. 140 N = 47: 21 respondents experienced no practical problems, 8 respondents indicated variations between Member States in the procedure for moving these products, 6 respondents indicated that having to clarify the procedure increases compliance costs, and 21 respondents selected other. 141 Decision 2012/209/EU references CN code

100 One Member State (NL) explained that the intended use is not always clear at the start of the movement, although it would become clear in the Member State of destination. They indicated that it would be simpler for companies and customs if there were no discussion regarding the intended use. They also suggested that for biodiesel (usage unknown), the phrase about intended use in Article 20(1)(h) 142 should be deleted, explaining that this would mean that it is assumed to be used as fuel, and thus would be subject to the EMCS procedures, unless otherwise stated. Dual-use products were reported to cause issues: the product is same, but the control measures (EMCS) can be very different depending on the company s intention i.e. whether it will be sold as fuel or as another type of product. Fats and vegetable oils Fats and vegetable oils falling within the scope of CN codes are a good example of the problems with establishing intended use. They are considered as energy products if they are intended for use as heating fuel or motor fuel 143, and in this case the products must be moved under the EMCS 144. However, this raises the question: at what point is the product declared for use as fuel, and therefore becomes an energy product? The current rules on when the products fall within the scope of the ETD are not clear, meaning that there is high potential for variation in tax treatment and movement procedures, depending on the Member State 145. Some Member States (e.g. BE) indicated that these products are moved using SAAD when they are intended as fuel (and otherwise are in free circulation). Others (e.g. FI, DE) indicated that these products were moved under the EMCS when declared for use as fuel. One Member State (ES) considered vegetable oils as excise products once they had been brought into a tax warehouse, after which they were under energy taxation. After that, they were moved under the EMCS (i.e. Article 20(1) applied) Movements of coal and natural gas Coal, coke and lignite (CN 2701, 2702, 2704) For coal, coke and lignite, Directive 2003/96/EC envisages special rules on the chargeability of the excise duty, thus providing for a duty-suspension arrangement outside the EMCS via authorisations for economic operators 146. In this case, Member States are allowed to levy and collect excise duties according to national procedures. There are situations where it is clear that coal will be subject to energy tax because it is going to be used as fuel, but is still not covered by EMCS (coal can be moved under duty suspension but without an e-ad). Member States were able to provide very little data on the volumes of products moved (Q30 Questionnaire to administrations), and 142 Directive 2003/96/EC 143 Article 2(1)a of Directive 2003/96/EC states that products falling within CN codes 1507 to 1518 are energy products if they are intended for use as fuel. 144 Article 20(1)a of Directive 2003/96/EC. 145 One issue was raised when the Member State of dispatch requires a consignment to be declared on the EMCS, but when this is not required by the Member State of destination. In such cases, coordination problems were reported to arise. 146 Cf. Article 21(5) last sub-paragraph of Directive 2003/96/EC. 100

101 in some Member States (UK, LV, LU, HU) they responded n/a or the products are not subject to excise duty 147. The evidence suggests that the levels of the intra-eu movement of coal are low. From the responses to the questionnaire, the perceived risk of fraud relating to coal appeared to be relatively low, probably because of its high tonnage and limited movement within the EU. Few control measures were identified. In the majority of Member States, it seems that the excise duty becomes chargeable at the time the coal is supplied to the end-user or when the coal is used or consumed by coal traders or producers, and that this is done via regular declarations. Satisfaction with the special regimes Fifteen out of 27 Member States agreed (AT, BE, DE, EE, ES, FI, HR, IT, NL, PL, PT, RO, SK) or strongly agreed (CY, LU) that the special regime for coal, electricity and natural gas met their needs in terms of minimising cost and reducing the risk of fraud. 6 out of 27 neither agreed nor disagreed (BG, DK, EL, FR, IE, SE) 148. A minority of Member States (CZ, LT and SI) disagreed, explaining that many Member States apply various exceptions and different specific control procedures which can create challenges for the purposes of risk analysis and control; one Member State suggested including these products in the EMCS. However, data from the Lithuanian case study suggest that there was no case for changing the special regime for coal, coke and lignite, electricity, natural gas, because it meets the needs of the administration; the authorities stated that the actual administration costs of monitoring the movement of these products would cost more than the potential tax revenue, and that there was no specific risk of fraud perceived in connection with these products in Lithuania. Liquefied natural gas (LNG) LNG (CN 2711) is not required to move under the EMCS. Natural gas can travel in either its liquid or its gaseous state. With pipelines, the risk of losses is limited, as there are meters at various points to measure flows etc. However, LNG can be transported in lorries etc., increasing the potential risks. LNG is not mentioned in Article 20(1), and therefore is not transported under the EMCS. Special regime for gas vs the classic excise system With movements of natural gas, the entire network is essentially treated like a tax warehouse, as Member States can levy tax according to national procedures (e.g. excise duty becomes chargeable when the end-user consumes the gas). This is because natural gas cannot be stored in a classic tax warehouse. In the classic system, the products are obliged to be kept in authorised warehouses, and pipelines are viewed as a means of transportation (unless simplified procedures are in place see Section 7.3). The Member States were asked whether the arrangements covering natural gas could be extended to include oil pipelines of the 27 Member States said that such arrangements could be extended in this way (category of oil not specified) (DE, FR, 147 This would include both those Member States which make use of the optional tax exemption for households, and those which exempt coal used in metallurgical processes (thus falling outside the scope of application of the ETD). 148 Q33 of the questionnaire to Member States. 3 MSs (HU, LV, UK) selected don t know/not applicable. 149 Q 32, Questionnaire to Member States. No further information was offered as to the benefits of this. 101

102 LT, LU, PL, PT, RO) 150. A greater number (10 of 27 - AT, BE, BG, CZ, DK, EE, ES, FI, NL, SK) responded that they should not be extended to oil pipelines. These Member States indicated that such products (covered by Article 20 of the Directive 2003/96/EC) must be kept in an authorised warehouse, and that the current arrangements cover their regulatory needs. Other Member States (e.g. DK, FI, NL, SK) indicated that there was no evidence of abuse that required a change in the arrangements, and that such energy products (i.e. oil) were best covered under the classic excise system. ES explained that while oil can only be transported in pipelines, natural gas can be transported by truck when in its liquid state. Estonia explained that it viewed liquid fuels and natural gas as having different risk levels. Slovakia pointed out that gas is a final product with a defined rate of excise duty, while crude oil (with no excise rate) is a raw material for the production of mineral oils, which are the final products and are taxed accordingly. The Netherlands thought the current arrangements were sufficient in this area, as Article 31 of Directive 2008/118 offers the possibility of simplified arrangements, including ones for movements via fixed pipelines. Sharing registration details 12 of the 27 Member States (AT, BE, CZ, DK, HR, IE, FR, LT, PL, RO, SI, SE) 151 stated that registration details should be shared with other Member States. One Member State (FR) suggested that this should be the case for products inbound from neighbouring Member States, or for cases where taxation in other Member States may be at more advantageous rates (e.g. Belgium, Germany). Another (PL) indicated that it would be beneficial to have registration details available for those operators responsible for the movements of these products in the EU, pointing out that it would only refer to the operators details and not to each movement undertaken. A lower number (7/27) of Member States (BG, CY, EE, FI, LU, NL, SK) said that such details should not be shared. One Member State (CY) indicated that insignificant quantities of product are moved, and therefore the corresponding increase in administration costs could not be justified. Other Member States (FI, LU) did not see the need for greater control of these products as they were satisfied with the current arrangements in terms of fraud prevention. Estonia explained that their taxation principles focus on local companies and therefore it did not see the need, while the Netherlands also saw no added value in sharing these details. 1.2 Movement of denatured alcohol For denatured alcohol, Directive 92/83/EEC provides an exemption from excise duty. Article 27(1)(a) of the Directive states that completely denatured alcohol (CDA) shall be exempted from excise duty. In order to be eligible for this exemption, the alcohol must be denatured using one of the denaturing methods mentioned in Commission Regulation 3199/93 of 22 November 1993 on the mutual recognition of procedures for /27 MSs responded not applicable to this question. 151 Q31: 8 Member States responded not applicable (DE, EL, ES, HU, IT, LV, PT, UK). Total=27 (no response from MT). 102

103 the complete denaturing of alcohol for the purposes of exemption from excise duty 152. Movements of CDA must take place using an SAAD 153. Article 27(1)(b) provides for the exemption of alcohol denatured in accordance with the requirements of any Member State and used for the manufacture of any product not for human consumption. Since the exemption is linked to the use of the product, it is excisable until it is used. However, it can be moved under duty suspension. Almost all the Member States indicated that they moved CDA under a duty-paid procedure involving an SAAD. Two Member States noted that they used the EMCS, and one stated that CDA was in free circulation. Most Member States perceived only a low risk of fraud. Table 16: Perceived risk of fraud for movements of completely denatured alcohol High Medium Low Don t know / n/a Source: Questionnaire to Member States Only a few Member States were able to indicate the volume of movements of CDA. Data from five Member States accounted for the movement of a volume of 45 million litres in For movements of alcohol denatured according to Article 27(1)(b), almost all Member States use the EMCS. In three Member States, the alcohol is in free circulation, and a further three use SAADs. Overall, more Member States considered that there was a high or medium risk of fraud with these movements. Table 17: Perceived risk of fraud for movements of alcohol denatured according to Article 27(1)(b) of Directive 92/83/EEC High Medium Low Don t know / n/a Source: Questionnaire to Member States A majority of Member State authorities (14) thought the arrangements for moving denatured alcohol met their needs in terms of minimising costs and reducing the risk of fraud. Those not satisfied with the current arrangements referred to the risk of fraud involving movements of denatured alcohol. It was suggested that the risk could be reduced by stating the method of denaturation used on the documents relating to the movement. Among the 12 Member States that made suggestions on how denatured alcohol should ideally be moved, six would prefer to see all movements of denatured alcohol occurring under the EMCS. The others supported the current provisions but confirmed that moving alcohol denatured according to Article 27(1)(b) under EMCS is preferable. 152 Amended by Implementing Regulation (EU) No 162/2013 of 21 February 2013 amending the Annex to Regulation (EC) No 3199/93 on the mutual recognition of procedures for the complete denaturing of alcohol for the purposes of exemption from excise duty. 153 Article 5 of Regulation 3649/92 of 17 December 1992 on a simplified accompanying document for the intra-community movement of products subject to excise duty which have been released for consumption in the Member State of dispatch. 103

104 Only a few responses were received from producers and suppliers of denatured alcohol. Half did not experience any practical problems connected with the movements of denatured alcohol. Some were concerned about the Member States variable treatment of denatured alcohol. Additional compliance costs can be incurred when clarifying the tax treatment of products in advance of a movement, or there can be a risk of unexpected tax liability. The main problem with the exemption of denatured alcohol does not directly concern the movement. Rather, it involves the basis for exemption in Article 27(1) of Directive 92/83/EEC, which creates uncertainty for economic operators. For CDA, some Member States only accept those denaturants listed under their name in the Annex to Regulation 3199/93; others exempt alcohol with any of the denaturing methods listed. The case of the exemption of alcohol in accordance with Article 27(1)(b) is even more complex, since the term not intended for human consumption is not interpreted consistently across the Member States. Ethanol-based biofuels Bioethanol produced from biomass can be used as fuel (normally in blends with petrol e.g. E80, E85). According to the Commission, most Member States currently treat these blends as undenatured alcohol. i.e. the ethanol in these blends is classified as alcohol and therefore remains under the alcohol Directive 92/83/EEC. The CN code for alcohol is not included in the list of energy products contained in Directive 2003/96/EC. However, Member States can exempt these products and report the procedure under Article 27(1) of the alcohol Directive, meaning that the product is then out of the scope of the alcohol Directive (excise relief), and under the Energy Tax Directive (ETD) 2003/96/EC. Petrol is recognised as a denaturant by some Member States, thus meaning that the blend would be exempted from excise duty. However, some Member States recognise biofuel blends such as E85 as partially denatured alcohol, meaning that the ethanol would not be exempted under 27(1) of the alcohol Directive. Different treatment of these finished products can cause difficulties when they are moved between Member States: some may treat it as alcohol, while others may treat it as an energy product. Member States were asked how they required ethanol-based biofuels to be moved and treated for excise purposes. The following Member States provided information: - AT: Free of excise duties, but movements are noted in the EMCS. - BE: SAAD. - NL: If the CN code is listed in Article 20(1): e-ad if under duty suspension; SAAD if goods are released for consumption. If the CN code is not listed in Article 20(1): in free circulation (note that these answers refer to energy products, not to alcohol mentioned in Directive 92/83/EEC). For some Member States, the treatment depends on whether the bioethanol blend is a finished product. For example, the UK notes that if bioethanol originating from inside or outside the EU is denatured according to the exporting Member State s regulations, and the blend is the finished product (for instance E5, E85, E92), the UK will accept it as being a fully denatured alcohol. However, if the denatured bioethanol is not a 104

105 finished product 154, the UK requires it to be denatured according to the UK formulation, or else it must be satisfied that it has been denatured as closely as possible to the UK formulation 155. The Swedish authorities explained that no major problems exist on a national basis, and the alcohol in the products is considered to be partially denatured; the finished product is out of scope of treatment as alcohol and under the ETD. The tax administration thought that if the undenatured alcohol is moved, it should be moved under the EMCS as alcohol, whereas if the product is in its finished form it must be treated as an energy product. However, it was suggested that if a finished product is to be moved within the EU, the Member States involved must take the same view on whether the product is an alcohol product or an energy product for the EMCS to work in practice. The problems with the provisions of Directive 92/83/EEC for denatured alcohol are the subject of an on-going evaluation and Fiscalis working groups. While the issues have an impact on the movements of denatured alcohol under duty suspension, they are best addressed within the context of Directive 92/83/EEC. 1.3 Provisions for simplified procedures The current arrangements 156 allow the Member States to agree simplified procedures for frequent and regular movements, including movements via fixed pipelines. There appear to have been few arrangements put in place, primarily because the Member States saw no need for them. Consequently, only a few Member States suggested that EU action was necessary to facilitate the conditions for such arrangements. Eighteen of the 27 Member States (BG, CY, EE, EL, ES, FI, HR, HU, IE, IT, LT, LV, PL, PT, RO, SI, SE, UK) reported that they had not agreed any simplified arrangements under Article 31 of the Directive 157. Among the reasons stated were a lack of need or desire for such arrangements, with a number of Member States stating that the difficulty of setting up such arrangements was a barrier. Some respondents (e.g. UK) signalled uncertainty about what form the arrangements would take. The increased risk of fraud associated with simplified arrangements was also mentioned as a factor. 154 In these circumstances, finished product means fuel that is not subject to further processing and/or blending before being delivered for general sale, apart from proprietary additives such as performance and cold-start treatments. 155 Excise Notice 179e: biofuels and other fuel substitutes, Article 31 of Directive 2008/118/EC. 157 Q41, Questionnaire to Member States. 105

106 Figure 32: Have any simplified arrangements for frequent and regular movements been agreed upon with other Member States? Source: Questionnaire to Member States Eight out of 27 MSs (AT, BE, CZ, DE, FR, LU, NL, SK) signalled that they did have agreements in place 158. However, the majority of Member States did not consider EU action necessary to facilitate such agreements. 2 out of 27 Member States (DE, ES) stated that EU action should be taken to facilitate such agreements, both suggesting that the Commission should publish a template agreement for Member State use. However, 13 out of 27 Member States (AT, BE, CZ, EE, FI, FR, HU, IE, LU, NL, SI, SK, UK) did not consider that EU action was necessary in this area. Almost as many (12 out of 27 Member States 159 ) responded don t know Member State (DK) selected Don t know. 159 BG, CY, DK, EL, HR, IT, LT, LV, PL, PT, RO, SE. 106

107 1.4 Exemptions for small wine producers from the EMCS requirements Article 40 of Directive 2008/118/EC allows Member States to exempt small wine producers (those producing less than 1000 hl of wine per year on average) from the requirements of the EMCS when moving their products between Member States 160. Instead of the standard EMCS procedure, such producers only need to ensure that the agricultural document (MVV) accompanies the goods. 161 The following map shows which Member States apply this exemption, based on their responses to the questionnaire. 11 out of 27 MSs (AT, BG, CZ, DE, EL, IE, IT, LU, PT, RO, SK) stated that they did apply the exemptions for small wine producers as provided for in Article 40. Figure 33: Application of Article 40 - exemptions for small wine producers MS applying exemptions for small wine producers MS not applying exemptions for small wine producers Non-EU MS 160 Note that this is not an exemption from duty suspension, but from the monitoring and reporting requirements of the EMCS. 161 Movements must be made under the coverage of the document provided for in Article 3(1) of Commission Regulation (EC) No. 884/2001 (on carriage of wine\ 107

108 Member States that do not apply exemptions for small wine producers gave the following main reasons: Some Member States do not have small wine producers and see no need for such exemptions (e.g. DK, EE); Some Member States offer other specific simplified conditions for small wine producers (e.g. HU, LV), such as reduced guarantee and licence fees; Some Member States (e.g. SI) expressed concern about lack of control over the movements and potential for fraudulent abuse; Some Member States (e.g. FR) had made registration as warehouse keepers compulsory. The relevant authorities of the Member States were asked whether they received information from agricultural authorities concerning movements under Article Figure 34: Do you receive information from agricultural authorities concerning movements under Article 40 of the Directive? Source: Questionnaire to Member States Seventeen of the 27 Member States responding to the survey (AT, BE, BG, CY, CZ, DE, DK, EL, FR, HR, HU, IE, LT, LV, PT, RO, SK) indicated that they did not receive such information when acting as a country of destination 163. Some Member States (AT, DE, EL, LV) explained that there is no excise duty on wine in their countries and therefore such communication is not necessary. As DE put it: There is principally no excise duty on wine in Germany. Information on this type of goods is therefore not required, as it is not relevant in the context of tax collection. Others (IE, RO) pointed to the fact that no direct communication involving agricultural authorities takes place. Following up on this question, Member States were asked whether they were satisfied with their communication with agricultural authorities (Q45) 164. Overall satisfaction levels appear to be relatively high, although two Member States (RO, SK) disagreed with the statement, pointing to a lack of communication. Nine Member States (DE, AT, BG, HR, HU, IE, IT, LU, PT) agreed or strongly agreed with the statement. These respondents can be divided into two categories: those satisfied with the exchange of information with agricultural authorities (IT, LU) and those who are actually satisfied with the lack of exchange of information with agricultural authorities (DE, AT, BG, HR, HU, IE, PT). 162 Question 44 of the questionnaire to Member States Member States (IT, LU) indicated that they did receive such information. Eight Member States (EE, ES, FI, NL, PL, SI, SE, UK) responded don t know. 164 Strongly agreed (DE); agreed (AT, BG, HR, HU, IE, IT, LU, PT); 5 MS (BE, CZ, FI, FR, PL) neither agreed nor disagreed, 11 Member States (CY, DK, EE, EL, ES, LT, LV, NL, SI, SE, UK) responded Don t know/not applicable to this question, which is consistent with reporting not receiving information from the agricultural authorities. 108

109 11 Member States (BG, CY, CZ, DE, EL, FI, HR, IT, PT, RO, SK) agreed that the exemptions under Article 40 still satisfied the needs they had been set (Q46). However, seven Member States (AT, BE, HU, FR, NL, LU, SI) disagreed or strongly disagreed 165. Some respondents (e.g. NL) indicated that small wine producers should be included in the EMCS if possible, while others (e.g. HU) suggested that a lot of their wine producers actually preferred to use the EMCS, as it was easier to use than any paperbased procedure and conferred other benefits 166. Figure 35: Relevance of Article 40 s provisions to what extent do Member States agree that they still satisfy their needs? 167 Source: Questionnaire to Member States Other Member States (e.g. BE, SI) expressed concern over the prospect of apply controls to movements coming from other Member States which had applied the exemptions, indicating that they had no way of knowing if these procedures would be abused or not. 1.5 Exempt consignees Article 12 of Directive 2008/118/EC allows for goods to be exempt from excise duty when they are intended to be used by exempt consignees such as diplomatic entities, international organisations, armed forces, etc. the consignment may travel with a consignee exemption certificate (VAT and/or excise) which does not absolve the consignor of his responsibilities; or the consignment may travel using the NATO 302 certificate, which removes the movement from normal supervision altogether. 165 AT, FR, LU and SI disagreed, while BE, NL, HU strongly disagreed, 7 Member States (DK, EE, LT, LV, PL, SE, UK) selected don t know/ not applicable. 166 The Netherlands suggested that if small wine producers apply the normal procedure, the e-ad can serve as the document specified in Article 24(1)(a)(i) of Regulation (EC) n 436/2009 (hereafter: the wine-accompanying document ). The document specified in Article 34 (1) of Directive 2008/118/EC can also serve as the 'wine-accompanying document' (see 24(1)(a)(ii) of Regulation (EC) n 436/2009). 167 The exemptions under Article 40 still satisfy the intended purpose (relieving small wine producers from potentially disproportionate burdens arising from normal movement and monitoring requirements). 109

110 The perceived risk connected with these movements appears to be relatively low: 14 Member States (BE, BG, CY, DE, ES, FR, HR, IE, LV, NL, Pl, RO, SI, SE) neither agreed nor disagreed that the current procedures in place reduced the risk of fraud 168. A number of explanations were provided, with some Member States (CY, HR, IE) stating that they had not detected any instances of fraud and had no evidence that abuse of the arrangements was taking place. Others pointed out that the quantities going to exempt consignees were very small, meaning that there was only limited risk of largescale fraud taking place. Four Member States (FI, LT, PT, UK) did signal that the procedures in place increased the risk of fraud 169. These Member States pointed to problems involving communication with diplomatic entities, and the fact that they were unable to confirm with the consignees that the products had been received. This is associated with difficulties ing receiving timely information from the exempt consignee in order to close the movement and generate a RoR. In some cases, this was reported to cause additional burdens and costs for the administration when following up. One Member State (PT) indicated that it had a lot of problems with exempt consignees, and suggested there was a need to convince the consignees to at least inform the authorities of their receipt of the exempted goods. Of the practical problems experienced with these procedures, the lack of coordination with electronic procedures featured most prominently 170. In many cases the problem appeared to be linked to the fact that exempt consignees do not have access to the EMCS. Member States have to implement national procedures in order to confirm the receipt of the goods. Figure 36: Practical problems with moving excise goods to exempt consignees 171 Source: Questionnaire to Member States 168 Q48, Questionnaire to Member States. 169 One Member State identified specific cases of prosecution related to fraud of this type, with a number of diplomats recently having been jailed for the abuse of goods received under these procedures (specifically, cigarettes). 170 Q48, Questionnaire to Member States. 171 Q48, Which practical problems have you experienced with the procedures in place for moving excise goods to exempt consignees (tick all that apply)? 110

111 One Member State (NL) described how the paper-based procedures worked when goods were send to exempted consignees: Customs officers have to make printouts from the e-ad's and send blank Reports of Receipt to the exempted consignees. When the Reports of Receipt are returned to the customs office they have to be keyed into the EMCS by the customs officers. 1.6 Key points Issues with interaction between the Directive 2008/118/EC and Directive 2003/96/EC (The Energy Tax Directive) mean that for some specific products, the movement procedure to be used (EMCS, SAAD etc.) is not always clear. Further assessment is needed as to whether certain products (e.g. lubricating oils, LNG) should be brought within the scope of the EMCS in order to improve controls against their potential misuse for fuel purposes or for excise fraud. The categorisation of denatured alcohol according to Article 27(1) of Directive 92/83/EEC creates uncertainty for both economic operators and administration. The current issues with the movement and control procedures cannot efficiently be solved without a clearer categorisation of denatured alcohol. Few simplified provisions (under Article 31) have been agreed between Member States, primarily because of a perceived lack of need. However, there was only a limited desire for EU facilitation actions in this area (e.g. a template agreement). 11 Member States reported applying the exemptions for small wine producers. However, concerns were raised about the inability to control consignors in the Member State of dispatch. The perceived risk of fraud associated with movements to exempt consignees (e.g. NATO; diplomatic entities) was relatively low. However, administrations did express concern that there were difficulties in obtaining confirmations of receipt of movements. 111

112 8. Coherence with customs procedures This chapter assesses the level of coordination between customs procedures and the movement of excise duty goods under suspension. The following topics are covered: A description of the legal requirements for exporting excise goods moved under duty suspension The extent to which such procedures are used by economic operators The practical problems involving the export, import and transit procedures and EMCS movements The impact of these practical issues in terms of administrative costs, obstacles to trade and the risk of fraud. 1.1 Problems perceived with export and import procedures The procedures for excise duty goods under suspension have to be coordinated with customs procedures when excise duty goods are exported or imported. The section below shows that economic operators and Member States considered the export procedures to be more problematic than import procedures Export procedures Member State authorities and economic operators recognise the absence of coherence between the excise and export procedures as being a problem. As shown in Figure 37, more than 80% of the Member States were of the opinion that the current arrangements, obligations and procedures related to the movement of excise duty goods under suspension were not coherent with the arrangements, obligations and procedures applicable to customs operations and export. Figure 37: Q49, In your opinion, are the current arrangements, obligations and procedures related to the movement of excise duty goods under suspension coherent with the arrangements, obligations and procedures applicable to customs operations (export)? Source: Questionnaire to Member States Similarly, economic operators were concerned about the linkages between customs and excise procedures. Among the exporters of excise goods, (N=154) the level of satisfaction with the coordination between excise and customs procedures particularly the EMCS and ECS appeared to be rather negative, despite a substantial number of respondents expressing satisfaction. Figure 38 shows that overall, 41% of 112

113 the respondents stated they were not satisfied with the coordination between excise and customs procedures. Figure 38: Please indicate the extent to which you agree or disagree with the following statement: I am satisfied with the coordination between excise and customs procedures particularly EMCS and the ECS (Export Control System). (N=154) 35% 30% 31% 25% 23% 20% 18% 15% 14% 10% 8% 5% 5% 0% Strongly agree (N= 8 ) Agree (N= 47 ) Neither agree nor disagree (N= 22 ) Disagree (N= 28 ) Strongly disagree (N= 36 ) Don t know (N= 13 ) Note: The N in the title refers to the unique number of respondents answering the question, whereas the N for each answer refers to the number of responses relating to the specific answer. These may differ when the respondents are operating in more than one country/industry. Only respondents who have answered Yes to question 98 were asked this question. Source: Survey of economic operators, March-September The case studies showed a very similar picture with regard to the problems involving the export of excise goods. All Member State authorities interviewed considered this to be an important issue, whereas the view among the economic operators was more mixed, chiefly depending on the amount of exports being organised and whether these were cases of direct or indirect export Import procedures A gap exists in the coordination of imports which is similar to the above-mentioned issues with the coordination of customs and excise exporting procedures. The current technical specifications of the EMCS are insufficient, and are not aligned with current customs and excise legislation. Accordingly, the existing description of the connection between the importing procedures and the EMCS appears to be inadequate, making it difficult to determine what legal or procedural gaps may exist on the customs side of the interaction. These issues were recognised by 19 out of the 27 Member States which did not think the excise arrangements were coherent with import arrangements. However, compared with the export procedures, economic operators were less concerned about the procedures for the importation of excise duty goods. Only 17% of the importers of excise goods stated being unsatisfied with the coordination of excise and customs import procedures, compared to 41% that were dissatisfied with the coordination of exports. 113

114 Figure 39: Please indicate the extent to which you agree or disagree with the following statement: I am satisfied with the coordination between excise and customs import procedures. (N=125) 60% 50% 50% 40% 30% 23% 20% 11% 10% 3% 6% 6% 0% Strongly agree (N= 4 ) Agree (N= 62 ) Neither agree nor disagree (N= 29 ) Disagree (N= 14 ) Strongly disagree (N= 8 ) Don t know (N= 8 ) Note: The N in the title refers to the unique number of respondents answering the question, whereas the N for each answer refers to the number of responses relating to the specific answer. These may differ when the respondents are operating in more than one country/industry. Only respondents who have answered Yes to question 109 were asked this question. Source: Survey of economic operators, March-September 2015 The most important problem noted concerning the import procedure was the variation in national workarounds, which increased compliance costs (referred to by 55% of respondents who were not satisfied with the coordination between excise and customs importing procedures). Uncertainty about fall-back procedures (14%) and an increased risk of fraud due to the variation in procedures (18%) were less important problems. 1.2 Procedures for exporting excise goods As the previous analysis shows, the main coordination issue involving excise and customs centres on export procedures. The following sections will therefore focus on these. Nevertheless, the assessment also highlights systemic gaps between customs and excise procedures that also affect import procedures. The current legislative acquis lays down specific rules for the export of excise duty goods outside the customs territory of the EU. In order to safeguard the budgetary interests of Member States, and to protect against fraud, provisions for the monitoring and control of the goods are in place which involve the interaction of the EMCS and the Export Control System (ECS). These are briefly explained in the section below. The main concern with these procedures is that they are not coherent in their use of reference codes. While EMCS movements each have a unique reference code (ARC), this code is not consistently used for customs procedures involving excise goods, and therefore it is not always possible to directly link the different movements. Some Member States use Box 40 or 44 of the Single Administrative Document (SAD) accompanying exports to reference the ARC. However, the main reference for customs 114

115 procedures is the Movement Reference Number (MRN) which is automatically allocated by the customs office which accepts the declaration of export for a given movement. Table 18: Key terms ECS ARC Office of export Office of exit IE829 notification IE839 notification The Export Control System (ECS) is used for the exchange of messages and data relating to the export procedure between national customs administrations; between them and the economic operators; and with the European Commission. The Administrative Reference Code (ARC) is a unique reference code assigned to each e-ad. Customs office of export means the customs office designated by the customs authorities in accordance with the customs rules where the formalities for assigning goods leaving the customs territory of the [Union] for a customs-approved treatment or use, including appropriate risk-based controls, are to be completed 172. Customs office of exit means the customs office designated by the customs authorities in accordance with the customs rules at which goods must be presented before they leave the customs territory of the [Union] and at which they will be subject to customs controls relating to the completion of exit formalities, including appropriate risk-based controls 173. Cross-check successful. This message is generated by the national EMCS application and sent to the customs application of the Member State of dispatch/export, indicating that the data in an export declaration and the matching e-ad or e-ads is consistent. It is also sent to the consignor. The message is only recorded if the Member State of export is different to the Member State of dispatch. Cross-check unsuccessful. This message is generated by the national EMCS application and sent to the customs application of the Member State of dispatch/export and the consignor, indicating that the data in an export declaration and the matching e-ad or e-ads is not consistent. The message is only recorded if the Member State of export is different to the Member State of dispatch. Where excise products are exported to countries outside the EU, EMCS movements are followed by an export procedure. There are three possible scenarios for an excise consignment moving under suspension arrangements and which is to be exported outside the EU, depending on where the export formalities are completed: 1) Local clearance at export: the consignor submits both the e-ad and the export declaration at his own premises. 2) Customs clearance at departure: the export operation is performed at the office of export located in the Member State of dispatch. The consignor submits only the e-ad, whereas the declarant submits the export declaration to the customs office of export. 3) Customs clearance in another Member State: (i.e. where the Member State of dispatch and the Member State of export are different). 172 Community Customs Code (CCC): COUNCIL REGULATION (EEC) Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code (consolidated version). The CCC will be replaced by the Union Customs Code (UCC) which was adopted on 9 October It will be implemented by a Delegated Act (DA) and Implementing Act (IA). The UCC, DA and IA will take legal effect across all EU Member States from 1 May Ibid. 115

116 Movements under duty suspension are not discharged at the time the export formalities are started, but only once the exit of the goods is completed and confirmed. The monitoring of the physical exit of excise goods from the territory of the EU relies on the Export Control System (ECS). The goods exit the EU from a location which is under the supervision of the customs office of exit, and the exit results are returned to the customs office of export. It is possible for the customs office of exit to be located in a different Member State than the office of export. An overview of how the export procedure could theoretically function is presented in Figure 40 below and in the following paragraphs. It should be noted that the given explanations refer to a suggested procedure for the export of excise goods as presented in the FESS. Member States are neither obliged to nor consistently follow this approach in practice. Figure 40: Export procedure (customs clearance and departure) The figure above depicts a simplified version of how the export procedure is described in the FESS. It is only included in order to give an idea of what a procedure could look like. In practice, the nature of trading relations may be different and the details of the communication between the EMCS and the ECS vary across the Member States. The arrangements depicted are not fully in line with customs legislation, since the decision to release goods for export is not primarily concerned with the potential existence of discrepancies between the excise documentation and the customs documentation. Submission and validation of an e-ad The trader (excise consignor) wishing to export an excise duty good submits a draft e-ad to the competent authorities in the Member State of dispatch indicating that the destination involves export. After a positive validation by the competent authorities, the trader receives a unique registration number the Administrative Reference Code (ARC). 116

117 Submission of export declaration and cross-checking The consignee of the e-ad, who can as well be the declarant, submits the export declaration to the customs office of export, and the office of export forwards it to the EMCS. At this point the EMCS should be able to cross-check the data contained in the export declaration and the e-ad. If the data are consistent, the EMCS should forward an IE 829 message to the ECS and to the consignor. This is treated as a proxy for a notification of release for export in the FESS, even though it occurs before the release decision has actually been made, thus leading to potential desynchronisation. Similarly, if the cross-check fails, the EMCS sends an IE 839 to the ECS and to the consignor. This is treated by the FESS as a proxy for a refusal of release, even though customs are still legally entitled to allow a release for export. Upon receipt of the export declaration from the customs export application (either the IE515 or any equivalent national notification), the EMCS application of the Member State of export is supposed to cross-check the contents of the e-ad and the export data (IE515). Cross-checking can also be performed by customs. Not all Member States perform cross-checking, and how it is done is not harmonised at the EU level. Because there is no legal base / obligation to perform cross-checks, the FESS did not prescribe procedures that were intended to be directly implementable with regard to the export of excise goods, and as a result, the Member States have had to develop workarounds. Confirmation of exit In theory, exit results from the office of exit are noted in the ECS, which forwards them to the EMCS as information to be used in the creation of a Report of Export in the EMCS. The results should be disseminated further to the parties involved in the movement, i.e. the authorities of the Member State of dispatch and the consignor. Article 25 of Directive 2008/118/EC states that a Report of Export shall be completed by the competent authorities in the Member State of export on the basis of the exit control results drawn up by the customs office of exit, certifying that the excise goods have left the customs territory of the EU. On the basis of the Report of Export, the movement is closed in the EMCS. 1.3 Sources of problems As will be shown below, the main problem with the coordination between export and excise procedures is that information is not transferred from one process to the other. This is particularly significant when the Member State of dispatch is different to the Member State of export 174. Where the confirmation of exit from ECS is not received by the authorities of the Member State of dispatch, the EMCS movement remains open and often has to be closed manually by the authorities, creating an administrative burden and even carrying a risk of liability for the consignor. The operators saw unclosed movements as being a significant concern. Of those that considered the coordination between excise and customs to be unsatisfactory, 92% agreed that unclosed movements exposed them to a tax liability risk. 70% were concerned about alternative proofs of exit not being accepted and for another 41% the various national workarounds increased compliance costs. 174 In this section, the definitions of Member State of dispatch and Member State of export are those used for customs purposes. 117

118 Figure 41: You stated that you were unsatisfied with the coordination between customs and excise. What are the main issues when coordination between excise and customs export procedures is not satisfactory? (N=64) 0% 20% 40% 60% 80% 100% Non-closure of the excise movement increases risk of tax liability (N= 59 ) 92% Non acceptance of alternative proofs of exit increases compliance costs (N= 45 ) 70% Variation in national workarounds increases compliance costs (N= 26 ) 41% Uncertainty in the case of fall-back arrangements increases compliance costs (N= 11 ) 17% The variation between national procedures increases the risk of fraud (N= 5 ) Other (N= 8 ) 8% 13% Don t know / not applicable (N= 1 ) 2% Note: Respondents could select multiple answers, and therefore the total of the percentages shown in the figure may exceed 100. The N in the title refers to the unique number of respondents answering the question, whereas the N for each answer refers to the number of responses relating to the particular answer. These may differ when the respondents are operating in more than one country/industry. Source: Survey of economic operators, March-September Sources and drivers of problems in the legislation According to EU legislation, the Member States of dispatch are obliged to forward the e-ad details to the Member State of export if that Member State differs from the Member State of dispatch (Article 21(5) of Directive 2008/118/EC). Article 21(6) states that it must be possible for that document to be presented to the competent authorities on request throughout the duration of a movement being performed under an excise duty suspension arrangement. The first significant issue is that the export declaration does not contain a reference back to the e-ad. There is currently no explicit legal obligation for the export declarant to provide the ARC to the customs office of export, though it would be needed to request the e-ad 175. If the ARC is not provided, the competent office of export cannot compare the necessary movement details from the competent excise authorities in the Member State of export, and the two procedures cannot be properly linked. This can lead to situations where the excise procedure cannot be closed, as there are no legal provisions for forwarding the e-ad data to the customs authorities when they are requested. There is no legal provision in Directive 2008/118/EC to oblige cross-checking of the e- AD and the customs declaration. On receiving the request for the e-ad, the Member State of export should provide the e-ad to the customs office of export. However, 175 Where the Member State of Dispatch and the Member State of Export differ, without a linkage between the ARC number of the e-ad and the MRN of the corresponding export declaration it would not be possible for the competent authorities in the Member State of Export to fulfil their legal obligations to the Member State of Dispatch. 118

119 there is no legal obligation under the Directive (or in Commission Regulation 684/2009) to forward the e-ad data to the customs authorities. Article 25 of Directive 2008/118/EC states that a Report of Export shall be completed by the competent authorities in the Member State of export on the basis of the exit control results drawn up by the customs office of exit, certifying that the excise goods have left the customs territory of the EU. However, if the office of exit does not forward an exit result message to the customs office of export, the office of export cannot verify and close the movement. The office of export may start an enquiry procedure in order to close the export movement. According to Article 28(2) of the Directive, in the absence of the Report of Export, alternative proofs of exit of the end of the movement of excise goods under a duty suspension arrangement may be provided. The rules for providing this proof of exit vary between the Member States. An endorsement by the competent authorities is based on appropriate evidence that gives the Member State of dispatch discretion regarding whether to accept the evidence as appropriate. The Community Customs Code Implementing Provisions (CCIP) contain a list of acceptable proofs, but this list is not matched in Directive 2008/118/EC. Because no agreement exists between the Member States on what constitutes acceptable alternative proofs of exit, the current arrangements are not transparent, and traders incur legal uncertainty 176. Linking the EMCS to the ECS The second significant issue connected with the coherence of the procedures is the absence of a linkage between the EMCS and the ECS. At the national level, the Member States have implemented the following two solutions for establish a linkage between the EMCS and the ECS: Some MSs follow the DDNXA (Design Document for National Export Application) the ARC is mentioned in Box 40 of the Export declaration; Some MSs mention the e-ad as a supporting document in Box 44 of the export declaration 177. Using these linkages, 21 of the Member States reported that they did systematically receive exit results from the ECS. These linkages can be used when the Member State of dispatch is also the Member State of export. Otherwise, the procedure is more complicated to implement, as all the parties involved need to be informed about the workarounds that exist. However, other Member States have not adopted any particular approach to dealing with this problem, and excise movements stay open after the export has taken place. Of the 26 Member States that responded to this question, five reported that they did not systematically receive exit results from the ECS in the Member State of exit. It appears that in some cases there may not have been any attempt by the Member States to implement the specifications and establish a link. In such cases the Member States obtain the results from the ECS, and then enter the data into the EMCS manually. Using Box 40 or 44, the Member States have been able to implement a link between ECS and EMCS. However, not all Member States indicate the ARC in their excise 176 The potential implications of this are described in Section Business Case: UCC Automated Export System (AES), DG TAXUD A3, v 1.20, Oct 2014, p

120 documents. There is then no way to avoid the need for manual closing, and resources are required in order to coordinate with the administration of the other Member State involved. The different standards for referencing the ARC lead to problems with the movement of excise goods which are intended to be exported between the Member States. 1.4 Economic importance of exports Monitoring data shows that the procedures for indirect export are extensively used by the economic operators from a significant number of Member States. A number of messages are generated during the export procedure; two of these are described below. While they do not show the entire picture of the extent of the movements exported (in particular, the number of exports of excise goods exiting from the Member State of dispatch is not known), they can give an indication of how often indirect exports take place. IE801 with destination export Due to the manner in which CIS/MISE statistics are generated, this message will only be visible when the customs office of export is in a different Member State to the Member State of dispatch of the excise consignment. In 2014 (the last full year for which figures are available) there were 18,519 consignments with destination export that involved more than one Member State. IE829 notification of accepted export This is a message generated by the national EMCS application to the customs application of the Member State of dispatch/export. CS/MISE only records these messages if the Member State of export is different to the Member State of dispatch (i.e. customs clearance occurs in another Member State). It indicates that the data in an export declaration and the matching e-ad or e-ads are consistent. Figure 42 below shows that France generated over 800 such messages in 2014, meaning that it was communicating with an office of export in a different Member State. Belgium had the second highest number, followed by Italy. 120

121 Figure 42: IE829 messages per Member State in 2014, cross-checking successful (more than one MS involved) Source: CS/MISE/ITSM statistics platform As was pointed out in Section and detailed in Appendix 8 - Economic value of movements under suspension (detailed figures), it is estimated that the total value of goods moved under suspension with destination export is EUR 124 bn. Moreover, exports from the EU (a.k.a. "extra-eu exports") represent about one third of the total volume of excise goods movements (see Table 11). 1.5 Impact of the practical problems The impact of the reported practical problems with regards to the coherence between customs and export procedures is significant. The issues create increased administrative costs for Member State administrations, create obstacles to trade and increase the risk of fraud Administrative costs For Member State authorities, manual interventions are necessary for bridging the gap between excise and customs procedures. They involve carrying out verifications and ensuring that movements are closed. As Figure 43 shows, 22 Member States considered that these tasks increased their administrative costs. Those Member States which only felt a low impact noted that they either had a low number of exports (such as Luxembourg) or a well-functioning procedure for manually closing movements (such as Croatia). 121

122 Figure 43: What is the impact of the coordination issues between excise and customs in terms of administrative costs for your administration? Source: Questionnaire to Member States The high impact of the issue is clear from the number of movements that have to be closed manually every year, as reported in the case studies. In Germany, 2.8% of all movements (4,500 movements per year) have to be closed on the basis of alternative proofs of exit. The French authorities reported that they had to close more than 12,000 movements manually in In the UK, there is a backlog of thousands of movements that have remained open, and for which the authorities would require significant resources to close manually by requesting alternative proofs of exit from economic operators. It is impossible for an e-ad with destination export that is exported from a MS which is different from the MS of dispatch to be automatically closed by the ECS interface, as currently there is no box defined by Customs legislation (Customs Code and/or implementing acts) for entering the ARC. If the ARC is not correct in the e-ad there is an administrative cost for customs authorities which means handling questions from exporters and handling corrections in the export declaration. Swedish customs In particular, the German authorities emphasised that significant resources were invested in ensuring manual cross-checking and the manual closing of movements. However, the French and Belgian authorities stated that the administrative burden mainly fell on the economic operators, which have to follow up on unclosed movements and collect alternative proofs of exit where necessary. Operators consulted in the context of the case studies reported that they had to invest between two and four hours in order to provide documentation for each movement affected. Depending on the size of the operator and the overall number of exports, the manual closing of movements was reported to take place up to 100 times per year. One operator noted that about 25% of its exports were problematic, while for another the figure was closer to 50%. The authorities underlined that particularly for businesses with little experience of exporting, the procedures created a significant burden Obstacles to trade Fewer Member States considered the coordination issues between excise and customs to hinder intra-eu trade, but still 14 of them thought this was an issue. 122

123 Figure 44: What is the impact of the coordination issues between excise and customs in terms of hindering or preventing intra-eu trade? Source: Questionnaire to Member States Member States reported that the risk of having movements remain unclosed could prevent operators from exporting goods. Economic operators would be left in a state of uncertainty about the outcome of their movements when there were issues with transmitting reports of export. Because we do not automatically send a report of export, we leave the exporters in uncertainty about the discharge of the movement for a (too) long period. Dutch customs For the economic operators responding to the survey, the effect on trade of the coordination issues was even more relevant than for the Member State authorities. Essentially, all the operators perceived the problems of the coordination between customs and excise which they noted as being relevant for them as also being an obstacle to trade. 58% of the economic operators who considered the non-closure of excise movements increased the risk of tax liability also strongly agreed that this would create obstacles to trade. A further 22% agreed. Of those operators that reported alternative proofs of exit not being accepted, 22% strongly agreed and 69% agreed that this issue would create obstacles to trade. This was confirmed by the case studies, where economic operators clearly stated that they would avoid indirect exports because of common complications Risk of fraud Finally, the risk of fraud related to the missing linkage between customs and excise was considered to be important by the Member States. 20 of them reported that this issue would increase the risk of fraud. 13 even perceived a (very) high impact from the reporting gap involving the respective procedures for customs and excise. 123

124 Figure 45: What is the impact of the coordination issues between excise and customs in terms of an increased risk of fraud? Source: Questionnaire to Member States The Member States reported that fraudulent operators took advantage of the limited crosschecking and the time-consuming procedure for linking e-ads to export documents by making false export declarations for goods so that consignee information would not get checked. This way, goods could stay in the EU market without excise being paid. Such fraud was also a concern to some of the economic operators interviewed in the course of the case studies. Generally, unclosed e-ads should be the problem of the MS of dispatch. Nevertheless, as there are a lot of unclosed e-ads there is a risk that goods aren t exported and are left somewhere in Latvia. We have tried to identify the relevant export declarations in our customs documentation but have not been very successful. Latvian customs The issues involving coordination between excise and customs procedures can mean a revenue loss for Member States in those cases where fraudulent economic operators take advantage of open e-ads for indirect exports. The Latvian and Lithuanian authorities recalled instances where exports from another Member State of dispatch would travel through their territory to be exported via a third Member State. In these cases, the authorities of the concerned Member States would not be able to sufficiently monitor the movement. If they were fraudulently sold in their territory, it would take a long time until the Member State of dispatch was informed that no exit had taken place and investigations involving the operators could start. Even where such cases are solved, the uncertainties affecting shortages or losses described in Section might not enable the Member State concerned to collect excise duty. 1.6 Suggestions for improvement Changes and improvements to the existing arrangements to be taken at EU level are discussed in the context of the Customs and Fiscalis Project Group for Coordination of Excise and Customs procedures in relation to movements of excise goods under EMCS. Here, the specific issues have been analysed, sources and drivers have been identified, and solutions will have to be developed 178. The purpose of the treatment of the issue in the present report has been to identify its magnitude and emphasise its impacts. Therefore only a very short overview of the solutions suggested in the context of the stakeholder consultations will be presented here. Despite the significant number of problematic movements, the economic operators and the Member State authorities stressed that the introduction of the EMCS had also 178 See, for example, Working Group 2 Report: Fiscalis 2013/Customs 2013 Project Group for coordination of excise and customs procedures, Meeting of June 2014, CED

125 facilitated the coordination between excise movements and customs procedures. Compared with the previous paper-based movements, the EMCS introduced improvements in terms of coordination. Need for EU action When asked whether EU actions were required to improve the coordination between excise and customs procedures, 22 Member States agreed. They suggested that there would be scope to develop a common vocabulary for customs and excise, to create an interface between the EMCS and the ECS at the EU level, to increase coordination between the Member States, and to describe procedures in greater detail, such as via the completion of an export declaration relating to excise. An official way to request ARC numbers from other Member States could limit the current complications. Many referred to the Fiscalis/Customs 2020 project group. The aim of an optimal coordination between excise duty and customs procedures should be the development of the basis of a future interface between customs and excise duty procedures, for example by setting common standards for the different data sets of a customs declaration and an EMCS procedure. These should be synchronised in order to allow for automatic data collation between the two procedures via the interface. The topic of a future interface between customs and excise duty procedures is on the agenda of the Fiscalis/Customs 2020 project group. German customs Transit procedure after export Some operators avoid combining excise and customs procedures for indirect exports by using transit procedures. However, the aggregated stakeholder perceptions show that this is not a satisfactory solution. Furthermore, the Commission considers that there is no legal basis in excise legislation for the use of a transit procedure following an export procedure, and that goods transported in such a way are released for consumption irregularly if the corresponding export procedure is closed when the transit procedure starts, i.e. before the goods physically leave the EU customs territory 179. While excise goods that are exported to a third country can be moved as an indirect export to another Member State under the EMCS, the transit procedure is also used. In such a case, the export procedure is closed by the transit procedure, which starts at the office of export. The goods are then exported under the transit procedure. Of 27 Member States, 11 reported that the combination of an export procedure followed by a transit procedure caused problems. Such a procedure requires manual closure of the EMCS movement and thus creates additional administrative work. Additionally, the information in the EMCS is no longer accurate, as the goods only actually leave the EU once the transit procedure is completed. The closure of the export procedure triggers an anticipated closure of the EMCS procedure as a result of the arrangements for closing the EMCS procedure when the export procedure ends, even though the goods are still moving within the EU under the transit procedure. 179 This is reflected in the prohibitions on the use of these procedures in the UCC. 125

126 In the transport declaration for transit the MRN of the export declaration is mentioned. This makes it possible to link the transit procedure to the export e-ad in the end. This must be done manually and thus it is a laborious process. In case of non-discharge of the transit procedure, the collection of excise duties is governed by the customs procedures. If the e-ad has already been closed on the basis of the Conformation of Exit, it is questionable whether the excise duties can be recovered. The procedures of the Customs legislation and the Excise legislation do not match. Dutch customs 40% of the respondents who exported excise duty goods reported using this procedure (45% did not, and 15% did not know if this procedure was used). They listed advantages with regard to the time and costs saved, and to an improved ability to monitor movements. But they also noted that there were problems in terms of the coordination of information across the excise and transit procedures. Procedures that combined an export procedure with a transit procedure for the export of excise products caused problems for 26% of respondents that used them. Figure 46: Does the combination of an export procedure followed by a transit procedure for the export of excise goods cause any difficulties? (N=61) 8% 26% Yes (N= 16 ) No (N= 40 ) 66% Don't know (N= 5 ) Note: The N in the title refers to the unique number of respondents answering the question, whereas the N for each answer refers to the number of responses relating to the particular answer. These may differ when the respondents are operating in more than one country/industry. Only respondents who answered Yes to question 107 were asked this question. Source: Survey to economic operators, March-September Transit procedure after entry and before release for free circulation The customs transit procedure can also be used after the physical entry of excise goods into the customs territory. It allows for the temporary suspension of those duties that are applicable on release for free circulation (import), thereby allowing customs clearance formalities to take place at the destination rather than at the point of entry into the customs territory. This procedure was considered to cause problems by fewer Member States than the transit procedure followed by export. Only four of 26 Member States responded that the use of a transit procedure followed by an import declaration causes problems. However, a risk of fraud linked to these movements was highlighted. Of the economic operators importing excise goods, 32% reported using this procedure (58% did not, and 10% did not know if it was being used). Some noted that this was a 126

127 simpler and faster process for them, but many stated that there were no particular advantages. Only 17% of operators using the transit procedure following an import of excise duty goods experienced difficulties with it. These problems were reported to concern cases of losses that occurred during the movement, as well as the missing linkage between the transit and the excise procedure. Figure 48: Does the transit procedure followed by an import declaration during the import of excise goods cause any difficulties? (N=40) 8% 17% Yes (N= 7 ) No (N= 30 ) Don't know (N= 3 ) 75% Note: The N in the title refers to the unique number of respondents answering the question, whereas the N for each answer refers to the number of responses relating to the particular answer. These may differ when the respondents are operating in more than one country/industry. Only respondents who answered Yes to question 116 were asked this question. Source: Survey to economic operators, March-September Key points The coordination between customs and excise procedures becomes important when excise duty goods are exported outside the EU under duty suspension. Significant problems have been identified with the coordination of the two procedures. The main consequence of the lack of coordination is that EMCS movements have to be closed manually, representing both a significant administrative burden for authorities and economic operators and a risk of tax liability for economic operators, plus the creation of opportunities for fraud. While some Member States have been able to develop workarounds, these cannot be used when exports are carried out via another Member State. Many Member States mentioned the common Fiscalis and Customs 2020 Project Group in connection with the development of possible solutions. 127

128 9. Conclusions and recommendations 1.1 Conclusions Effectiveness of the arrangements The overall objectives of Directive 2008/118/EC are to ensure the proper functioning of the internal market, and to protect the financial interests of the Member States (i.e. to ensure that excise duty revenue is properly collected). The EMCS has helped to ensure the proper functioning of the internal market The Directive, which provides the legal basis for the Excise Movement and Control System (EMCS), has clearly achieved the objective of simplifying and modernising excise procedures, making a strong contribution towards the proper functioning of the internal market. The electronic EMCS system replaced the previous paper-based procedure, and has provided many additional benefits: for the majority of Member States, the EMCS has reduced administrative costs (see the conclusions on efficiency). For most of the economic operators, the EMCS represents a clear improvement over the previous system. The EMCS was reported to be less time-consuming, and provides an overview of the open movements. Overall, the current arrangements provide a clear and consistent framework for the holding and movement of excise goods. There are a limited number of areas where differing interpretations by Member States are causing variations in the rules and creating uncertainty for economic operators in limited circumstances. For example, the rules on liability for excise duty in the event of shortages are currently a source of confusion and need to be clarified. The mechanisms for enabling communication to take place between actors (e.g. between a consignor and the Member State of destination) need to be improved, either through the use of an existing functionality or the development of a new messaging functionality. Uniform rules for the EMCS are essential for the proper functioning of the internal market. Harmonising the access to the EMCS by providing common definitions for the operators authorised to hold and move excise goods under suspension further contributes to this. The arrangements have generally ensured that the scope for discriminatory conditions in different Member States has been limited. The competence to authorise economic operators to hold and move excise goods remains a national one. There was little evidence of any significant barriers to market access. Protecting the financial interests of the Member States One of the core objectives behind the development of the EMCS was to help combat certain types of fraud 180, and to address a number of the inherent weaknesses identified in the paper-based arrangement. The EMCS, in conjunction with SEED (System for Exchange of Excise Data) has clearly improved the control of traders and consignments in the Member State of departure, and provides administrations with appropriate prior information to facilitate timely, targeted and selective controls. 180 High Level Group on fraud in the tobacco and alcohol sectors, Report to Directors General for Customs and Indirect Taxation,

129 The advantages of the EMCS system as an early warning system for detecting fraud mainly relate to the access to information and risk analysis/monitoring which the system facilitates. Excise fraud is now more difficult than under the previous paperbased arrangements. Opportunities for excise fraud still exist and mainly relate to the type of data being recorded in the system and the inconsistencies in the reporting system. Some Member States pointed to the lack of risk analysis at the EU level, or to the lack of common risk parameters. Evidently, the majority of excise fraud takes place outside the EMCS; however, evidence suggests that the EMCS is still very relevant in terms of responding to the type of fraud it set out to combat Efficiency of the arrangements The existing arrangements are generally cost effective for the majority of stakeholders, and the transition to an electronic environment has increased the efficiency of movement handling. A significant number of Member States (though not all of them 181 ) reported a reduction in administrative costs compared to the previous paper-based arrangements. The elimination of paper and the freeing up of resources to focus on high-risk movements were also signalled as important benefits. Overall, the evidence suggests that the EMCS has increased efficiency for administrations when overseeing the movements of excise products. Apart from the cost savings identified, in those situations where movements complete normally, the economic operators reported additional benefits connected with the ability to follow up movements (for both sender and receiver), improved auditing and control, and the quality of movement documentation. The benefits of the EMCS were mentioned by both large and small businesses, although for large businesses the economies of scale associated with the electronic system were more advantageous. The main sources of administrative burdens were associated with certain exceptions to the normal movement procedures e.g. with shortages, errors in the e-ad, changes of destination etc., which resulted in the need for clarification and trader-trader as well as trader-customs communication, thus increasing compliance costs. Unnecessary administrative and regulatory burden Overall, the arrangements for the movement of excise goods have proved to reduce the administrative burden compared to the paper-based arrangements. However, some provisions were found to cause unnecessary administrative and regulatory burdens. The two most important of these concern the treatment of shortages and the coherence with customs. Article 10 of the Directive is causing uncertainty with regards to which Member State is competent to collect excise duty in the event of irregularities, and this specifically affects the handling of shortages. In addition, the absence of a linkage between the customs procedures and the excise procedures creates significant work, both for economic operators and for authorities, in ensuring that EMCS movements are closed after export. While overall, established economic operators did not report major problems resulting from authorisation requirements, some scope for measures to simplify authorisation 181 In some cases this was because of the increased degree of oversight that the EMCS enabled. 129

130 procedures and alleviate administrative burdens has been identified. These measures concern both established and potential entrants (e.g. the provision of information on requirements and their clarification, the reduction and waivers of guarantees based on reliability), or they take the form of the specific support of small operators through limited requirements and reduced guarantees Continuing relevance of the arrangements The general arrangements for the holding and movement of excise products are still highly relevant both to economic operators and to administrations. The electronic system has simplified and modernised excise procedures, and is meeting the needs of the majority of stakeholders. In terms of fraud, the EMCS is still responding to the types of fraud it set out to combat. Minor operational adjustments (e.g. journey time limits, collaboration on risk analysis) are now needed to ensure that the EMCS can continue to respond effectively to fraud. A number of specific arrangements are also in place for certain types of actors and particular products. For many stakeholders, the interaction between Directive 2003/96/EC and Directive 2008/118/EC is not clear, leading to confusion over which movement procedure should be used for certain products not mentioned in Article 20(1) of Directive 2003/96/EC. There were requests from stakeholders that certain products (e.g. LNG; heavy mineral oils) should be included within the scope of the EMCS, which is evidence of the relevance of the system s capacity to facilitate movement and control. Work to clarify the classification of denatured alcohol in the context of Directive 92/83/EEC is on-going. The uncertainty with regard to whether an alcohol is recognised as being completely denatured or is denatured according to Article 27(19(b) is the main issue, and there is no evidence to suggest that introducing additional movement and control procedures would help to solve the current uncertainties around how denatured alcohol should be moved. Limited simplified arrangements have been agreed by Member States (under Article 31 of the Directive), and it appears that such provisions are still relevant, despite the limited use that the Member States are making of them. The provisions exempting small wine producers from the EMCS requirements (under Article 40) are still being applied by a number of Member States. Some administrations raised concerns over their ability to monitor and control such movements EU added value As the analysis in Section has shown, approaching excise procedures at an EU level has proven to be of great value. From both a cost and control perspective, the evidence indicates that only an EU-wide system can provide the uniformity and harmonised conditions necessary to ensure the proper functioning of the internal market. Similar achievements could not have been made through a national, bilateral or international approach. This conclusion is applicable to the introduction of the EMCS but goes beyond it, covering also the general provisions for movements, provisions for the authorisation of economic operators, and for those provisions which refer to specific products. While some of these could be improved in terms of clarity, Member States and economic operators clearly saw a need to do so at the EU level. The central coordination role played by the Commission and the governance of the EMCS that brings together all 28 Member States brings clear gains of efficiency, as Section describes. Furthermore, its effectiveness in terms of ensuring the 130

131 functioning of the internal market and the combating of fraud demonstrates the EU added value of the provisions. The analysis has also shown that continued coordination and action at the EU level is vital to the successful functioning of the arrangements in terms of ensuring the maintenance of the EMCS, but also for providing a common legal basis for governing the movement and control procedures Coherence with customs provisions The evaluation assessed the coherence of the current arrangements for the movement of excise duty goods under suspension with the customs arrangements. The clear conclusion can be drawn that there is scope to further optimise the harmonisation of procedures. Overall, the Member State authorities and economic operators consulted agreed that problems exist with the exportation of excise goods. The procedures for importing excise products were also a concern to Member States, but were shown to create less practical issues for economic operators. The analysis confirmed the findings of the Customs and Fiscalis Project Group for Coordination of Excise and Customs procedures in relation to movements of excise goods under EMCS which identified the insufficiency of comparison between the data used in the EMCS and the ECS. Document references to EMCS movements in the ECS are not consistently applied. To reference the ARC in export declarations, some Member States use Box 40, others Box 44, and some have no unified approach. In addition, the use of exit messages and alternative proofs of exit is not coherent across the excise and customs procedures. These issues have an impact on the effectiveness and efficiency of the procedures in question. Considerable administrative costs are created, as are opportunities for fraud. The Fiscalis and Customs Project Group has worked on identifying the issues connected with the lack of coordination, their drivers, and proposed preliminary solutions, which include suggestions for the revision of Directive 118/2008/EEC. 1.2 Recommendations Based on the findings of our evaluation, the following recommendations can be considered: Table 19: Recommendation on the management of authorisations Recommendation Management of authorisations: Member States should ensure that information on authorisation requirements and procedures is clear, transparent and made available to economic operators (preferably being published online). Responsible stakeholder(s) Member States Justification: Member States are responsible for laying down the requirements for becoming an authorised economic operator permitted to hold and move excise duty goods. Although the Commission has published some broad guidelines 182 on how this should be done, these are rather generic 183 and non- 182 Recommendation 2000/789/EC setting out guidelines for the authorisation of warehouse keepers. 183 A balance should be achieved between facilitating trade and exercising effective control"; "The amount of the guarantee should reflect the risk inherent in the activities of the warehouse keeper or the registered trader". 131

132 Recommendation Responsible stakeholder(s) prescriptive 184. Important differences in legal requirements between Member States (e.g. thresholds and minimum conditions) still exist. While the potential market impact of existing differences has not been ascertained in the context of this study, the research conducted has revealed that significant difficulties arise as a result of the variable access to information regarding concrete requirements. There is currently a clear disparity between Member States in the quality and clarity of the information they provide to economic operators about becoming an authorised excise operator. The complexity of the requirements for applying for authorisation is often quite high, with economic operators having particularly little knowledge of how the financial guarantee can be calculated. The research showed that some Member States still make no information, or only a little and very complex information, available online. This creates work both for the administrations, which often have to provide additional support both to economic operators and to the applicants, who find themselves in difficulties when preparing a complete application file. (For more information, see Section 1.4). Expected impact: Having information available for economic operators and publishing it online would help to ensure that the requirements connected with becoming authorised are clear and transparent. This is important for eliminating any unnecessary obstacles (and associated costs) in connection with becoming authorised, and for facilitating the process of authorisation for eligible operators. There are a number of best practices in Member States where clear and comprehensive information is available online, including initial eligibility requirements and how the level of guarantee (security) is calculated. Table 20: Recommendation on guarantees Recommendation Guarantees: Member States should ensure that guarantees are set at a level which is adequate to cover the risk of holding and moving the goods, but not to the extent that they discourage entry into the market by legitimate economic operators. Responsible stakeholder(s) Member States Justification: As with the requirements for becoming authorised, the competence for setting the level of guarantees for both the holding and the movement of goods under excise duty suspension resides with the Member States. In most Member States, operators have to lodge both a movement guarantee and an authorisation guarantee. These were considered by economic operators to be one of the most significant burdens associated with becoming authorised, despite the fact that reductions and waivers of guarantees are frequently implemented in order to support smaller operators, specific products and taxcompliant operators. Member States self-evidently must set the guarantee at an adequate level to cover the risk; however, attention should be given to ensuring that the guarantees do not place a disproportionate burden on businesses. Facilitating the burden for operators who have proven to be trustworthy should be prioritised where possible, while a range of flexible payment options should be ensured (see Section 3.4.3). Expected impact: Efforts to ensure that guarantees are flexible and reflect the level of risk involved will help to enable legitimate traders to access and continue to benefit from the internal market. By ensuring that businesses which have demonstrated a trustworthy record can benefit from reductions or waivers in agreed circumstances, the costs that legitimate businesses must bear in relation to this aspect of being authorised, which is perceived to be one of the most burdensome, will be reduced. Table 21: Recommendation on maximum journey time Recommendation Responsible stakeholder(s) 184 The recommendation lays down inter alia the type of information that should be obtained from the applicant and the type of information which should be communicated by the Member States to the warehouse keepers. 132

133 Recommendation Maximum journey time: In order to ensure that the EMCS is an effective tool in the fight against fraud, how the maximum journey time for a movement can be reduced should be explored, possibly including adapting it to the mode of transport and/or estimated journey distance. Responsible stakeholder(s) European Commission and Member States A possible adaptation would be the establishment in the EMCS of a normal duration of transport which would be adjusted in accordance with the relevant parameters. Such relevant parameters remain to be defined by the Commission and Member States, in dialogue with the stakeholders affected. Justification: Cross-border fraud involving excise duty goods is still possible even despite the use of the EMCS. Although it is not possible to accurately attribute the amount of fraud that results directly from it, a particular weakness of the system is widely regarded as being the (unreasonably) long maximum journey time. The maximum journey time has been designed to allow even a time-consuming movement from one corner of the EU to another to be executed comfortably; in certain cases, it is likely still relevant. However, the majority of movements take place between neighbouring Member States and make use of relatively fast modes of transport. (See section 5) Expected impact: Although it has not been possible to quantify the expected benefit of this recommendation, the adaptation of journey times is expected to close a potential loophole with minimum negative impact on the functioning of the system. But for this objective to be achieved, reasonable adaptation criteria should be applied, and flexibility should also be envisioned when it is explicitly requested by the traders. Table 22: Recommendation on joint risk analysis Recommendation Joint risk analysis: The feasibility of implementing a European risk analysis system should be explored. Such a system may include inter alia a database of movements, the developing of risk parameters for detecting unusual patterns (e.g. an alcohol producer intending to move cigarettes), with data provided by all Member States in relation to how long an operator has been in operation, where else it trades, and whether it is the subject of any current investigations. Responsible stakeholder(s) European Commission and Member States Justification: Similar to the above justification, cross-border fraud involving excise duty goods is still possible even in spite of the use of the EMCS. Its estimated importance (although difficult to accurately calculate) is considerable. While the current arrangements on administrative cooperation and the EMCS have already provided an important platform for cooperation between the Member States, more can be done to make use of the data that the electronic system can now provide. Expected impact: A European risk analysis system is likely to require significant efforts to set up, and would probably require political agreement, technical adjustments to the EMCS, and coordination of efforts by the European Commission. However, once set up, such a system is not expected to be costly to maintain or run, and it will provide Member State authorities with important information for targeting checks, identifying suspicious movements and combating fraud. Table 23: Recommendation on exceptions (e.g. irregularities, shortages) Recommendation Shortages: Article 10 of the Directive should be clarified so that the competence to collect the tax in the event of irregularities is clear. Such a clarification may require revision of the Directive. Responsible stakeholder(s) European Commission Justification: It may happen that the delivered goods do not match what is described in the e-ad 133

134 Recommendation Responsible stakeholder(s) (shortages, excesses or discrepancies). In this case, Directive 2008/118/EC (Article 10) lays down the rules for assessing which Member State has the right to claim the corresponding excise duties, depending on where the irregularity is deemed to have occurred 185. Dealing with shortages and irregularities was identified by a number of Member States as one of the most time-consuming aspects of implementing the requirements of the Directive. In many cases, Member States lack the confidence regarding when and on what grounds they should take action. The lack of clarity about Article 10 leads both to time lost for the authorities and excise duty loss. Expected impact: Revising the Directive will involve effort on the part of the Commission and other EU institutions in terms of legislative process; however, the expected impacts of the proposed change are expected to be exclusively positive, removing legal uncertainty from the application of Article 10 and thus reducing administrative and compliance costs both for Member States and for economic operators. Table 24: Recommendation on improved communication with EMCS Recommendation EMCS tools: Full use of the existing messages within the EMCS should be promoted to maximise the effectiveness of the arrangements this includes the usage of messages such as control reports, event reports and administrative cooperation functions, as well as messages such as explanations of the reasons for shortages. Responsible stakeholder(s) European Commission and Member States Justification: The EMCS has a range of functionalities for administrative cooperation (i.e. facilitating communication between competent authorities in Member States). There are also a number of messages that allow communication between a trader and the administration for providing more information on the movement itself or its related aspects. An analysis of a number of messages shows that they are only being fully utilised by a few Member States, or that the numbers sent by traders are also relatively low. Control reports (IE717), for example, can be used to request additional information or some form of action (e.g. a physical check) relating to a movement; however, their usage remains limited to relatively few Member States (see Section 2.2 for more information). Explanations of reasons for shortage reports (traders can use an EMCS message namely IE871 to submit explanations to their administration) are also little used; national systems in 8 Member States did not send reasons for shortages between Member States in 2014 (see Section for more information). Overall, it appears that an effort to promote messages could be made both by the European Commission and by Member States in order to ensure that both customs officials and traders have access to clear information and guidance on the EMCS functionalities available to them. Expected impact: Utilising the existing messages fully is likely to have a positive impact on a range of aspects, and will go some way towards solving many of the existing problems described in this report (e.g. communication between actors on shortages; communication between Member States on the status of movements). Control reports, for example, can go some way to helping to combat the problem of mirror loads, by quickly alerting other Member States of the fraudulent use of an ARC. Explanations for reasons of shortages can help to avoid time-consuming exchanges between traders and administrations. More efficient communication within the EMCS, and using administrative cooperation functionalities, will help to ensure that communications are more closely linked to a movement and will therefore help to avoid unnecessary communications using other means. 185 Paragraph 11 of the preamble to the Directive 2008/118/EC explains the logic: Excise duty should be due in the Member State on whose territory the irregularity has been committed which has led to the release for consumption or, if it is not possible to establish where the irregularity has been committed, it should be due in the Member State where it has been detected. Where excise goods do not arrive at their destination and no irregularity has been detected, the irregularity shall be deemed to have occurred in the Member State of dispatch. 134

135 Table 25: Recommendation on procedures for the movement of specific energy products Recommendation Clarify applicable movement and control procedures for particular energy products: There is a need for clarity as to which provisions of Directive 2008/118/EC apply to particular energy products, particularly for products not mentioned in Article 20(1) Directive 2003/96/EC. Furthermore, in order to improve control, bringing particular products within the scope of the EMCS (e.g. lubricating oils) should be considered. Responsible stakeholder(s) European Commission Justification: The scope of Directive 2003/96/EC is complex, and the interaction with Directive 2008/118/EC is a source of confusion for both Member States and economic operators. This leads to certain products being subject to diverging monitoring and control procedures, depending on the countries of dispatch and destination involved. This creates confusion and can also pose a risk for the effectiveness of the monitoring systems. (See section Error! Reference source not found.) Expected impact: Clarifying the scope of the application of movement and control procedures applicable to specific energy products by the Commission through soft law measures is not expected to be a costly exercise, and if taken up voluntarily by Member States, it is expected to alleviate many of the problems identified. The non-sensitive nature of the issues at hand increases the likelihood that soft law measures will be taken up and gives few reasons to believe that a soft law approach is not likely to be effective. Table 26: Recommendation on denatured alcohol Recommendation Clarify the unambiguous categorisation of denatured alcohol: Attention should be given to ongoing efforts to clarify the categorisation of denatured alcohol in the context of the revision of Directive 92/83/EEC. Responsible stakeholder(s) European Commission Justification: Directive 92/83/EEC provides exemption from excise duty for denatured alcohol. Article 27(1)(a) of the Directive states that completely denatured alcohol (CDA) 186 shall be exempted from excise duty. Movements of CDA take place using an SAAD. Article 27(1)(b) provides for the exemption of alcohol denatured in accordance with the requirements of any Member State and used for the manufacture of any product not intended for human consumption. Since the exemption is linked to the use of the product, it is excisable until it is used and is moved under duty suspension. The main problem with the exemption of denatured alcohol does not directly concern the movement. Rather, it is rather the basis for exemption in Article 27(1) of Directive 92/83/EEC that creates uncertainty for economic operators. For CDA, some Member States only accept those denaturants listed under their name in the Annex to Regulation 3199/93; others exempt alcohol with any of the denaturing methods listed. The case of the exemption of alcohol in accordance with Article 27(1)(b) is even more complex, since the term not intended for human consumption is not interpreted consistently across the Member States. Expected impact: As no concrete solution has been put forward in the context of this evaluation, no expected impact can be elaborated. Table 27: Recommendation on coherence with customs procedures Recommendation Responsible stakeholder(s) 186 In order to be eligible for this exemption, the alcohol must be denatured using one of the denaturing methods mentioned in Commission Regulation 3199/93 of 22 November 1993 on the mutual recognition of procedures for the complete denaturing of alcohol for the purposes of exemption from excise duty. 135

136 Recommendation Continue and empower efforts to ensure effectiveness between customs and excise procedures: The ongoing work of the Fiscalis and Customs 2020 Project Group for Coordination of Excise and Customs procedures in relation to movements of excise goods under EMCS should be continued and its solutions implemented. Responsible stakeholder(s) European Commission Justification: The issues involving the coordination between the customs procedures and the excise procedures present difficulties for operators trading with third countries and Member States authorities that have been clearly substantiated in the present report. The impact of the reported practical problems with regards to the coherence between customs and export procedures is significant. These issues create increased administrative costs for Member State administrations, create obstacles for trading with third countries, and increase the risk of fraud. For the Member State authorities, manual interventions are necessary for bridging the gap between the excise procedures and the customs procedures. This takes the form of carrying out verifications and ensuring that movements are closed. The follow-up of unclosed EMCS movements after export, such as the provision of alternative proofs, also represents a significant task for economic operators. They have to invest between two and four hours in order to provide documentation for each movement affected. (See Section 8.) Expected impact: The high importance and impact of this issue becomes clear when one considers the number of movements that have to be closed manually every year 187. The expected impact of this recommendation is far-reaching in terms of the reduction of administrative and compliance costs for Member State authorities and traders alike. 187 For example: in Germany, 2.8% of all movements (4,500 movements per year) have to be closed on the basis of alternative proofs of exit. The French authorities reported that they had to close more than 12,000 movements manually in In the UK, there is a backlog of thousands of movements that have remained open, and for which the authorities would require significant resources to close manually by requesting alternative proofs of exit from economic operators. 136

137 Annexes Appendix 1 Evaluation Matrix and Evaluation Design..138 Appendix 2 Questionnaire to Member States..165 Appendix 3 Survey of economic operators..186 Appendix 4 Survey population description.209 Appendix 5 - Case study reports.225 Appendix 6 - Operational context 333 Appendix 7 - Number and types of authorisations..342 Appendix 8 Economic value of movements under suspension and estimates of the volume and value of fraud (detailed figures)

138 Appendix 1 Evaluation Matrix and Evaluation Design 1. SCOPE OF THE PRESENT EVALUATION This study evaluates the provisions contained within Chapters I-IV of Directive 2008/118/EC (Articles 1-31; Article 40). Among the provisions evaluated, particular attention was given to a number of issues, as outlined by the task specifications. The administration of authorisation for tax warehouses, warehouse keepers, registered consignor, registered consignee and temporary authorisations (Article 16)1; The specific arrangements for the holding and movement of excise duty goods under suspension (Articles 21-29; relevant provisions in Directive 2003/96/EC covering energy products and Directive 92/83/EEC covering denatured alcohol); The links between EMCS and customs procedures and transaction systems for import and export (Article 25; relevant customs legislation - see below); The arrangements for handling exceptions to the standard procedure in case of intra-eu movements (Articles 10, 21, 23); Exemptions and derogations allowed by the Directive (Articles 12-14, 18 (4), 22; Simplification procedures under Articles 31 and 40(2) of the Directive; Other issues flagged as problematic by stakeholders (Commission, Member States, Economic operators) in previous consultation reports2 and in the course of this evaluation. The functioning of the mechanisms prescribed by Directive 2008/118/EC is complemented by and relies on the synergies with a number of other arrangements contained in other legislative acts, namely: Regulation (EC) No 684/2009 on the computerised procedures for the movements of excise goods ( EMCS Regulation ). This regulation is of very high relevance to the study, as it represents the practical implementation of Chapter IV of the Directive; Regulation (EU) No 612/2013 on the operation of the register of economic operators and tax warehouses; Recommendation 2000/789/EC setting out guidelines for the authorisation of warehouse keepers; Regulation (EC) No 31/96 on the excise duty exemption certificate; Regulation (EU) No 389/2012 on administrative cooperation; Directive 2003/96/EC restructuring the Community framework for taxation of energy products and electricity; Directive 2011/64/EU on tobacco products; Directives 92/83/EEC and 92/84/EEC on alcohol and alcoholic beverages; Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code (UCC)3 The current Community Customs Code (Council Regulation (EEC) 2913/1992) and its Implementing provisions (Council Regulation (EC) 2454/1993)4; 1 Unless otherwise stated, the article references refer to Directive 2008/118/EC: 2 The Report to the European Parliament and to the Council (COM 2013(850)) on the current arrangements as well as the as the accompanying Staff Working Document SWD(2013) 490 final, which contains a more detailed description of the results of surveys of stakeholders. 3 The UCC entered into force in Oct Its substantive provisions will apply only on 1 May 2016, once the UCC-related Commission acts (Delegated and Implementing Acts) are adopted and in force. 138

139 National legislation or administrative provisions implementing the provisions of these acts. Taking this into account, the evaluation has viewed Directive 2008/118/EC as a central part of a system which functions on the basis of a wider set of acts. The resulting assessment has therefore not looked at Directive 2008/118/EC in isolation, but at the functioning of the relevant provisions, obligations or derogations in the wider legislative and practical context in which they are applied. The evaluation covers all excise goods covered by Article 1 of Directive 2008/118/EC (energy products, alcohol and tobacco products.) The time period covered is This time span covers periods before and after the implementation of the EMCS. 2. RECONSTRUCTED INTERVENTION LOGIC The intervention logic, far from being a purely theoretical exercise, guides the development of the evaluation matrix and forms the basis by which the effectiveness, efficiency and relevance of the interventions embodied in the legal base are assessed. By laying down and describing the theoretical links between the interventions (provisions) of the legal base, their operational objectives and very importantly, the delivery mechanisms by which general objectives are pursued it is possible to use qualitative evidence in a coherent, transparent and confident manner to provide answers to the required evaluation questions. 1.1 Objective of Directive 2008/118/EC The EU right to act in the area of excise duties is established in Article 113 of the Treaty on the Functioning of the European Union, which stipulates that the Council shall adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition. 5 EU provisions apply to those products which are subject to excise duty in all EU Member States, including alcohol and alcoholic beverages, manufactured tobacco and energy products and electricity. After the establishment of the internal market, and the abolition of border controls between Member States, provisions were made for excise goods to be moved without having been taxed in the Member State of dispatch, to ensure that the free movement of excise goods was possible. In order to allow this free movement of goods whilst at the same time ensuring the correct tax debt was ultimately collected by the Member States, a system had to be put in place in order to ensure adequate supervision of the movements. For this purpose, Directive 92/12/EEC was adopted to set out general arrangements for products subject to excise duty and concerns particularly the production, storage and movement of excise goods between Member States. Directive 2008/118/EC (known as the Horizontal Directive) repeals Directive 92/12/EEC 6, and lays down a number of general provisions in the field of excise goods that apply across excise product categories. The Directive is designed to simplify and modernise the arrangements for the holding and movement of excise goods. Most importantly, it provides a legal basis for the 4 Until 1 st May 2016 the Community Customs Code and its implementing provisions continue to apply. 5 Article 113, TFEU. 6 Council Directive 92/12/EEC of 25 February 1992 on the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such goods. 139

140 use of the Excise Movement and Control System (EMCS), which was introduced following decision 1152/2003/EC to computerize the movement and surveillance of excise products 7. The global objectives of the Directive are thus to ensure the proper functioning of the internal market and to safeguard the budgetary interests of the Member States (i.e. ensure the excise duty revenue is properly collected). In pursuing these objectives, the Directive seeks to achieve a balance between the need to facilitate cross-border trade and the need to ensure that effective controls are in place in order to monitor the holding and movement of excise goods and ultimately to ensure the tax debt is collected (owing to the risk inherent in cross-border movements of excise goods). Error! Reference source not found. presents the overall intervention logic for Directive 2008/118/EC. This simplified figure presents only the main relationships between the provisions of the Directive and the objectives they pursue. Both are further described in the subsequent text which can be found below. Figure 1, Overall intervention logic of Directive 2008/118/EC 1.2 Global objectives Ensure the proper functioning of the internal market. For the purposes of this evaluation, the proper functioning of the internal market includes a number of core elements which are necessary for the free movement of goods within the internal market. In this respect, the Directive should: i) Remove tax obstacles to the movement of excise duty goods across borders by minimising costs for both economic operators and tax administrations; ii) provide a clear and consistent framework for the holding and movement of excise goods; iii) ensure a level playing field for businesses (i.e. ensure neutral conditions of competition). 7 The decision to introduce EMCS was taken following a Report submitted to Directors General for Customs and Indirect Taxation from the High Level Group on fraud in tobacco and alcohol sectors in

141 These priority concepts are discussed further under the specific objectives, recognising the large variety of aspects which contribute towards a well-functioning internal market. The need to support legitimate trade and strengthen competitiveness is also recognised as an objective in the strategy for the evolution of the Customs Union. 8 Safeguard the budgetary objectives of the Member States. 9 Excise revenues accrue to the Member State where the goods are released for consumption. Excise duties are an important source of revenue and make up, on average, approximately one quarter of the revenue from consumption taxes. 10 The Directive aims to ensure that movements are properly monitored by tax and customs authorities to allow collection of excise duties and also includes the need for effective measures to fight fraud related to cross-border movements. 1.3 Specific objectives In order to achieve the global objectives of a properly functioning internal market and ensure that the financial interests of the Member States are safeguarded, the Directive seeks to fulfil a number of specific objectives which contribute to the core components of the global objectives. In the simplified logic model that has been developed, the first three specific objectives are necessary in order to achieve the proper functioning of the internal market: Removing tax obstacles to the movement of excise duty goods across borders by minimising costs for both economic operators and tax administrations. According to the proposal for Directive 2008/118/EC 11, an amendment to Directive 92/12/EEC was considered necessary to simplify and modernise the excise procedures, with the aim of reducing excise obligations for traders in particular for traders carrying out cross-border business without compromising excise controls. Administrative costs may stem from tax obstacles such as resources required to clarify varying interpretations of the Directive, or to resolve instances of double taxation. Tackling these requires simplifying and enforcing EU law, as well as strengthening coordination amongst Member States to more efficiently remedy cross-border tax disputes. 12 These aspects of the internal market are discussed further below. The EMCS aims to do this by providing a smooth transition to a paperless (electronic) environment. The importance of designing systems which minimise administrative burden is also underlined in the Strategy for the evolution of the Customs Union. 13 However, administrative costs relate not only to the EMCS and the evaluation will also consider other obligations imposed on stakeholders stemming from the arrangements as a whole. Costs associated with compliance with national rules will also be considered (e.g. the consultation procedure after an irregularity, requirements to become an authorised excise operator etc.) Establish a clear and consistent framework which permits the free movement of goods. 8 Communication COM(2008) 169 final Strategy for the evolution of the Customs Union. 9 Recital 20 of Directive 2008/118/EC. It is necessary, in order to ensure the collection of taxes at the rates laid down by Member States, for the competent authorities to be in a position to follow the movements of excise goods and provision should therefore be made for a monitoring system for such goods. 10 Taxation trends in the European Union, Data for the EU Member States, Iceland and Norway, Eurostat 2013, p Proposal for Directive 2008/118/EC, p This is mentioned as one of the areas of focus in the DG Taxation and Customs Union, Management Plan COM(2008) 169 final, p.6. [ ] designing and improving control systems which reduce the interference in the flow of goods as well as the administrative burden to the minimum necessary to achieve other public policy objectives such as security requirements [ ]. 141

142 The Directive aims to introduce a transparent framework which allows excise goods, prior to their release for consumption, to move freely within the EU under suspension of excise duty; 14 Such a framework must have clear rules for the holding and movement of excise goods, which are applied consistently in all Member States. The importance of clear and consistent rules which are correctly applied and enforced is highlighted in the 2009 Commission Recommendation on measures to improve the functioning of the single market. 15 However, correct national implementation of the rules is only one aspect. Where there are harmonised common rules, the arrangements should provide a clear framework as a starting point to promote legal certainty. A lack of legal certainty or variation on rules can imply additional tax risks for businesses, or higher compliance costs stemming from having to clarify procedures with the national tax administrations or customs. The proper functioning of the single market also extends to coherence with other procedures. In the context of Directive 2008/118/EC, coherence means that there is smooth interaction between applications which does not result in legal loopholes, legal uncertainty or imply unnecessary additional costs for businesses. The coherence between excise and customs legislation in particular will be examined Ensure a level playing field for businesses operating within the internal market In the context of the holding and movement of excise goods under duty suspension, the current arrangements should promote neutral conditions for competition. Common rules and procedures should be harmonised across Member States in order to ensure that traders are not put at a disadvantage or face discriminatory conditions based on where they or their customers are established. Having common conditions for market access is also vital to avoid shopping for procedures in Member States where rules may create more favourable conditions. By the same token, less favourable conditions may produce barriers to market access. Ensuring a level playing field also requires the elimination of tax obstacles, including measures to improve information and remove discrimination and double taxation. This objective includes proper enforcement of common rules to remove illegal distortions, which also requires coordination and cooperation between the Commission and Member States and between Member States themselves. 16 There are a number of areas where Member States are entitled to lay down their own rules, such as authorisation of tax warehouses and warehouse keepers. The evaluation will also look at these specific areas to assess the impact that these arrangements might have in terms of creating distortions of competition. The level of harmonisation of rules (e.g. conditions to become an authorised excise operator), may also have an important impact on the fight against fraud, which is discussed further below. The following two objectives are necessary to safeguard the budgetary interests of the Member States (i.e. ensure the proper collection of tax revenues) Allow the proper monitoring of movement of excise goods. 14 Recital 17 of Directive 2008/118/EC. It should be possible for excise goods, prior to their release for consumption, to move within the Community under suspension of excise duty. 15 Commission Recommendation of 29 June 2009 on measures to improve the functioning of the single market (2009/524/EC), Recital 2. It is essential for a well-functioning single market to have correctly transposed, applied, enforced, monitored and satisfactorily harmonised Community rules affecting the functioning of the single market. 16 Ibid, Recital 5. A coordinated and cooperative approach in partnership between the Commission and Member States with a common objective of improved transposition, application and enforcement of single market rules, is vital to ensure the proper functioning of the single market. 142

143 The protection of financial interests of the Member States in the area of excise hinges on the capacity to be able to properly monitor cross-border movements of excise goods. The system of tax warehouses, using data from the System for Exchange of Excise Data (SEED), when operated in conjunction with EMCS allows authorities to follow cross-border movements and ultimately enable the proper collection of the tax debt when necessary. EMCS brings new advantages over the previous paper-based system and is designed to improve risk analysis and provide Member States with advance warning of the movement. The capacity to control traders and consignments in the Member State of dispatch and the information that EMCS can provide on the movement is very closely linked to the fight against fraud Reduce illicit trade, evasion and abuse (fight against fraud); Varying tax rates and the fact that excise duty is collected in the Member State of consumption can create incentives for tax evasion and fraudulent behaviour. One of the core objectives behind the development of EMCS was to help combat certain types of fraud, as described in the 1998 High Level Group Report on Alcohol and Tobacco Fraud 17 and address a number of inherent weaknesses identified in the system at the time (i.e. the paper-based arrangement provided for in Directive 92/12/EEC). The most important weaknesses were considered to be the lack of control of traders and consignments in the Member State of departure and the lack of advance information in the Member State of arrival, with the result that possibility of making timely, targeted, selective controls, based on risk analysis criteria was very weak. 18 The Directive (EMCS) was designed to address these weaknesses and ensure that Member States had access to appropriate prior information about dispatches. 1.4 Operational objectives It is necessary to describe how the provisions of the Directive are expected to contribute to the specific and global objectives listed above. Identifying the mechanisms 19 through which the Directive has an impact is an essential first step in evaluating the extent to which the legislation achieves its objectives. It is also necessary to understand the impact of potential weaknesses in the legislation or practical problems which may be identified during the course of the evaluation. We do not attempt to describe the logic behind each provision of the Directive but group the provisions by chapter. The achievement of some objectives requires all of the mechanisms at play to be taken into account. For example, the definition of which excise products are subject to the Directive, and the establishment of a system of tax warehouses are necessary conditions for excise goods to be able to move in under the EMCS movement procedure as described in Chapter IV of the Directive. The below describes how the provisions of the Directive should contribute to the objectives, beginning with the operational objectives (i.e. the immediate desired outcomes of the provisions). Helpfully, the structure of the Directive (Chapters I-IV) means that an operational objective can be broadly linked with each chapter: 1. Establish scope of application of the Directive (Chapter I); 2. Harmonise concept of and conditions for chargeability 20 (Chapter II); 17 High Level Group on fraud in the tobacco and alcohol sectors, Report to Directors General for Customs and Indirect Taxation, Ibid p Mechanisms simply describe how the Directive is expected to work. They can also be considered as assumptions e.g. specifying exactly which goods are subject to the Directive is expected to ensure common treatment in all Member States. 20 There are special provisions on chargeability in Article 21 of Directive 2003/96/EC. See section Error! Reference source not found. for more detail. 143

144 3. Allow authorities to carry out the necessary checks (Chapter III); 4. Allow authorities to monitor the movements of excise goods (Chapter IV) Operational objective 1: Establish scope of application of the Directive It is appropriate to specify the excise goods to which this Directive applies and to refer for that purpose to Directive [ ]. Recital 3, Preamble to Directive 2008/118/EC The Directive specifies exactly which goods are subject to these provisions by means of reference to specific Directives (Member States may apply excise duties to other goods, not covered by the horizontal Directive) in the areas of alcohol and alcoholic beverages, manufactured tobacco, and energy products and electricity. 21 Establishing which goods are subject to the Directive is necessary in order to ensure that clear and consistent rules are established for the treatment of the excise good (i.e. the good is treated in the same way in all Member States). The definition of the good in the specific Directive may have an impact on which procedure should be used to move the goods (e.g. EMCS, duty-paid using the simplified administrative accompanying document, other). Any differing interpretations in Member States may impact the proper functioning of the internal market (i.e. may imply additional costs, introduce legal uncertainty, or distortions of competition). If the same excise product is classified differently in the Member States, this can also lead to legal uncertainty, distortions of competition (for example differing treatment might result in higher risk of an unexpected tax liability) and possibly increased administrative costs if clarification is needed on the tax treatment. While an analysis of the classification of excise products themselves is not within scope of this evaluation, the study will look at the impact any variation in tax treatment of goods has on the proper functioning of the internal market. Furthermore, the Directive establishes the concept of excise duty as a tax on consumption 22 and provides common definitions for concepts such as authorised warehousekeeper, tax warehouse. 23 Common definitions ensure that there is a common legal understanding of these terms and provide a clear and consistent framework. This ensures potential distortions of competition are avoided (e.g. differences in national rules leading to more or less attractive conditions for traders moving excise goods). These definitions must be applied consistently in order to create a level playing field for economic operators. Having common definitions is also necessary for the fight against fraud in order to allow proper enforcement of the rules Operational objective 2: Establish harmonised conditions for charging of excise duty Since it remains necessary for the proper functioning of the internal market that the concept, and conditions for chargeability, of excise duty be the same in all Member States, it is necessary to make clear at Community level when excise goods are released for consumption and who the person liable to pay the excise duty is. Recital 8 of Directive 2008/118/EC. Overall, the provisions of the Directive establish harmonised rules on when the excise duty should become chargeable (release for consumption) and when the movement of excise goods begins and ends. As a general rule excise duty is chargeable at the time and in the Member State, of the release for consumption (normally upon receipt of the goods by a registered consignee or temporary registered consignee) Article 1 of Directive 2008/118/EC refers to the specific Directives. Energy products and electricity covered by Directive 2003/96/EC; alcohol and alcoholic beverages covered by Directives 92/83/EEC and 92/84/EEC; manufactured tobacco covered by Directive 2011/64/EU. 22 Article 1 of Directive 2008/118/EC. 23 Article 4 of Directive 2008/118/EC. 24 Article 7 of Directive 2008/118/EC. 144

145 Defining the situations where a release for consumption is judged to have occurred and having a commonly accepted time and place of chargeability is necessary in order to have a clear and consistent legal framework for the free movement of excise goods. Any differing interpretation could introduce legal uncertainty and potential additional costs for both businesses and administrations (e.g. clarification or follow up required between businesses and customs departments). Different interpretations in Member States could also lead to distortions of competition if the excise duty is not chargeable at the same point in the supply chain, or if there is variation in when the movement is judged to have begun. For example, economic operators benefiting from duty-suspension arrangements at different points of the supply chain, could gain competitive advantages. Having a common understanding of when the movement begins and ends is also vital as it ensures a clear liability of who is responsible for paying the excise duty. For example, this can be important when the detection of a shortage is judged to have occurred and therefore which Member State can levy the excise duty corresponding to the shortage. Therefore, clear and consistent rules across all Member States are necessary to ensure the proper monitoring of movements and ultimately protect the financial interests of the Member State (i.e. ensuring the proper collection of the tax debt) Operational objective 3: Establish a system of tax warehouses to facilitate checks Since checks need to be carried out in production and storage facilities in order to ensure that the tax debt is collected, it is necessary to retain a system of warehouses, subject to authorisation by the competent authorities, for the purpose of facilitating such checks. Recital 15, Directive 2008/118/EC The Directive establishes the system of tax warehouses, where excise goods may be held and produced under duty-suspension. The purpose of the tax warehouse system is to facilitate checks of production and storage facilities. By ensuring that Member States can maintain control over authorisations of tax warehouses and authorised economic operators, this allows the proper monitoring of the movement of excise goods which is necessary to fight illicit trade, evasion and abuse and ultimately safeguard the budgetary interests of the Member States. The conditions for granting authorisations are entirely a national matter, although the Commission has issued recommendations in this area in order to ensure more uniform procedures for granting and withdrawing authorisation. 25 There is additionally no common guarantee management and conditions of the guarantee (if required) to cover the risk associated with producing, processing or holding excise goods can be set by the Member States (Art 16). Note that a separate guarantee is required to cover the movement of excise goods. More uniform authorisation procedures are designed to help minimise the variations in procedures between Member States and ensure that unnecessary burdens are not imposed on businesses when complying with national rules. Although conditions for authorisation may be a national matter, the rules may impact the proper functioning of the internal market if they impose unreasonable costs on businesses, introduce legal uncertainty or create distortions of competition between Member States (e.g. if rules in one Member State are less restrictive, it could be easier or cheaper for a business to become authorised). In the same way, variation in national rules may also have an impact on the fight against fraud. If similar conditions are not imposed in all Member States, this may have an impact on the risk analysis conducted by Member States, as similar levels of checks may not be imposed on economic operators who were authorised in other Member States. If the risk analysis is based on criteria unknown to Member States, this may weaken the ability to fight fraud and ultimately to protect the financial interests of the Member States. 25 Commission Recommendation 2000/789/EC setting out guidelines for the authorisation of warehouse keepers under Council Directive 92/12/EEC in relation to products subject to excise duty. 145

146 The data provided by SEED (System for Exchange of Excise Data) includes a validation of whether an authorisation for the excise number exists, and if it does, the number of authorised products, as well as which excise products are authorised to be handled by the trader or tax warehouse. 26 The use of SEED therefore helps to ensure that only authorised warehouses and warehouse keepers are able to engage in duty-suspended movements, and therefore should contribute to reducing fraudulent use of the tax warehouse system Operational objective 4: Movement of excise goods under suspension of excise duty It is necessary, in order to ensure the collection of taxes at the rates laid down by Member States, for the competent authorities to be in a position to follow the movements of excise goods and provision should therefore be made for a monitoring system for such goods. Recital 20 of Directive 2008/118/EC. Chapter IV (Articles 17-31) simplifies and modernises procedures relating to the cross-border movement of duty-suspended excise goods and provides the legal basis for the use of EMCS. 27 The EMCS is designed to simplify procedures for both economic operators and administrations by providing a paperless electronic environment, and allow competent authorities to be in a position to follow the movements of excise goods. In terms of simplified procedures, EMCS is designed to reduce administrative burden in a number of ways, contributing to the specific objective of reducing administrative obligations on both economic operators and administrations: i) reduce time and resources required to handle a movement; ii) reduce the time required to close a movement (and release the guarantee); iii) any other benefits of an electronic environment (e.g. record keeping). These simplifications are expected to minimise administrative costs associated with dutysuspended movements and in this way are expected to facilitate the free movement of goods (minimising costs is one core aspect of the global objective of the proper functioning of the internal market). EMCS was also designed to respond to the specific objective of reducing fraud, in particular through improved control of traders and consignments in the Member State of dispatch and advance information about dispatches. One important aspect is that the e-ad for each movement is verified by the Member State of dispatch before being forwarded to the authorities in the Member State of destination. The electronic verification and forwarding of the e-ad was also designed to allow Member States to conduct real-time monitoring of the movement. The expected logic of the design is that proper monitoring of the movements will allow Member States to perform more effective riskanalysis and conduct more targeted controls. Another essential element which permits the monitoring of movements is the assignation to a movement a unique administrative reference code (ARC), which allows each movement to be individually identified and tracked. 28 It is the combination of these elements (functioning within the framework of authorised tax warehouses and SEED) which are expected to allow the Directive to fulfil the specific objectives of reducing illicit trade, evasion and abuse as well as safeguarding the budgetary interests of the Member States (i.e. ensure the excise duty is collected properly). 26 The Commission and economic operators have no access to the name and address details of other warehouse keepers or tax warehouses, although the Member States have full access to this information.. 27 Article 21(2) of Directive 2008/118/EC identifies the computerised system referred to in Decision 1152/2003/EC. Note that the legal foundation for the development of EMCS is Decision No 1152/2003/EC of the European Parliament and of the Council of 16 June 2003 on computerising the movement and surveillance of excisable products. 28 Art 21 of Directive 2008/118/EC. 146

147 3. EVALUATION MATRIX AND CORRESPONDENCE TABLE In this chapter we present the evaluation matrix 29 which has been at the foundation of the design of the study. The evaluation matrix builds heavily on the questions presented in the task specifications and the requests of the European Commission expressed during the inception period. The design of the evaluation matrix gives the best indication of what kind of data has been collected in the course of the study and how it was analysed. Data collection tools were based on the evaluation matrix in the sense that they were designed to collect data required to answer the questions, as laid down in the evaluation matrix (i.e. both at the level of sub-questions as well as at the level of indicators and descriptors). The evaluation matrix itself has been structured to be in line with the evaluation methodology requirements. Table 28 contains an overview of the high level evaluation questions and the respective criteria to which they pertain to. In the sections below each question is presented in detail. Table 28, Overview of evaluation questions and evaluation criteria Evaluation Question Question 1: How was Council Directive 2008/118/EC implemented into national law of Member States? Question 2: To what extent do the arrangements for holding and movement of excise duty goods under suspension contribute to the proper functioning of the Internal Market? Question 3: To what extent are current arrangements protecting the financial interest of the Member States? Question 4: To what extent are these arrangements still relevant to the needs of the Member States and the economic operators? Question 5: Is there a scope for simplification and administrative burden reduction? Question 6: To what extent do the current arrangements work in a coherent manner with the custom applications? Question 7: Which of the observed impacts of the current arrangements can be reasonably attributed to the EU action? Question 8: Which of the problems identified would most merit an EU action (and thus deserve further study by the Commission)? Evaluation Criteria/Perspective Implementation Effectiveness Effectiveness Relevance Efficiency Coherence EU Added value EU Added value / Recommendations The progress report (and subsequent meeting) presented an opportunity to discuss the preferences of the Commission with respect to the structure of the final report(s), should a departure from the evaluation matrix (e.g. a structure focused on topics, rather than evaluation questions) be preferable. The contractor presented two alternatives for structuring the draft final reports, both emphasizing the robustness and transparency in the study. The objective of the proposed structures is to re-shuffle the information collected in logical and reader-friendly manner. The Commission services, following the Steering Group meeting held on the 29 th of June 2015, considered that a structure following the key issues, in logical order (i.e. authorisation, guarantees, holding and movement including special circumstances, treatment of shortages and excesses, exemptions, coherence with customs arrangements) would be better suited for reporting purposes. This resulted in the current structure of the final report. 29 Evaluation questions and sub-questions, indicators / descriptors, evaluation criteria and data sources 147

148 The tables below indicate the location where each evaluation question has been integrated in the structure of the final report. 1.1 Question 1: How was Council Directive 2008/118/EC implemented into national law of Member States? The objective of this question was to understand how Member States have implemented certain aspects of Chapters II-IV of the Directive, and to look at whether national legislation prescribe any additional requirements on economic operators in a number of areas Question 1.1: What are the conditions applicable for authorisation for tax warehouses, warehouse keepers, registered consignors, and registered consignees? Table 29, Question 1.1, Conditions and management of authorisation Questions Indicators / Descriptors Data sources Sections in report Q1.1 (a) What type of licensing / authorisations are required for economic operators involved in Description of the types and number of authorisations granted to Desk research (tax authority websites and 3.1 Number and type of authorisations the production / storing / Excise warehouse keepers, manuals) across the EU moving and selling of excise duty goods Tax warehouses, Registered consignors DG TAXUD Can authorisations be Registered consignees data on limited to certain categories number of Temporary consignees authorisations of excise goods, certain activities or to certain transactions? Q.1.1 (b) What are the main conditions and requirements for granting the authorisation Legal conditions (e.g. proof of establishment, certificates, fiscal and criminal records, etc.) Economic conditions (Establishment of guarantees, turnover requirements, etc.) Desk research (tax authority websites and manuals) Case Studies 3.3 Conditions for granting and managing authorisations and guarantees Q1.1 (c) What level and type of guarantees associated with authorisation are applicable to the different types of authorised economic operators? What is the guarantee amount required for each type of tax warehouse / registered consignors / registered consignees authorised? How is the guarantee operated? (i.e. how is the level of security calculated?) Is there a guarantee monitoring mechanism? Technical conditions (Safety and Security of premises, systems for record keeping, etc.) Amount of guarantee required in EUR for each type of authorisation Methods of payment of guarantee for each type of authorisation Variations in guarantee levels (e.g. per amount of potential duty on stock held) Description of permitted simplifications / reductions Description of guarantee monitoring mechanism if it is being implemented Case Studies 3.3 Conditions for granting and managing authorisations and guarantees Simplification and administrative burden reduction How are movement guarantees calculated and 148

149 Questions Indicators / Descriptors Data sources Sections in report operated? Q1.1 (d) In which circumstances are simplifications to authorisation procedures, requirements and guarantees possible? Description of possible simplification procedures according to applicable situation and Member State Which member states have waived the obligation to provide guarantees in relation to movements of energy products by sea or fixed pipeline? Survey to national tax authorities (EU-28) Simplification and administrative burden reduction Question 1.2: What are the levels of usage of the current arrangements? Q1.2 (a) and Q1.2 (b) have been proposed to evaluate the importance of the movement of goods under suspension for intra- and extra-eu movements. Four different indicators have been proposed to understand the number of transactions, the estimated volume and commercial value, and the tax revenue associated. Table 30, Importance of transactions Questions Indicators / Descriptors Q1.2 (a) What is the Number of EMCS importance of messages * (e.g. IE movements of excise 801, IE 818, IE 829, IE goods under suspension 839 and IE 501) of excise duty? (intra- Volume of intra-eu EU) movement Commercial value Duty receipts Data sources Commission EMCS data and excise duty table Eurostat international trade data Survey to national tax authorities (EU-28) Excise Duty tables Sections in report Section 4.1 Economic importance of movements Section 4.1 Economic importance of movements Q 1.2 (b) What is the importance of movements of excise goods under suspension of excise duty? (with third countries) Volume of exports Commercial value Eurostat international trade data Survey to national tax authorities (EU-28) Section 8.3 Economic importance of exports Question 1.3: How have exceptions / derogations related to the movement of excise duty goods under suspension of excise duty been implemented Chapter IV of the horizontal Directive as well as some of the product specific legislative acts have allowed a number of derogations and/or optional provisions concerning the movement of excise goods under suspension. There are a number of energy products that are not listed in Article 20(1) of Directive 2003/96/EC (ETD) or Commission Implementing Decision 2012/209/EU. The evaluation therefore sought to understand how Member States move these products in practice. As the Energy tax Directive 30 provides a category of excise goods whose supervision under the EMCS is not necessary and Article 27 of Directive 92/83/EEC provides exemptions from excise duty (resulting in different control measures being applicable) for completely denatured alcohol 31 and alcohol denatured using a method of a Member State and not designed for human 30 Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity 31 Art 27 (a) Directive 92/83 EEC 149

150 consumption 32, question 1.3 (a) sought to establish what monitoring is envisioned for these specific category of goods, the amount and value attributed to such movements and the perception (by authorities) of the risk of fraud of such products. The evaluation sought to collect data on the simplified procedures permitted under Article 31 of the Directive for frequent and regular movements. It will look at whether Member States have concluded any such arrangements and the procedure under which such agreements might be reached. The implementation of Article 40 (Chapter VI) on exemptions for small wine producers were aslo included in this question. Table 31, Implementation of exceptions / derogations related to movement of excise duty goods under suspension Questions Indicators / Descriptors Data sources Section in Report Q1.3 (a) What is the procedure for moving excise goods under suspension of excise duties for Description of legal framework in place Desk Research Survey to national Section Procedures for movement of the following category of goods: tax authorities (EU- excisable products 28) within the EU Excisable energy products listed in Art 20 (1) Excisable energy products not listed in Art 20 (1) 33 Specific products 34 when declared for use as fuels Completely denatured alcohol Alcohol denatured according to Art 27 (b) of Directive 92/83/EEC Q1.3 (b) Have any simplified arrangements for frequent and regular movements been agreed upon, as provided for in Article 31 of Directive 2008/118/EC? Why/Why not? 1.3 (c) Do Member States apply the exemptions for small wine producers as provided for in Article 40 of the Directive? Why / why not? Does the exchange of information between EMCS and Agricultural authorities work satisfactorily? Estimates of the volumes and values of intra-eu movements Qualitative perceptions (high, low, medium) of the risks associated with the movement of these products Description of simplified procedures in place / reasons given by MS Response from MS / reasons given Responses from Member States on whether, as MS of dispatch or destination they receive information from agricultural authorities concerning movements under Article 40 of the Directive Data collected by the Committee on Excise Duty (CED 691 Rev 9) Survey to national tax authorities (EU- 28) Survey to national tax authorities (EU- 28) Section 7.1 Movements and control of specific energy products Section 7.2 Movement of denatured alcohol. Section Provisions for simplified arrangements Section Exemptions for small wine producers Finally, as subsequent evaluation questions will analyse inter alia whether Art 23 (splitting of movements of energy products) may give rise to any particular inconsistencies and errors, a brief recount of the Member States where and conditions under which splitting is permitted, both as a Member State of dispatch and for movements that began in another Member State. 32 Art 27 (b) Directive 92/83/EEC 33 E.g. coal (2701, 2702 and 2704); Liquefied Natural Gas (LNG) 2711; residues from crossing crude oil with high aromatic content ( ) 34 Art 2 (3) Directive 2003/96/ EC (E.g. lubricating oils (e.g ); fats and vegetable oils ( ); taurine and benzene; ethanol based biofuels) 150

151 Data collection should not repeat work already done by the Committee on excise duty on the optional provisions of this chapter 35. Table 32, Question 1.2, Implementation of provisions related to movement of excise duty goods under suspension Questions Indicators / Descriptors Data sources Section in Report Q1.3 (d) How have the provisions of Art 23 (splitting of movements What are the reasons for allowing/not allowing splitting of energy products: Data collected by the Committee on Excise Duty (CED 691 Rev Not found in report of energy products have - as Member State of 9) been implemented in practice? dispatch; Case Studies - splitting of a movement of energy products that began in another MS Description of how splitting is monitored or enforced Question 1.4: How have the provisions related to chargeability, reimbursements and exemptions have been implemented by Member States? Question 1.4, which focuses on the implementation of Chapter II of the Directive sought to analyse, in particular, the application of rules and conditions related to: Treatment of losses, shortages and excesses of excise duty goods under suspension (this includes the definition of normal allowances of loss 36, or excess deficiency); Conditions for reimbursement and remission, as permitted in Art. 11; Conditions for movement of goods under duty suspended to a consignee referred to in Article 12(1); Time of supply and time of delivery rules for specific energy products. Table 33, Question 1.2, Implementation of provisions related to chargeability, reimbursements and exemptions Questions Indicators / Descriptors Data sources Section in Report Q.1.4 (a) What are the rules and conditions in Member States concerning shortages (losses) and excesses of excise goods during a duty suspension arrangement? Description of conditions for losses Normal loss allowance e.g. % monthly loss threshold Desk research (tax authority websites and manuals) Section 6.1 Shortages and Excesses What is the threshold for normal allowance of loss during a movement? How do Member States apply the margin of error? Are there any additional national obligations beyond what is specified in Art 7 of Measuring procedures and tolerances applied in each Member State Description of any additional information obligations stemming from the transposition of Art 7 of the Directive Survey to national tax authorities (EU- 28) Section Acceptable losses during transport and national tolerances Directive 2008/118/EC? Q1.4 (b) What are the rules and Description of procedures Desk research Section CED 691 rev4 asks for a yes/no answer on whether Member States intend to make use of the option as well as any comments regarding the conditions of application. 36 Art 7 (5) specifies that each member state shall lay down its own rules and conditions under which losses are determined (E.g. due to natural wastage, temperature variation or tolerance in accounting.) 151

152 Questions Indicators / Descriptors Data sources Section in Report procedures implemented in Member States, allowing excise duty on goods released for consumption as a result of an irregularity to be reimbursed or remitted? for claiming excise duty Number and value of claims (subject to data availability) Basis of claim (Article 10(1), 10(2) 10(4)) (tax authority websites and manuals) Case Studies Shortages and Excesses Q.1.4 (c) For goods under suspension sent to consignees referred to in Art 12(1), which exemption certificates are currently in use What are the conditions and limitations applied for exemptions? Q 1.4 (d) How have the special rules of chargeability have been implemented for the following products: Electricity Natural Gas Coal, coke and lignite Number and type of exemptions currently granted Chargeable event giving rise to taxation in each Member State - Time of supply and time of delivery rules in place. Desk research (tax authority websites and manuals) Survey to national tax authorities (EU- 28) Survey to national tax authorities (EU- 28) Section Exempt consignees Section 7.1 Movement and control of specific energy products 1.2 Question 2: To what extent do the arrangements for holding and movement of excise duty goods under suspension contribute to the proper functioning of the Internal Market? As discussed in the intervention logic of Directive 2008/118/EC, in the context of this evaluation the proper functioning of the internal market can be understood to include a number of core components. The legislation should: i) remove tax obstacles to internal trade by minimising costs for both economic operators and tax administrations; ii) provide a clear and consistent framework for the holding and movement of excise goods; iii) ensures a level playing field for businesses (i.e. ensure neutral conditions of competition). It is assumed that the achievement of these components will facilitate the cross-border movement of goods within the internal market. Therefore by assessing these components, drawing on any relevant information from other evaluation questions, it was possible to assess the extent to which the implementation of provisions related to the holding and movement of excise duty products facilitate the free movement of goods within the internal market. The first part of the question (Q2.1) sought to capture the contribution of the overall arrangements to the proper functioning of the internal market; the second part (Q2.2) is vital to help complete and qualify the assessment. The evaluation then looked at the impacts of problems or inconsistencies on each of these key indicators as reported by stakeholders Question 2.1: To what extent do the current arrangements facilitate cross-border movements of excise goods? Why / why not? In the first instance (Q2.1), the evaluation looked at the extent to which the arrangements have facilitated cross-border movements of excise goods. The question looked at the arrangements as a whole (i.e. the Directive and its national implementation), although the impact of the creation of EMCS formed an important part of this analysis. The first indicator looked at the extent to which the arrangements have minimised costs compared to the previous paper-based arrangements. As well as looking at the contribution of 152

153 the arrangements overall, the evaluation looked specifically at the extent to which EMCS has minimised costs (which includes simplified procedures) for both economic operators and tax administrations. The second indicator looked at the extent to which the arrangements have provided a clear and consistent framework for the holding and movement of excise goods. It will look at the extent to which the application of common rules and procedures is harmonised within the internal market. The third indicator looked at the extent to which the arrangements have promoted a level playing field within the internal market. This will include looking at how the Directive has been implemented (EQ1) to identify any distortions of competition as well as findings from other evaluation questions (e.g. EQ6 on coherence of excise and customs legislation). In order to maintain structure and improve readability of the report, perspectives on the impact of the current arrangements on the fight against fraud will be reported on and analysed in a separate evaluation question. Table 34, To what extent do the current arrangements contribute to the proper functioning of the internal market? Question Indicators / Descriptors Q2.1 To Extent to which EMCS has what extent to the previous paperbased do the arrangements: arrangemen - time and resources ts contribute required to handle a to the typical movement proper (Q5.1(a) and 5.2(a)) functioning of the - the time required to Internal close a movement Market? (and release the guarantee); - other benefits of an electronic tax environment (e.g. rapid and secure information exchange; record keeping). Responses from economic operators on extent to which EMCS is facilitating trade Judgement Criteria Data sources Section in Report EMCS has reduced the Survey to Section 4.2 cost of compliance economic Impact on (economic operators) and operators administrati ensuring compliance ons (administrations) EMCS has, resulted in: - Reduction in time and resources required as compared to the previous paper-based system; - Reduction in time required to close a movement (and release the guarantee) as compared to the previous paper-based system; - other advantages and disadvantages of EMCS identified by stakeholders Survey to national tax authorities (EU- 28) Case studies COM 2013 (850 and SWD 2013 (490) final Other relevant studies (e.g. Fiscalis 2013 final evaluation) Section Impact on economic operators Section 4.4 EU Added Value of the EMCS Extent to which the current arrangements have provided a clear and consistent framework for the holding and movement of excise goods by: - Reducing tax obstacles (e.g. differing national interpretations); Increase in trade attributed to EMCS Descriptive (qualified by practical problems and experiences) Survey to economic operators Case studies COM 2013 (850) and SWD 2013 (490) final Other relevant studies (e.g. Fiscalis 2013 final Section 3.2 Common definition of registered operators Section 6 Practical problems with the current arrangement 153

154 Question Indicators / Descriptors - Ensuring coherence with other legislation (specifically customs procedures). Extent to which the arrangements have ensured a level playing field for businesses - Reduced scope for discriminatory conditions (e.g. shopping for procedures); - Ensured that barriers to market access are minimised. Judgement Criteria Data sources Section in Report evaluation) s Descriptive (qualified by identified practical problems and experiences) Survey to economic operators Case studies COM 2013 (850 and SWD 2013 (490) final Other relevant studies (e.g. Fiscalis 2013 final evaluation) Section 8 Coherence Section 3.2 Common Definitions Section Simplificatio ns and administrati ve burden reduction Question 2.2: To what extent do reported issues and practical problems impact the proper functioning of the Internal Market? The evaluation collected data on practical experiences and perceived problems reported by economic operators and by Member States. These may be varied in nature. However, their impact on the proper functioning of the internal market will be assessed using the same framework as above i.e. the identified experiences and problems will be assessed to the extent to which they i) minimise costs for both economic operators and tax administrations; ii) provide a clear and consistent framework for the holding and movement of excise goods; iii) ensures a level playing field for businesses (i.e. ensure neutral conditions of competition). Question 2.2 analysed the extent to which identified issues affect these core aspects of a properly functioning internal market. Table 13, To what extent reported issues and practical problems impact the proper functioning of the Internal Market? Questions Indicators / Descriptors Data sources/analysis Section in Report Q2.2 To what extent reported issues and practical problems impact the proper functioning of the Internal Market? Extent to which the identified issues have: - Increased costs for both economic operators and tax administrations - Created uncertainty because of unclear or inconsistent rules; - Created distortions of competition or barriers to market access. Survey to economic operators Survey to national tax authorities (EU-28) Case studies Section 6 Practical problems with current arrangements Section 7 - Arrangements for the movement of specific excise products 154

155 1.3 Question 3: To what extent are current arrangements protecting the financial interest of the Member States? This question is split in two parts related to the prevention and detection of fraud; and protecting the financial interests of Member States (collection of duties and taxes) Question 3.1: To what extent do the current arrangements help preventing, detecting, or investigating fraud or abuse of customs legislation? Physical checks: The first indicator looks at the numbers and recent evolution of physical checks by the authorities (as reported in control reports EMCS message IE 717). Cost-effectiveness of audits: EMCS was designed to help combat fraud and to ensure access to appropriate information so that Member States could perform more effective risk-analysis and conduct more targeted controls of movements. The use of an electronic system and realtime monitoring is likely to have had a positive impact in the cost-effectiveness of fraud investigations. This indicator will estimate how much have costs of fraud audits reduced as a result of the new system. As it may be difficult to quantify the real impact in costs, the indicator will assess this qualitatively using the opinions of national authorities, and will complement any evidence on the costs of audits using the analysis from the case studies. Effectiveness of audits: It is uncertain as to how the anti-fraud operations may have evolved as a results of the EMCS: on the one hand, it may be that operations have decreased as a result of a more effective monitoring; but on the other hand, it could be that the introduction of EMCS might have given Member States information about fraudulent movements that was previously unavailable or has allowed undertaking more audits using the same resources, all of which may have resulted in an increase of number of audits. To account for the effectiveness of EMCS in the prevention of fraud the case studies will investigate any increases in the number of seizures (audits where fraud was detected), the change in the success rate of investigations and ability to investigate new forms of fraud which may be undiscovered without the system. Current shortcomings of the EMCS: the survey to national authorities will ask to rate the weaknesses of the EMCS as a monitoring tool, including: flexibility for the traders to define travel time in EMCS; possibilities to introduce false records for number plates of the vehicle or goods being moved; difficulties in receiving necessary information from other Member States; false confirmation of receipts of goods; absence of standardized EU wide risk assessment procedure to assess the risk of particular traders, etc. Advantages and disadvantages of the EMCS: our final indicator will ask for advantages and disadvantages of the EMCS system as an early warning system for irregularities. This will be done through an open question in both the survey to national tax authorities and investigated further in the case studies. 155

156 Table 14, To what extent do the current arrangements protect the financial interests of Member States? Question Indicators / Descriptors Data sources Section in Report Question 3.1: To what extent do the current arrangements help preventing, detecting, or investigating fraud or abuse of customs legislation? Physical checks by the authorities Reduction in the costs of audits (qualitative opinion) Advantages of the EMCS (qualitative) (e.g. Strengthening coordination between administrations; improved administrative cooperation); Control reports EMCS message IE 717 Survey to national tax authorities (EU-28) Major shortcomings of EMCS (qualitative) Costs of audits Number of seizures Success of investigations New forms of fraud discovered Case studies Section 5 Fight Against Fraud Section 5 Fight Against Fraud Section 5 Fight Against Fraud Question 3.2: To what extent the current arrangements protect the financial interests of Member States? Tax fraud: Estimates of the volume of fraud will be estimated using studies or data available in the different national tax authorities, estimates from the industry (trade associations) and information collated through a desk research. The availability of estimations of fraud depends very much on the resources Member States devote to such problem. The intensity of investigation is typically correlated with the severity of the problem (Member States with high levels or fraud are also the ones devoting more resources to its prevention and control). Hence, although it is likely that the quality of information on fraud information differs between Member States, this will help depict an overall picture of the magnitude of the problem across the EU. Channels of fraud: to complement the previous data we would also ask Member States for the top 5 Member States of origin and destination of detected fraudulent movements. Commercial value and tax revenue associated to goods being moved via alternative movement procedures: the commercial value and tax revenue associated to goods moved via alternative procedures will be assessed using the survey to national tax authorities. If the survey fails to produce reliable data, this indicator will be calculated at the level of the 6 Case study countries. Commercial value and tax revenue associated to acceptable losses : The commercial value and tax revenue associated to the current arrangements of acceptable loses will be estimated using the responses from national tax authorities. If the survey fails to produce reliable data, this indicator will be calculated at the level of the 6 Case study countries. Table 15, To what extent are the specific identified issues impacting the budgetary interests of Member States Question Indicators / Descriptors Data sources Section in Report Question 3.2: To what extent the current arrangements protect the financial interests of Member States? Tax fraud Survey to national tax authorities (EU- 28) Trade associations Section 5 Fight Against Fraud Desk research 156

157 Question Indicators / Descriptors Data sources Section in Report Top 5 Member State origins of detected Section 5 Fight fraudulent movements Against Fraud Top 5 Member State destinations of detected fraudulent movements (Trend of the) Commercial value and tax revenue associated to goods being moved via alternative movement procedures Commercial value and tax revenue associated to acceptable losses Survey to national tax authorities (EU- 28) 1.4 Question 4: To what extent are these arrangements still relevant to the needs of the Member States and the economic operators? This question sought to understand whether the current arrangements (including EMCS) are still fulfilling the needs of Member States and the economic operators. Therefore this question looked at (i) whether the needs behind the development of the current arrangements still exist, (ii) to what extent and how have the needs evolved and finally (iii) whether the arrangements satisfy the current needs. To this purpose, this section will draw on the intervention logic of the Directive 2008/118/EC and other relevant legislation in order to understand the original objectives of the various provisions. Any new needs identified during the course of the evaluation, in relation to the functioning of the internal market and the fight against fraud, will be included to answer this question. As well as looking at whether EMCS is still responding to core aspects related to the proper functioning of the internal market and protection of the Member States financial interests. A number of specific areas will also be covered. These include: Specific requirements for the management of authorisations; Simplifications or bilateral agreements permitted by the legislation (e.g. Art /118/EC; Art. 20(3) of the ETD); Exemptions from payment of excise duty for certain exempt consignees (Art 12); Exemption from EMCS procedures for small wine producers (Art. 40); The arrangements for low risk energy goods listed in Art. 2 of Directive 2003/96/EC, but not Art. 20(1); Current arrangements for changes in timing and itineraries of movements (e.g. splitting of movements of energy products, changes of destination, rejections); Special light regime for energy products covered by Art 21(5) of the ETD. Table 16, Individual assessment of the relevance of the provisions Questions Indicators / Descriptors Q4 To what Responses on the extent extent are the to which the current arrangements arrangements satisfy the still relevant needs of Member States to the needs and economic operators. of Member States and economic The reasons for which the operators? arrangements do not satisfy the current needs of Member States and Judgement Criteria Data sources Section in Report The arrangements Survey to Section 7 continue to economic Arrangements for contribute to these operators the movement of core aspects specific products Areas identified where the arrangements do not respond to current needs Survey to national tax authorities (EU- 28) Case studies Other relevant 157

158 Questions Indicators / Descriptors economic operators. Judgement Criteria Data sources Section in Report studies (e.g. high level report on alcohol and tobacco fraud). Responses from Member States and economic operators on specific arrangements Extent to which these specific arrangements are assessed to be necessary 1.5 Question 5: Is there a scope for simplification and administrative burden reduction? The objective of this question is (i) to identify administrative and compliance costs resulting from the implementation of the Directive and (ii) seek out measures that may alleviate such costs, while ensuring the same level (or higher) of security for the movement of excise duty goods. A first part will pertain to efficiency (cost-effectiveness) of the implementation of the provisions and will analyse the costs borne by tax administration in ensuring compliance with the Directive. In the second part, the compliance costs borne by economic operators will be broken down at the level of activities and, where possible, quantified through interviews and case studies. The recommendations pertaining to measures which may result in a reduction of administrative burden and simplification will follow and be presented as part of a Question Question 5.1: To what extent are the current arrangements a cost-effective way of collecting revenue for tax administrations? Question 5.1 looks at the efficiency of the current arrangements from the perspective of Member States tax administrations. In order to answer the question as to whether the current arrangements are cost-effective, the evaluation will compare costs of ensuring compliance with the EMCS to the previous paper based system. The focus of this question will remain with the excise administration; the costs of compliance for economic operators will be dealt with in question 5.2. Table 17, To what extent are the current arrangements a cost-effective way of collecting revenue Question Indicators / Descriptors Q5.1 (a) Are Costs (time and the current resources) to excise arrangements administration of ensuring the most compliance before and cost-effective after the introduction of way of the EMCS collecting revenue? Question 5.1 (b) To what extent are current provisions resulting in increased / unnecessary Processes / activities performed by Member States authorities to ensure compliance with the arrangements (e.g. in terms of monitoring, tax assessment, collection, authentication and Judgement Criteria Amount of time and resources needed as compared to the previous paperbased arrangement Issues identified by Member State which lead to increased administrative costs Data sources Survey to national tax authorities (EU- 28) Case studies Survey to national tax authorities (EU- 28) Case studies Section in Report Section Impact of the EMCS Section Conditions for granting and managing authorisations and guarantees Section

159 Question Indicators / Descriptors admin costs? verification, auditing, etc.)? Reasons why certain activities are particularly resource intensive Judgement Criteria Data sources Section in Report Impact of the EMCS Section 6 - Practical problems Question 5.2: To what extent are the current arrangements impacting the compliance costs of economic operators? Question 5.2 analysed the compliance costs resulting from the application of the provisions of the Directive, together with its implementing acts and national implementation. Table 18, Compliance costs for economic operator resulting from the application of the Directive Question Indicators / Descriptors Data sources Section in Report Q5.2(a) What are the compliance costs for economic operator The amount of time spent on a typical movement before and after introduction of the EMCS Costs (financial and human resources) resulting from: Survey to economic operators Case studies Section Conditions for granting and managing authorisations and guarantees resulting from The management of authorisations, the application Section of the licenses and general guarantees; Impact of the Directive? EMCS Additional compliance costs resulting from: Q 5.2 (b) How do the compliance cost impact the economic operators depending on their size Unclear or inconsistent application of the rules (e.g. varying procedures for moving excisable goods) Other practical issues reported by economic operators Costs (financial and human resources) resulting from the compliance with the above mentioned issues, relative to the size of the economic operator Survey to economic operators Case studies Section Impact of the EMCS Section 6 - Practical problems Question 5.3: How can current arrangements be improved in order to reduce administrative and compliance costs, while maintaining the same, or higher level of security? Finally, on the basis of the analysis conducted in the two sub questions above, Q5.3 sought to transform the inefficiencies identified into potential recommendations. Table 19, Improvements for reduction of compliance costs Question Indicators / Descriptors Data sources Section in Report Q5.3 How can current arrangements be improved in order to reduce administrative and compliance costs? Evidence of areas of EU legislation which could be improved Proposed changes and improvements to existing arrangements to be implemented nationally, sectorial or EU wide. Conclusions resulting from other evaluation questions Survey to national tax authorities (EU- 28) Survey to Economic operators Case studies Section 9.2 Recommendations 159

160 Question Indicators / Descriptors Data sources Section in Report 1.6 Question 6: To what extent do the current arrangements work in a coherent manner with the custom applications? In the context of the revision of the Community Customs Code, now Union Customs Code (UCC), significant knowledge has already been built in relation to the interaction between customs and excise procedures and operations. A number of issues have been documented in the report 37 prepared by the Fiscalis 2013 / Customs 2013 project group for coordination of excise and customs procedures. While the issues themselves are the subject of extensive ongoing work (including a dedicated project group), this study focused on the effects (and actual impacts) of the reported issues, in order to establish the extent to which administrations and economic operators are affected. This evaluation question sought to achieve the following objectives: Identify clear sources and drivers of the issues identified, linking with inconsistencies / weaknesses in the legislation; Understand the impact on administrations and economic operators (e.g. the estimated increase in compliance / administrative costs). In order to achieve these objectives, Question 6 explored the coherence of excise duty legislation with customs procedures Question 6.1: Which are the areas where the links between customs arrangements and excise arrangements do not work satisfactorily? On the basis of existing information, Question 6.1 (a) sought to gather systematic data on the nature of the problem (what is it exactly that is unsatisfactory?) and the extent to which the problem manifests itself (how often does it actually takes place?). Question 6.1 (b) sought to understand who is affected (which stakeholders are most affected) and in what way (e.g. what is the estimated increase in compliance / administrative costs?, how are other objectives put at risk?, etc.) Concluding on the basis of the descriptive indicators presented under Questions 6.1 (a) and (b) it would be possible to establish whether or not the existing legislation can be considered to be coherent with customs operations. This analysis was envisioned to be presented separately, as part of answering Question 6.1 (c) 37 CED

161 Table 20, Problem areas and impact related to incoherence of excise and customs procedures Question Indicators / Descriptors Data sources Q6.1: (a) Which are Number of EMCS messages (IE 829) per Desk research the areas where the MS per year ( ) 38 links between Case studies customs Practical experiences and perceived arrangements and problems as reported by stakeholders Survey to excise arrangements Nr. and frequency of instances of national tax do not work authorities satisfactorily? movements having to be closed (EU-28) Why not? manually Reported instances of problems e.g.: - Customs offices not having access to ARC number. - Lack of cross-checking of the e- AD and the customs declaration. - Alternative proofs of exit not being accepted. - Office of export not receiving confirmation of exit results. Survey to Economic operators Section in Report Section 8 Coherence with Customs procedure Q6.1 (b) What is the immediate impact of reported issues? Volume and Economic value of goods concerned 39 Estimated costs for Economic Operators and Member States Capacity for monitoring and control Case studies Section 8 Coherence with Customs procedure Level of risk of fiscal fraud Potential revenue loss due to inadequate evidence for proof of exit / exemption or suspension of taxes in the case of import Q6.1 (c) To what extent do the current arrangements work in a coherent manner with the customs transaction systems? Sources and drivers of the problems identified Desk research Case studies Section 8 Coherence with Customs procedure Question 6.2: What measures may be taken to ensure coherence between customs and excise legislation? On the basis of the results presented in question 6.1, a series of recommendations aimed at ensuring coherence between excise and customs processes, while maintaining a high level of security in enforcing excise duties could be formulated. In contrast to the approach taken at question 5.3, as the customs area is one in which the EU has exclusive competences, only recommendations to be implemented at EU level will be sought. 38 IE 829s are only emitted where the Member State of dispatch is different to the Member State of export (so called indirect exports ); If the Member State of Dispatch, the Member State of Export and the Member State of Exit are the same there may be no electronic trace accessible to the Commission. 39 Figure will be the same as that calculated under Question 1.2 (c) or a percentage of it 161

162 Table 21, Improvements for ensuring coherence between excise legislation and customs procedures Question Indicators / Descriptors Data sources Section in Report Q6.2 What EU action is necessary in order to ensure coherence Evidence of areas that could be improved in EU legislation Analysis evidence of collected Section 8 Coherence with Customs with customs procedures, while maintaining the same, or higher level of security? Proposed changes and improvements to existing arrangements to be taken at EU wide level 1.7 Question 7: Which of the observed impacts of the current arrangements can be reasonably attributed to the EU action? The European added value (EU AV) is to be understood as the additional gains stemming from acting at the EU-level as compared to a national initiative, a multilateral or even another international initiative. The European added value stems from the marginal increase in terms of: (i) efficiency gains through working at EU level (e.g. through common IT platforms, central coordination from the Commission, reduction of duplication and overlaps); (ii) increase in effectiveness of the arrangements as compared to any potential action taken at national, multilateral or even international level and; (iii) sustainability of impacts if the intervention were to discontinue. In order to identify EU added value, the evaluation looked at impacts identified as a result of EQ2 (contribution to proper functioning of the internal market); EQ3 (protection of the financial interests of the Member States) and Q5 (related to the costs associated). The evaluation compared those identified impacts with the assessment of stakeholders of: The extent to which they consider that similar impacts could have been achieved through to a national initiative, a multilateral or even another international initiative; The mechanisms used to achieve said results or; The inhibitors/ barriers which preclude the achievement of comparable results. The evaluation considered the following conditions to be necessary for a well-functioning system for supervising the movement of excise duty goods within the EU (a territory which exceeds the national jurisdictions of individual Member States): Consistent and clear obligations on economic operators involved in the moving and holding of excise duty goods; A system that can be used EU-wide with the same (or near) predictability and uniformity by all established economic operators; A common infrastructure allowing the secure and rapid transfer of tax information between Member State administrations; A forum for agreement and coordination of common rules (legal aspects) and specifications (technical aspects) for the functioning of the arrangements; An effective enforcement system to ensure applicability of agreed rules; A coordinated response to tackle tax fraud, recognising the cross-border nature of tax fraud. A logical argument is constructed to link the collected data (identified impacts and stakeholder assessment) to present any identified additional gains of acting at EU level, as opposed to taking action on a national, multinational or international context. 162

163 Table 22, To what extent can the observed impacts be reasonably attributed to EU action? Questions Indicators / Descriptors Q7.1 To Identified impacts, as a what extent result of EQ2 (proper can the functioning of the internal observed market), EQ3 (protection impacts be of the financial interests) reasonably and EQ5 (costs). attributed to EU action? Mechanisms through which comparable results could be achieved or reasons why comparable results could not be achieved. Judgement Criteria Data sources Section in Report The gains of acting at EU level in terms of: - efficiency; - effectiveness; - sustainability. Could not be achieved by Member States alone in the absence of EU action. Survey to national tax authorities (EU- 28) Survey to Economic operators Case studies Relevant documentation and studies (e.g. Fiscalis 2013 final evaluation) Section 4.4 EU Added Value 1.8 Question 8: Which of the problems identified would most merit an EU action (and thus deserve further study by the Commission)? This final question will be reserved for the structured presentation and prioritisation of recommendations aimed at improving the situation in terms of: the proper functioning of the internal market; protecting the financial interests of Member States; reduction of compliance costs, In order to eliminate any potential overlap, duplication and / or un-clarity with respect to the recommendations, the structure of this chapter will follow each problem area, (as substantiated by the analysis). Following a comprehensive assessment of all recommendations presented by problem issue, we will prioritise them, arranging problem issues according to the ones which have the highest potential for improvement along the lines of the 3 selected objectives. Without prejudice to the actual outcome of the data collection and analysis substantiating the problem definition on the basis of reported experiences and quantitative data collected, the following structure of this question is proposed: Table 23 Recommendations Questions Indicators / Descriptors Section in the repot Q8.1 What measures should be taken to resolve identified issues Extent to which the recommendation improves the situation in relation to: Section Recommendations related to: Reduction of compliance costs The management of authorisations, licenses and general guarantees The existence of varying procedures for moving excisable goods Unclear rules for handling of exceptions to normal sequence of events Incoherence between customs and excise procedures Unsuitable supervision of Proper functioning of the internal market Protection of financial interest 163

164 Questions Indicators / Descriptors Section in the repot changes in timing and itineraries of movements Inconsistent application of place of supply rules Enforcement authorities' ability to monitor the movements of goods realtime Q8.2 Which of the problems identified would most merit an EU action? Issues prioritised according to the highest potential for: Reduction of compliance costs Improvement of the functioning of the internal market Protection of financial interest Section Recommendations 164

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209 Appendix 4 Survey population description 1.1 Survey population description Through the electronic survey distributed to economic operators, a total of 343 complete and partial answers have been received. Trade associations account for a total of 31 answers. This section describes and analyses the types of respondents and their coverage of the EU Member States. All answers, complete and partial, are included in the analysis of the survey population. The number of respondents in each graph, (indicated by the capital letter N in the headings), may differ from question to question, This can be due to two reasons, these are presented below: 1. Some respondents were simply not asked a particular question (e.g. because the question was not relevant to that particular type of stakeholder) 2. The respondent chose not to provide an answer (e.g. due to the complexity of the questionnaire, stakeholders were not obliged to provide answers to a question as a condition for proceeding to the next question). 1.2 Sectors of activity The respondents cover the three main sectors of focus in this study as well as some adjoining sectors. The respondents distribution across main sectors of activity is shown in the graph below. 209

210 Figure 1: Main sectors of activity (N=343) 1 60% 50% 52% 40% 30% 27% 20% 18% 10% 5% 8% 0% Alcohol and alcoholic beverages (N=179) Manufactured tobacco (N=61) Energy products and electricity (N=92) Freight forwarder or other agents carrying out customs and excise formalities (N=18) Other (N=26) Note: Respondents may select multiple answers and therefore, the percentages shown in the figure may exceed 100 pct. N in the headline refers to the unique number of respondents answering the question, whereas N in each line of answer refers to the number of responses related to the specific answer. These might differ, when the respondents are operating in more than one country/industry. Source: Survey to economic operators, March-September According to the graph, the sector Alcohol and Alcoholic Beverages is slightly more represented among the respondents than the other two sectors Manufactured Tobacco and Energy Products and Electricity. This is not surprising, given the fact that the Tobacco and Energy markets are highly concentrated (i.e. characterized by a smaller number of large firms). Given the significant differences between the different sectors 2, the analysis of the answers within the context of the study is done quasi-independently whenever relevant. Alcohol and Alcoholic Beverages sector All respondents related to the Alcohol and Alcoholic Beverages sector have been asked to further specify their role in the logistic chain. 1 Here and from here on, N represents the number of respondents which have given an answer to that particular question. 2 E.g. The alcohol sector is characterised by a large number of organisations while energy and tobacco are highly concentrated. 210

211 Figure 2: Role of the organisation in the logistic chain Alcohol and Alcoholic Beverage (N=178) 3 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Producer of beer (N= 68 ) Producer of wine / winegrower (N= 43 ) Producer of other fermented beverages (N= 15 ) Producer of intermediate products (N= 8 ) Producer of spirits (N= 26 ) Producer or distributor of denatured alcohol Warehouse keeper (N= 65 ) Distributor (N= 43 ) Retailer (N= 15 ) Transporter (N= 12 ) Trade association (N= 11 ) Other (N= 12 ) 8% 4% 8% 8% 7% 6% 7% 15% 24% 24% 38% 37% Note: Respondents may select multiple answers and therefore, the percentages shown in the figure may exceed 100 pct. N in the headline refers to the unique number of respondents answering the question, whereas N in each line of answer refers to the number of responses related to the specific answer. These might differ, when the respondents are operating in more than one country. Source: Survey to economic operators, March-September The majority of the respondents answered that they are producers of beer (38 pct.) and wine (24pct.), spirits (15pct.). Producers of fermented beverages, and intermediate products are also represented (8 and 4 pct. Respectively) The coverage of respondents in the survey sample is surprising as the number of respondents is not in line with expectations resulting from an analysis of commercial data. However, the sample distribution can be explained by the manner in which the views of industry are represented at EU level (i.e. it is expected that wine producers will not have answered the survey individually but will have relied on the answers of the relevant trade associations). Whenever relevant, answers will also be analysed with respect to the role of the organisation, (even when no different patterns are noticeable). Most producers and distributors who have responded to the questionnaire are also warehouse keepers. In the category other the respondents gave a description of their role in the logistic chain. Examples include: Customs agent, Independent Bottler, Producer of 3 The single respondent who has identified himself as operating in the sector of Alcohol and Alcoholic Beverage but which has not specified a role explains the discrepancy between this and the number of respondents from alcohol and alcoholic beverages expressed in figure 1 211

212 Bioethanol for fuel blending, Producer or distributor of undenatured alcohol and Ship Supply Company. (n.b. these categories are self-descriptions by respondents). Because of the fact that trade associations have answered on behalf of a larger number of organisations in the sector, the answers of trade associations will be reported separately and given particular attention when analysing the survey and drawing conclusions. Manufactured Tobacco Respondents related to the Manufactured Tobacco sector have also been asked to further specify their role in the logistic chain. Figure 3: Role of the organisation in the logistic chain Manufactured Tobacco (N=60) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Manufacturer of tobacco products (N= 39 ) 65% Warehouse keeper (N= 46 ) 77% Wholesaler (N= 18 ) 30% Retailer (N= 5 ) 8% Trade association (N= 0 ) 0% Other (N= 6 ) 10% Note: Respondents may select multiple answers and therefore, the percentages shown in the figure may exceed 100 pct. N in the headline refers to the unique number of respondents answering the question, whereas N in each line of answer refers to the number of responses related to the specific answer. These might differ, when the respondents are operating in more than one country. Source: Survey to economic operators, March-September The majority of respondents in this sector are manufacturers of tobacco products (65 pct.). The vast majority of manufacturers and wholesalers of tobacco products who have responded the questionnaire are also warehouse keepers. In the category other the respondents gave a description of their role in the logistic chain. Examples include Sales & Marketing/Distributor, Ship Supplier and Register consignor. As the survey questions were tailored in such a manner as to make them more relevant for economic operators and given that the tobacco sector is highly 212

213 concentrated, trade associations of this sector have chosen not to provide answers on behalf of the industry having considered that it is more efficient for their members (economic operators) to do so. The relevant trade associations have informed Ramboll of this decision. Energy Products and Electricity Finally, all respondents related to the Energy Products and Electricity sector have specified their role in the logistic chain. Figure 4: Role of the organisation in the logistics chain Energy Products and Electricity (N=92) 0% 10% 20% 30% 40% 50% 60% 70% Energy producer (N= 12 ) 13% Producer of mineral oils or biofuels (N= 25 ) Refinery (N= 26 ) 27% 28% Tank storage (N= 56 ) 61% Distributor (N= 34 ) 37% Transporter (N= 9 ) 10% Electricity supply and/or distribution (N= 5 ) 5% Gas supply and/or distribution (N= 18 ) 20% Supply of coal, coke or lignite (N= 4 ) 4% Trade association (N= 21 ) 23% Other (N= 4 ) 4% Note: Respondents may select multiple answers and therefore, the percentages shown in the figure may exceed 100 pct. N in the headline refers to the unique number of respondents answering the question, whereas N in each line of answer refers to the number of responses related to the specific answer. These might differ, when the respondents are operating in more than one country. Source: Survey to economic operators, March-September The majority of the respondents answered that they are responsible for tank storage. Also, rather larges shares of the respondents are involved in distribution, refinery or production of energy or mineral oils or biofuels. A high number of answers in this sector are provided by trade associations. This will be taken into account when analysing answers. 1.3 Economic size The economic size of the firms in the survey is measured in terms of turnover and number of employees. First, average annual turnover of the respondents are shown in the figure below. 213

214 Figure 5: Average annual turnover including excise and VAT (N=338 excluding trade associations) 45% 40% 39% 35% 30% 25% 20% 15% 10% 9% 9% 7% 12% 9% 16% 5% 0% Below EUR 500,000 (N= 29 ) Between EUR Between EUR Between EUR Between EUR In excess of 500,000 and 2m and EUR 10m and EUR 50m and EUR EUR 100m EUR 2m (N= 10m 50m (N= 100m (N= 132 ) 31 ) (N= 23 ) 39 ) (N= 30 ) Don't know/ not applicable (N= 54 ) Note: N in the headline refers to the unique number of respondents answering the question, whereas N in each line of answer refers to the number of responses related to the specific answer. These might differ, when the respondents are operating in more than one country. Source: Survey to economic operators, March-September Close to 40%f of the respondents have an average annual turnover in excess of 100 million EUR. The distribution of the sample is evenly spread among the other categories in terms of turnover. As this question is not relevant for trade associations, they have been excluded from this graph. Below, the average turnover of the economic operators is divided by sector. 214

215 Figure 5A: Average annual turnover including excise and VAT 4 associations (N=338) divided by sector excluding trade 0% 20% 40% 60% 80% 100% Alcohol and alcoholic beverages (N=175) Manufactured tobacco (N=60) Energy products and electricity (N=92) Freight forwarder or other agents carrying out customs and excise formalities (N=18) Other (N=26) Below EUR 500,000 Between EUR 2m and EUR 10m Between EUR 50m and EUR 100m Don't know/ not applicable Between EUR 500,000 and EUR 2m Between EUR 10m and EUR 50m In excess of EUR 100m Note: N in the headline refers to the unique number of respondents answering the question, whereas N in each line of answer refers to the number of responses related to the specific answer. These might differ, when the respondents are operating in more than one industry. Source: Survey to economic operators, March-September The graph shows that a relative larger share of the economic operators belonging to the Manufactured Tobacco sector has a very large turnover in excess of 100 million EUR compared to the respondents in the other main sectors. However overall, the differences across the three main sectors are not large. The freight forwarders and respondents in the Alcohol and alcoholic beverages sector (approx. 40 pct. have a turnover lower than 10m EU) however, have a markedly large share of responses from smaller size firms in terms of turnover. Average number of employees per firm is shown in the graph below. The respondents were asked to focus on direct employment within the EU. 4 Exact survey question: What is the average annual turnover (including excise and VAT) of your organisation? (You may consider as reference, 2013 and 2014) 215

216 Figure 6: Average number of employees in the analysed sectors within the EU excluding trade associations (N=338) 37% 6% 15% 20% Between 1 and 9 (N= 51 ) Between 10 and 50 (N= 67 ) Between 51 and 250 (N= 76 ) Over 250 (N= 125 ) Don't know/ not applicable (N= 19 ) 22% Note: N in the headline refers to the unique number of respondents answering the question, whereas N in each line of answer refers to the number of responses related to the specific answer. These might differ, when the respondents are operating in more than one country. Source: Survey to economic operators, March-September The largest group of the respondents, 37 pct. are those with more than 250 direct employees within the EU. This corresponds well with the respondents answers concerning annual turnover which showed that the firms responding to the survey are on average rather large. Below, the average number of employees is divided by sector. 216

217 Figure 6A: Average number of employees within the EU divided by sector 5 excluding trade associations (N=338) 0% 20% 40% 60% 80% 100% Alcohol and alcoholic beverages (N=175) Manufactured tobacco (N=60) Energy products and electricity (N=92) Freight forwarder or other agents carrying out customs and excise formalities (N=18) Other (N=26) Between 1 and 9 Between 10 and 50 Between 51 and 250 Over 250 Don't know/ not applicable Note: N in the headline refers to the unique number of respondents answering the question, whereas N in each line of answer refers to the number of responses related to the specific answer. These might differ, when the respondents are operating in more than one industry. Source: Survey to economic operators, March-September Again, the division between sectors shows that the respondents belonging to the Manufactured Tobacco sector are slightly larger on average compared to the other two main sectors, this time measured in terms of employees. Also, a relative larger share of the respondents belonging to the Alcohol and Alcoholic Beverages sector is of smaller size (between 1 and 9 employees). 1.4 Coverage of the EU Member States The respondents were asked: Is your organisation holding and/ or moving excise duty goods under suspension in more than one Member State. The respondents can be divided into a group of nationals, (i.e. companies holding and/ or moving excise duty goods under suspension in one Member State only), and multinationals (i.e. holding and/ or moving excise duty goods under suspension in two or more Member States). The division between nationals and multinationals (excluding trade associations) in the survey is shown in the following figure. 5 Exact survey question: How many persons does your organisation (directly) employ within the EU? (You may consider as reference, 2013 and 2014) 217

218 Figure 7: Division between nationals and multinationals excluding trade associations (N=343) 38% Multinationals (N= 213 ) Nationals (N= 130 ) 62% Source: Survey to economic operators, March-September A large proportion of the respondents, 62 pct., are multinational firms operating in more than one Member State. The Member States in which nationals and multinationals (excluding trade associations) operate in is shown in the next figure. 218

219 Figure 7A: Number of respondents in Member States of operation excluding trade associations (N=343) Austria Belgium Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom Nationals Multinationals Note: N in the headline refers to the unique number of respondents answering the question, whereas N in each line of answer refers to the number of responses related to the specific answer. These might differ, when the respondents are operating in more than one country. There were a few Member States with no answers in the survey from nationals (i.e. companies reporting to operate in one Member State only). The Member States not represented by nationals are Croatia, Latvia, Portugal and Slovenia. However multinationals who have answered the survey operate in all Member States combined. In order to reduce the time spent completing the survey, respondents had the option to choose the Member States for which they wanted to give detailed answers in the sections of the questionnaire which referred to national implementation (and hence had a national perspective rather than a European one). This means that even if an organisation reported to operate in number of Member States it may have chosen to give detailed answers only for a limited number of them. 219

220 The figure below shows the complete coverage of Member States by the respondents, nationals as well as multinationals. The figure shows the Member States on which respondents (excluding trade associations) have chosen to give detailed answers. It should be mentioned that the questions related to practical problems are excluded from this limitation, as economic operators were given the opportunity to choose once again which Member States they would like to consider when submitting responses. The analysis of the answers shows that, for that particular question, the coverage of Member States is significantly increased. 220

221 Figure 8: Number of operators providing answers relative to each Member State (N=343) Austria (N=25) Belgium N=48) Bulgaria (N=20) Croatia (N=5) Cyprus (N=8) Czech Republic (N=13) Denmark (N=7) Estonia (N=14) Finland (N=15) France (N=16) Germany (N=71) Greece (N=8) Hungary (N=21) Ireland (N=16) Italy (N=25) Latvia (N=4) Lithuania (N=4) Luxembourg (N=6) Malta (N=5) Netherlands (N=35) Poland (N=18) Portugal (N=7) Romania (N=11) Slovakia (N=11) Slovenia (N=7) Spain (N=23) Sweden (N=13) United Kingdom (N=39) Multinationals and nationals Note: Respondents may select multiple countries. N in the headline refers to the unique number of respondents answering the question, whereas N in each line of answer refers to the number of responses related to the specific answer. These might differ, when the respondents are operating in more than one country. Source: Survey to economic operators, March-September The 343 individual respondents, by choosing to provide detailed answers for several Member States to questions which had a national dimension, effectively cover the 221

222 Member States more effectively than if they were only providing one answer relative to only one Member State, Germany is the Member State covered by most respondents in the survey. Belgium, Italy, Netherlands, and the United Kingdom are also well represented with more than 20 answers per Member State. There is no Member State which is not represented at all in the sample of replies. When comparing the two figures above, it is very interesting to see that an important number of organisations, despite operating in some Member States, have chosen not to provide any answers relative to those countries. This seems to be the case of large countries such as France, Italy, Spain and Poland. For example, whereas figure 7A shows that a large number of respondents operate in France, Italy Spain and Poland, a much smaller number chose to provide a response (as shown by figure 8). We believe this trend is an indication of respondent bias resulting from the incentive of respondents to provide answers relative to countries where perceived problems or obstacles are more likely to be experienced. This will be explained in the section below. 1.5 Representativeness of survey sample The purpose of this section is to discuss the representativeness of the survey sample. Taking the survey design into consideration, overall the sample size and composition is considered rather representative. The respondents cover well the three product categories, all countries and the coverage also included operators at different levels of the logistics chain. In this context, we believe that analysis performed at EU level and for each sector can be considered sufficiently accurate. When dividing the responses based on the respondents characteristics, such as type of operator, country etc., caution should be taken when interpreting the conclusions due to the low number of responses, especially when going down to the Member State level. The survey representativeness will be addressed in the following paragraphs for each sector. In the tobacco sector, ¾ of respondents were large operators (measured in terms of turnover and number of employees). No tobacco trade associations chose to participate in the survey, however the responses in this sector is expected to be representative, as the industry is highly concentrated. Trade associations in this sector have chosen not to provide answers on behalf of the industry having considered that it is more efficient for their members (economic operators) to do so. The relevant trade associations have informed Ramboll of this decision. Respondents in the alcohol sector both consisted of large and small operators. The brewing industry is well represented as both large and small breweries are represented in the survey. However, wine operators are not well represented in the survey as the industry consists of a high number of SMEs, which is not reflected well in the relatively low number of respondents. However, the survey relies to some extent on the views of trade associations, who have answered on behalf of a larger number of operators. 222

223 Trade associations within this sector have communicated to Ramboll that it is unreasonable to expect wine operators to respond in high numbers and that they would provide answers on behalf of their membership. Subsequently, it can be expected that small wine operators are in fact represented in the survey to a higher degree than reflected in the number of respondents. Finally, the energy sector is also considered well represented with a good representation of operators from all levels of the logistics chain. An important number of all respondents were trade associations, which further validate the views of a substantial number of additional energy operators. Unfortunately, the survey does not allow the evaluation team to link individual replies to specific trade associations unless they have provided their contact details voluntarily. However, the survey analysis distinguishes answers of trade associations from the sample of economic operators and furthermore, separates those views across sectors when relevant. It should be borne in mind that the distribution methodology of the survey means that the survey was foremost promoted among operators who are represented by trade associations and federations. However, we do not expect this to result in a high degree of errors. On the other hand, other factors may be responsible for errors in results: For example, respondents may be unable to answer a question accurately or be unwilling to respond honestly. The former has been mitigated by including the option "do not know" / not applicable or "other" as an option to most questions. The latter risk is more difficult to avoid, but can to a certain extent be detected through the data triangulation analytical process. It is important to also consider that economic operators more willing to invest time in providing answers to the survey are those generally less satisfied with the provisions, hence providing a more negative picture than what otherwise would be visible if the entire population would be sampled. Finally, in particular questions, the survey sample does not allow a detailed analysis of reported issues at the level of each Member State and each sector. However, it should be noted that the survey was designed to provide an EU-wide picture based on a central distribution of the questionnaire. The starting point was not the individual MS. 1.6 Methodology for distributing the survey The survey to economic operators was distributed to the European industry associations/federations of relevant sectors as well as to all the members of the Excise Contact Group. All contacts were invited to disseminate the survey link further to all interested economic operators. The organisations which were asked to distribute the survey are listed in Table 35, below: Table 35 List of organisations distributing the survey Organization ABInbev Association of Small and Independent Breweries in Europe Brewers of Europe Caldiretti Sector Alcohol Alcohol Alcohol Alcohol 223

224 Carlsberg CEEV CEVI COPA-COGECA EFWSID (European Federation of Wine & Spirits Importers and Distributors) epure (European renewable ethanol industry) Heineken SABMiller spiritseurope VIF (Vignerons indépendants de France) AICV (European Cider and Fruit Wine Association) BBPA (British Beer and Pub Association) (part of CBMC) CELCAA (Comité Européen de Liaison des Commerces Agricoles et Agro-Alimentaires) CEPS (European Spirits Organisation) EFWSID (European Federation of Wine and Spirit Importers and Distributors) FBVS-BFWG (Fédération Belge des Vins et Spiritueux) OIV (Organisation internationale de la vigne et du vin) CLECAT (European Association for forwarding, transport, logistics and customs services) ECSA (European Shipowners Association) EUROCOMMERCE IRU (International Road Transport Union) UKWA (United Kingdom Warehousing Association) ECFD (European conference of fuel distributors) FETSA (The Federation of European Tank Storage associations) UPEI, (Union Pétrolière Européenne Indépendante) AEGPL (Association Européenne des GPL) EBB (European Biodiesel Board) Fuels Europe (previosuly Europia) UEPA (European Union of Ethanol Producers) CECCM (Confederation of European Community Cigarette Manufacturers) CEDT (Federazione Italiana Tabaccai) ECMA (European Cigar Manufacturers Association) ESTA (European Smoking tobacco association) ETV (European Tobacco Wholesalers Association) PMI (Phillip Morris International) Alcohol Alcohol Alcohol Alcohol Alcohol Alcohol Alcohol Alcohol Alcohol Alcohol Alcohol Alcohol Alcohol Alcohol Alcohol Alcohol Alcohol All All All All All Energy Energy Energy Energy Energy Energy Energy Tobacco Tobacco Tobacco Tobacco Tobacco Tobacco Additionally, targeted s to economic operators and national chambers of commerce have been sent in order to distribute the survey as widely as possible and increase the number of responses. Member States Administrations have also been asked to distribute the survey nationally to relevant economic operators. 224

225 Case Study - United Kingdom United Kingdom (UK) Appendix 5 - Case study reports Executive Summary Specific issues investigated: All aspects of the evaluation were covered by the case study on the UK. As a result of the first round of data collection, particular attention has been paid to the following aspects: Main outcomes (conclusions) Authorisations: the case study investigates the administration of authorisations and the resources associated with the various processes involved in the management of authorisations, including the use of guarantees. Movement of excise duty goods: there is a standard procedure in place for the movements of excise duty goods which now uses an electronic system, rather than the old paper-based system. However, there are also exceptions to the normal sequence of events which entail different processes, which may be interpreted or implemented differently by different operators faced with multiple jurisdictions. Risk analysis system: the study analyses how HMRC use EMCS data as part of the risk analysis system to detect and combat fraudulent tax avoidance. Coordination between customs and excise: the case study looks at the experiences of HMRC and various economic operators with regard to the areas where links between customs arrangements and excise arrangements do not work satisfactorily, and the impact of the issues faced. In the UK, authorisation can be granted for standard categories of operators, i.e. authorised warehouse keeper, tax warehouse, registered consignor and registered consignee, but also for owners. During the application process for authorisation, HMRC, the UK tax authority, visits applicants to examine the business activities. Once application is guaranteed, a premises guarantee is required for warehouse keepers, though the majority of warehouse keepers are likely to receive reductions if they are well 225

226 established and have a good track record with HMRC. Movement guarantees are in place for warehouse keepers, owners and transporters, with the level of security based on the potential duty on average movements. In addition to guarantees, some companies are required to provide regular reporting on movements of alcohol and tobacco goods. More generally, companies need to make certain information in relation to movements available if it is requested by HMRC. The data generated by EMCS on movements is generally used by HMRC to help detect fraud, which is a major problem in the UK, given the relatively high rates of duty (compared to other EU Member States). From the administration point of view, EMCS therefore entails greater resource than was previously the case under the paper-based system, but this is because EMCS provides data that can be used which were not available under the old system. The economic operators interviewed used full time equivalents (FTE) on EMCS-related activities. The most resource intensive task, from the economic operators point of view, was generally seen to be the time spent chasing other companies in the supply chain when problems are encountered with the movement or there are exceptions to the normal sequence of events. These exceptions to the normal sequence of events include losses, shortages, excesses, errors in or changes to the e-ad, changes in destination or rejections (partial or full). Economic operators have developed their own systems of dealing with these types of issues through EMCS. In most cases, these issues were not overly burdensome, but they did involve some incremental compliance cost, relative to the procedure for the normal sequence of events. It was generally acknowledged that different interpretations of the rules by tax authorities in different Member States exacerbated the problem. In the UK, there is a perception that there are issues created by the lack of coordination between customs and excise rules both from the perspective of the tax authority and Member States. A large number of movements have remained open, particularly where the destination is export outside of the EU, due to customs offices not having access to ARC numbers, a lack of cross-checking of the e-ad and the customs declaration, alternative proofs of exit not being accepted, and the office of export not receiving confirmation of exit results. For some economic operators, this is time consuming process that creates significant burden. 1 Administration of authorisations Q1.1(b) What are the main conditions and requirements for granting the authorisation What are the main conditions and Authorisation can be granted for the following categories of operators: authorised warehouse keeper, tax warehouse, registered consignor, registered consignee, and owner (this latter is specific to the UK and not 226

227 requirements for granting the authorisation driven by the European legislation). The table below sets out details of the number of applications received by HMRC in 2014/15. Type of operator Received Rejected Not pursued by app Warehouse Warehouse keeper Owner Registered consignor Registered consignee It is important that all applicants receive a pre-approval visit so that HMRC may obtain information to assist in the processing of the application. During the visit HMRC examines all the business activities and may enquire about the operator s suppliers, customers, business plans, accounting systems, premises, financial viability, and so on. Only when HMRC is satisfied the business is a genuine enterprise which is commercially viable, with a genuine need for authorisation and that all key persons are fit and proper to carry on such a business, will the application be processed. The requirements for the opening and operation of general storage distribution warehouses are: meet the minimum throughput levels a minimum potential duty liability of 500,000 on the average monthly stockholding of duty-suspended excise goods or a duty liability of at least 2,000,000 on an annual throughput of dutysuspended excise goods; demonstrate a genuine need for additional excise warehouse storage facilities in the area; provide a premises guarantee, if needed (see below for more information on guarantees); make sure that the premises are secure; make sure that the premises allow HMRC safe access to all approved areas and duty-suspended stock; make sure that the systems in place allow HMRC to carry out an audit and any other checks; meet all the conditions set out in the law; and meet any other conditions which HMRC may impose on the business to receive approval (e.g. a liquid storage company that was interviewed was required to provide information about sealing points on pipework). It is generally seen to be more difficult to remove authorisation once it is granted. Therefore, the authorisation process is seen by HMRC as key to preventing risky parties, particularly owners deemed to be high risk, from entering the supply chain. As can be seen in the table above, of 189 applications for owner registration, 90 were either rejected or were not pursued following HMRC s initial checks/questions. An alcohol producer that was interviewed for this case study stated that the requirements for storing duty-suspended products are overly onerous for producers that are storing their own products, as the risk of fraud is very low; a simpler process for authorisation could be adopted. 227

228 What level and type of guarantees associated with authorisation are applicable to the different types of authorised economic operators? o o o o What is the guarantee amount required for each type of tax warehouse / registered consignors / registered consignees authorised? How is the guarantee operated? (i.e. how is the level of security calculated?) Is there a guarantee monitoring mechanism? How are movement guarantees calculated and operated? There is a premises guarantee in place for warehouse keepers, and a movement guarantee for warehouse keepers, owners and transporters. Premises guarantees The majority of warehouse keepers are likely to receive reductions if they are well established and have a good track record (most of the economic operators interviewed did not have to pay a guarantee associated with authorisation). HMRC only allows this if it has made no claim against the security and no significant irregularities have been identified in the operation of the excise warehouse during a specified period. For general storage and distribution warehouses and motor and heating fuel warehouses, HMRC bases the level of security on the potential duty due on the average end of month stock for a business (calculated over a twelve-month period, allowing for any seasonal variations). For trade facility warehouses, HMRC bases its calculations on the proposed or current throughput levels. Potential duty on month-end stock holding Level of security less than 100,000 0 more than 100,000 but less than 400, ,000 more than 400,000 but less than 1m 25% of potential duty more than 1m but less than 25m 250,000 more than 25m but less than 100m 1% of potential duty more than 100m 1m The minimum level of security for new general storage and distribution warehouses is 250,000. Multi-site security of premises/companies is possible. This gives commercial benefits in terms of the overall level of security required, but carries additional risks (one significant irregularity on the part of any of the company s activities would result in the loss to the entire group of any reductions granted, or result in the cancellation of the entire guarantee). One economic operator that was interviewed felt that the level of the guarantee typically in place may not be high enough for certain economic operators deemed to be high risk with regard to fraud. Movement guarantees HMRC bases the level of the movement security on the average amount of duty suspended on one week s movements calculated by reference to all movements in the previous 12 months, allowing for seasonal 228

229 variations. Potential duty on an average week s movements Level of security < 1m 25% of potential duty > 1m but < 25m 250,000 > 25m but < 100m 1% of potential duty > 100m 1m The minimum level of security required for movement guarantees is 20,000. A producer of alcoholic beverages stated that it has a guarantee of 33,000 for movements within the EU (but no guarantee is needed for movements within the UK). This guarantee is a flat fee that is not related to the volume or value of goods transported and, in the view of the producer, is not reflective of the level of risk. Q5.2 (a) Costs (financial and human resources) for Member States resulting from the management of authorisations, licenses and general guarantees; (Member States) What are the activities performed by Member States authorities prior to approving license/authorisation application How much time and resources are spent by Member States authorities for processing license/authorisation applications The process involves verification of the trader s compatibility with regulatory requirements, inspection of the site mentioned in the application for the issuance of licence of running excise goods warehouse, as well as physical checks for correspondence with the declared information and the existence of technological equipment necessary for the production is verified. Some processes would typically be carried out simultaneously along the following steps: Application for authorisation sent. Application receives a face vet, i.e. a simple check for completeness of information. If there is missing information, HMRC would go back to the company that has submitted the application. Once all the information is present, various checks are started. This is outsourced to different parts of HMRC (e.g. a local department will conduct site checks and face-to-face meetings). There is a 45 day limit within which HMRC seeks to process an application. However, the clock can be stopped at any point if necessary. Typically, processing an application will involve up to 10 staff: the processes involved vary considerably from case-to-case, particularly given HMRC s focus on detecting and preventing fraud, so the time spent on assessing an authorisation application also varies considerably (it is not possible to discern the average amount of resources spent on processing authorisation applications). In general, HMRC will spend as much time as is required to ensure that the application is assessed correctly. 229

230 Reasons why certain activities are particularly resource intensive It should be noted that the processing of applications is funded from HMRC s own resources; economic operators are not required to pay a fee in order to apply for authorisations. According to HMRC, the site visits and verification aspects of the process are the most time consuming. However, in HMRC s view the time taken is not driven by the obligation to comply with the Directive; rather, it is driven by HMRC s focus on fraud, and therefore spending resource on assessing applications correctly. Q5.2 (a) Costs (financial and human resources) for economic operators resulting from the management of authorisations, licenses and general guarantees; (Economic Operators) What are the activities performed by economic operators authorities prior to approving license/authorisation application o Pre-conditions for approval? o Application procedure (information requested, forms necessary) o Submission of application (manual/electronic application) o Establishment of guarantees How much time and resources are spent by economic operators in order to obtain license/authorization For two of the economic operators interviewed for the case study, considerable time has elapsed since authorisations were granted, so it is difficult to estimate the costs. - One of them noted that their authorisation is renewed automatically by HMRC. The company does have to reapply for cowarehousing status every 2 years, which allows them to hold duty-paid products as well as duty-suspended products; this is a simple procedure which just requires provision of simple information that they have to hand (bank details, turnover, and systems in pace). - The other company noted that there is a self-reporting system in place based on HMRC s risk framework. Under this approach, the company, which is deemed to be low risk by HMRC, must notify HMRC if there are any changes that would materially affect the company s risk (with regard to fraud). A third economic operator had to recently reapply for all of their authorisations because of a company restructure. This involved completing HMRC s EX68 form (which is HMRC s form for applying for or amending general storage and distribution warehousing). For the two economic operators that had to renew their authorisations, the time and resources currently spent are minimal (risk framework is not burdensome, with the process completed by , requiring very limited resource). The co-warehousing reapplication is very simply and only takes 2-3 minutes to complete. For the economic operator that had to recently reapply for its authorisations, the process proved to be very burdensome. The whole application process took 2-3 months from start until approval was granted, with approximately 2 weeks worth of time (FTE) employed to complete the applications, plus some additional consultation and assistance from other in-house teams (as evidence of the cost involved, the company had a quote of 60k for the applications to be completed by an external contractor). The company did note that its application was likely to be more complex than would typically be the case (given the size of the company, the number of applications and the different types of products covered). However, the company felt that it would take a long time for an application to be accepted irrespective of business size. Reasons why certain activities are The company that had recently reapplied for its authorisations felt that it takes considerable time to complete the form and ensure that copies have been made of all relevant documentation (though it was noted that this is something that the company did for its 230

231 particularly resource intensive own records, rather than something that is required by the application process). It also takes quite a lot of time to re-calculate tax throughput for the various products that the company holds and moves. The company felt that the process was unduly long, as there is no targeting in the way applications are processed; in particular, their application did not take into account the fact the company is well established and has a reputation in the market (compared to other new entrants), which could have afforded a more streamlined process. Given the time it took for authorisation to be granted, the company would have preferred it a notification of the authorisation was issued in advance of the authorisation actually being granted, so that certain processes could have been started earlier (e.g. those involving other parties/clients). What are the obligations of economic operators in relation to holding and storing excisable How much time and resources are being spent in order to comply with the obligations related to holding and storing excise duty goods Other than guarantees (described earlier), economic operators have to have an HMRC-approved system in order to be able to provide a clear audit trail of all movements. Economic operators need to make certain information available if it is requested by HMRC (for example, records of goods being held, measurement of these goods and stock accounting). In addition, some companies also provide monthly reports to HMRC to submit details of the alcohol and tobacco goods received, dispatched and currently stored (W1 form). This reports all losses, shortages, ARCs that have not been receipted, etc. for all dispatches. The amount of resources committed to these activities varies considerably. - One company noted that there are 2 full-time employees that deal with these issues, and approximately 20 additional staff (across stock teams and managers) that spend each approximately 4-5 days a month dealing with the various requirements. This amounts to approximately 4 FTE (based on a 20 day month). Therefore, in total there are approximately 6 FTE employees (out of 420 FTE employees, this is 1% of the workforce) required to comply with the obligations. This resource would not have been committed to these tasks otherwise, so the time spent is additional as a result of the obligations. - Another company estimated that the W1 report takes approximately 6-7 working days per month. This amounts to approximately 1/3 FTE (out of approximately 120 FTE employees, this is 0.3% of the workforce). Reasons why certain activities are particularly resource intensive The production of the W1 report is seen to be a time consuming task, particularly because it often requires considerable investigation in order to be able to accurately complete the form. 231

232 2 General arrangements for the movement of excise duty goods Q5.1 Are the current arrangements the most cost-effective way of collecting revenue? (Member States) What are the activities performed by Member States authorities in relation to monitoring trade/ logistics of excisable products (EMCS) How much time and resources (including Costs of IT systems) are spent by Member States tax authorities for monitoring trade/ logistics in excisable products? Reasons why certain activities are particularly resource intensive Extent to which EMCS has impacted the following issues compared to the previous paper-based arrangements: o o o time and resources required to handle a typical movement the time required to close a movement (and release the guarantee); other benefits of an electronic tax environment (e.g. rapid and secure information exchange; record keeping). HMRC analyses data provided through EMCS to help detect and combat fraudulent tax avoidance. In HMRC s view, having EMCS enables much better targeting of known targets, as any compliance/audit staff can access data about movements. However, it was noted that most audit staff are looking at movements from a historic/audit point of view rather than in real time. At the "border" or with regard to roadside checks, EMCS can assist (by means of control reports) in identifying the multiple use of an ARC. From a trader s perspective, EMCS is perceived to be more efficient than the old paper-based system. From the administration point of view EMCS entail greater resource, but this is because it provides data that can be used (which was not possible under the old system). HMRC is not sure of how many people are involved in activities related to monitoring, as much of the resource is dedicated to risk analysis using EMCS data in a bid to reduce fraud. In relation to combating alcohol tax fraud, 630 FTE at HMRC and a further 44 FTE from UK Border Force work on alcohol fraud. EMCS cost 50m to set up. This excludes the cost of setting up EMRA, HMRC s own risk analysis system, developed to maximise use of EMCS data. HMRC has a focus on fighting fraud, given the high risk created by relatively high levels of excise in the UK. The analysis of data from EMCS to help identify potential areas of fraud is where most resource is spent in relation to monitoring movements through EMCS. For a typical movement, i.e. a legitimate movement, the new electronic-based system requires similar resources to the paper-based system from HMRC s perspective. The real difference for HMRC is the improvement in the quality of the data that are available for analysis. For fraudulent activity the impact of EMCS on resources (relative to the old paper-based system) is not clear. More resource are devoted but this is because data from EMCS is used to help to identify fraud (using EMRA, HMRC s own system). For example, HMRC is able to undertake analysis of patterns in behaviour (by looking at the number of rejections or refusals of consignments for particular operators compared to others). With regard to closing movements under EMCS, it takes HMRC 7.2 days on average for inbound movements, and 9.26 days on average for outbound movements. In terms of other impacts, EMCS enables more efficient information exchange and clear, more consistent record keeping that was not previously possible. However, sometimes the data inputted on EMCS are 232

233 poor for fields that are not validated. Nonetheless, EMCS has been able to provide a great deal of information that can be tracked that was not previously available. Q5.1 Are the current arrangements the most cost-effective way of collecting revenue? (Economic Operators) What are the activities performed by Economic operators authorities? in relation to monitoring trade/ logistics of excisable products (EMCS) How much time and resources (including Costs of IT systems) are spent by economic operators tax authorities? for monitoring trade/ logistics in excisable products? Reasons why certain activities are particularly resource intensive Extent to which EMCS has impacted the following issues compared to the previous paper-based arrangements: o time and resources required to handle a typical movement Two economic operators access EMCS through third party software which creates all the EMCS information and populates the necessary fields on EMCS. In one case, this software was integrated with the company s accounting system, but not in the other (this second company used the HMRC portal for some products for which the volumes under duty suspension are relatively small). Another smaller company accesses EMCS via the web platform provided by HMRC, though this company uses a third party agent to do the relevant data entry at one of its terminals. Generally, the HMRC portal is viewed as being adequate for smaller companies, for whom the cost of setting up third party software is likely to be prohibitive. However, this may be problematic for medium companies (larger but not enough to make use of economies of scale). The costs have been reported as follows for the different companies: - Cost of the software is approximately 5-6k a month, plus additional fees (recent upgrade was 25-30k). - Set up cost of 30k, which is then followed by an annual fee of approximately 2k. - Third-party agent involves an average of 50 per entry (this was thought was a good proxy of the cost associated with complying with the rules). The staff in each company using EMCS varied from firm to firm (persons expressed as full time equivalent): FTE (across 20 members of staff); - 1 FTE (across 10 staff); FTE (across 6 staff). The most resource intensive task was generally seen to be the time spent chasing when problems are encountered with the movement or when there are exceptions to the normal sequence of events (discussed in more detail later in this case study). Companies had quite different experiences under EMCS relative to the old paper-based arrangements: - For one company it now takes 1 hour to handle a typical movement on EMCS (previously it only took approximately 0.5 hours). The company finds that closing a movement on EMCS is straightforward, but it was less time consuming under the old arrangements, though the resource requirements for closing a movement in both cases is minimal. - For another company it takes 5-10 minutes for a typical movement under EMCS (before 0.5 hours). Similarly, closing a movement is now a very straightforward process, whereas it was previously much 233

234 o o the time required to close a movement (and release the guarantee); other benefits of an electronic tax environment (e.g. rapid and secure information exchange; record keeping). more burdensome. - Another company noted that there are 3 people that work on producing and receipting the ARC numbers under the current system, which takes about 10 minutes per order, though receipting and chasing up customers to receipt that takes hours of time. Whereas the paper based system used to take about 3 months to get all the details back. Other than the resource implications, EMCS is seen to have significantly improved record keeping and accuracy (as staff can no longer enter anything for all fields). This has improved confidence in the system, as it is always known that goods are being moved to an approved site, and there is less difficulty in terms of ensuring that paper documentation is sent to the right person, and original copies no longer need to be stamped and sent. However: - One company noted that their staff tends not to find the reports produced by EMCS very helpful, so they choose to maintain all the records that they used to before EMCS was introduced. - Another company noted that if the electronic systems go down (which is fairly infrequent), then the old paper-based systems have to be used, and the electronic processes have to be duplicated on EMCS once the systems are back up. Q 5.2 (b) How do the compliance cost impact the economic operators depending on their size Costs (financial and human resources) resulting from the compliance with the above mentioned issues, relative to the size of the economic operator In general, the companies interviewed felt that the cost of compliance is manageable given their respective sizes, but they thought that the cost would be disproportionate for a small company, both in terms of the incremental staff cost, but also the incremental IT and implementation costs. 3 The treatment of various exemptions to the normal sequence of events Q1.4 (b) What are the rules and procedures implemented in Member States, allowing excise duty on goods released for consumption as a result of an irregularity to be reimbursed or remitted? Processes / activities performed by Member States authorities and economic operators to ensure compliance with the arrangements related to reimbursement Below, we first set out the processes from the point of view of the authority, and then from the point of view of economic operators. HMRC HMRC notes that when a report of receipt is entered on EMCS, there are various categories that can be 234

235 of excise duty. selected, including, for example, unsatisfactory. If such a category is selected, there is a box available for entering information on shortages, losses and excesses. This information is available to a local HMRC officer if they decide to visit a particular warehouse keeper. The local HMRC officer would then decide whether to undertake an assessment. Only a consignor can register a change of destination. If a warehouse keeper logs a refusal, the consignor must log the change of destination. However, these two processes are not linked technically (i.e. on EMCS) or legally. There is no legal obligation to make a change of destination by the consignor, where the consignee has made a rejection/refusal. This means that the movement has no legitimate destination for that interim time. The implementing Regulations state only that the consignor may make a change of destination, not that he must. In HMRC s view, this needs to be legislated for. A possibility for EMCS is that where there is a refusal or rejection the system defaults a change of destination back to the consignor. Thereafter it would be for him to override this if required. HMRC also noted that there is no facility to amend a validated e-ad. The table below sets out the number of incidents of various exceptions to the normal sequence of events that HMRC has had to deal with: Type of incident Number Changes of destination inward and outward 11,655 Rejections and refusals 1,983 Shortages inward and outward 32,616 Excess inward and outward 13,739 Economic operators Losses. - According to one company, losses are difficult to deal with as every Member State seems to have different rules. For example, Belgium is very strict on losses and checks are automatically undertaken for any losses over 0.2 per cent of product; whereas the threshold is 0.3 per cent in Germany and 0.5 per cent in the UK. For Member States that record losses, there is an issue with almost every movement, but in most cases these are minor and are easily dealt with. Shortages. - For one of the companies, shortages are reported by the customer upon receipt of the goods. This is then flagged up on the company s software. At the end of each month, a HMRC-compliance officer produces a report telling the company where shortages have been reported. This is then investigated (i.e. to see if stock that should have been dispatched is still in the warehouse). 235

236 - A second company employs a similar process: if there is a shortage reported, the company will first investigate at their end to see if there has been a shortage, they then hold a monthly meeting, at which the shortages would be discussed. A decision is then made on whether to part refuse the movement, and the reason for refusal is entered on EMCS. Information is then provided to the EMCS helpdesk to close the movement. - For another company, these incidents entail a tax assessment and correspondence with the relevant tax authority. Some Member States are easier to deal with than others, e.g. the Netherlands is particularly good in instances of shortages. Excesses. The process followed is generally the same as those for shortages. - One company noted problems in cases where there is an excess in the form of a different product than was expected. The company solves this by creating a new EMCS entry for which a confirmation of receipt can then be provided (this rarely occurs). - In one company s experience, excesses are generally ignored, except in Germany where the tax authority refunds taxes associated with excesses. Errors in or changes to the e-ad. - These cannot be corrected in EMCS, so one company has developed its own approach whereby it notifies the receipt location and the storage client of the error or change. This is generally not burdensome, but where there is an assessment by the tax authority this is more time consuming. - A second company would refuse the goods and raise a new e-ad. - Another company would enter a change of destination and then create a new ARC with the correct details. Change in destination are dealt with through EMCS, and this is a reasonably straightforward process that involves the receipt location logging the issue on EMCS, and changes then being made on EMCS by staff at the warehouse. This is also used as a tool to deal with refusals. Rejections are dealt with through EMCS in a similar way as change in destinations. - One company noted that the process is more complicated if the customer decides to do a partial refusal. This would entail the company creating a change of destination for the goods to be rejected, so they can be returned, and the customer can report receipt of the goods to be accepted. The SEED database is often slow to be updated (e.g. for newly authorised warehouses), which can cause issues. The SEED database could also be improved by providing more information, notably the name of the company. 5.1 (b) To what extent are current provisions resulting in increased / unnecessary admin costs? (Member States) Compliance cost impact of practical issues For HMRC, there is a negligible additional impact on resources required to deal with exceptions compared 236

237 reported: o errors in the e-ad and the correction of errors o Distribution on SEED about authorisation of economic operators o Changes of destination / rejection o Reimbursements o Others to the standard movement from the administration s point of view (and no real difference compared to the paper-based system). This is driven by HMRC s focus on fraud, as these areas are seen as low-risk, and so additional resource is typically not devoted to dealing with these exceptions. 5.1 (b) To what extent are current provisions resulting in increased / unnecessary admin costs? (Economic Operators) Compliance cost impact of practical issues reported: o o o o o errors in the e-ad and the correction of errors Distribution on SEED about authorisation of economic operators Changes of destination / rejection Reimbursements Others Compliance costs vary across the different firms that were interviewed for the case study: Losses. - One company typically experiences approximately 12 incidents/year, days per incident. Shortages. - One company experiences 1-2/month, average about 0.5 days per incident. - Another company experiences 3-4/ month, though limited extra time is required as the shortages that tend to occur are below the threshold for further assessment by HMRC. - 2/month. Excesses. - For one company, 1/year, no additional burden relative to a standard procedure. - Another company also found that excesses (6/year) did not entail much additional resource. - 2/year. Errors in or changes to the e-ad times/year, 2 hours to deal with (incremental costs where the error leads to an assessment by the tax authority). - Other companies also noted that this is a fairly simple process and does not require much extra time. Change in destination. - One company noted that this happens 2-3 times/month, only takes 5-10 minutes per incident. - 6/year (for both change in destination and rejections). Rejections. 237

238 - One company stated that partial refusal rarely happens, takes 2-3 hours to deal with. Full refusal happens 1-2 times/month, takes 1-2 hours to deal with. - 6/year (for both change in destination and rejections). Other - One company noted that many of these issues are often dealt with in tandem, so the additional time spent dealing with exceptions to the standard procedure may be less than the sum of the component parts listed above. - Another company noted that where the authorities decide to undertake an assessment, this is particularly time consuming. The company recently had an assessment for one particular case that involved some stolen goods in France. The company had to obtain the police report from the French police, have this report translated, then contact the EMCS helpdesk to ensure that the movement s status was changed to event reported. The problem occurred at the end of 2013, and this movement is still open in It has taken approximately 2-3 days to deal with this one entry, and it continues to be reported by the company as the movement is still open. - One company noted that sometimes the level of resource required to deal with these exceptions is disproportionate to the amount of duty at stake. For example, in relation to samples sent to clients (which might have a duty liability of as little as 10). It was suggested to have some minimum threshold to exclude samples. It was generally acknowledged that different rules in different Member States exacerbate the problem and create additional burden. It was suggested that there should be consistent application of requirements across the EU to avoid this problem. 4 Specific arrangements for the movement of excise duty goods Q5.2(a) What are the compliance costs for economic operator resulting from the application of the Directive? Additional compliance costs resulting from: o Unclear or inconsistent application of the rules (e.g. varying procedures for moving excisable goods) HMRC stated that it does not experience movement fraud for energy products in the same way that it does with alcohol. Fraud in these areas tends to be related to substitution of low duty fuels (agricultural use). HMRC is satisfied with the current arrangements for moving these products. The specific arrangements for the movement of excise duty goods are generally not relevant to the companies interviewed. One company did note that unusual fuels such as styrenes and pentanes that they move regularly often do not have an e-ad. Approximately 6 times a year, the company has to chase the relevant parties to get an e-ad where one has not been provided. This typically takes about 1 hour per incident. 238

239 5 Coordination between customs and excise Q6.1: (a) Which are the areas where the links between customs arrangements and excise arrangements do not work satisfactorily? Practical experiences and perceived problems as reported by stakeholders o Nr. and frequency of instances of movements having to be closed manually o Reported instances of problems e.g.: o Customs offices not having access to ARC number. o Lack of cross-checking of the e-ad and the customs declaration. o Alternative proofs of exit not being accepted. o Office of export not receiving confirmation of exit results. HMRC In HMRC s view, for certain procedures there are inconsistencies between the excise Directive and the Customs Code. There are thousands of movements that have remained open, particularly where the destination is export outside of the EU. This is caused by customs offices not having access to ARC numbers; lack of cross-checking of the e-ad and the customs declaration; alternative proofs of exit not being accepted; and office of export not receiving confirmation of exit results. Only a handful of movements are closed manually each year (HMRC considers that it will require substantial resources to close the backlog of open movements). Economic operators Economic operators also raised similar concerns with regard to a lack of coordination between customs and excise legislation leading to movements remaining open. Customs not having access to ARC numbers. - One company recently had an audit and they had to supply the customs officers with all ARC numbers as they were unable to obtain them. - Another considers that customs officers tend to have access to ARC numbers. However, the information that they have on closed movements is often outdated (e.g. movements that have since been closed are being looked in to) and they then ask the company for details which is inefficient. Lack of cross checking of the e-ad and customs declaration. - One company thought that there is sufficient cross-checking; however, the time lag is problematic, as they cannot close an e-ad until the customs declaration is complete, and this can lead to assessments from the UK tax authority if the e-ad is not closed. - Lack of physical documentation (i.e. non-electronic paperwork) causes problems as the company does not know if the orders have arrived or not and then have to chase the customer and try and search on the SAP system to see if the orders have been booked in. All this takes time. - Another company noted that this is the main issue for indirect exports (of goods over land within the EU and then exported outside of the EU). This is partly driven by the intersection of a number of different regulations, namely the excise regime, the customs regime, and the transit regime. In the last month, of 6 indirect exports that this company has dealt with, 3 of these have encountered problems. The company has then had to try and provide alternative evidence, such as proof of payment which has been signed by the customer. One of these instances was due to an error by the company, whereby the EMCS ARC number was not entered in Box 44, but generally this has resulted from some problem at some point in the delivery chain where the e-ad has not been properly cross-checked. According to the company, these types of problems could be avoided by mandating the inclusion of EMCS details on the CMR 239

240 document (which serves as proof of delivery). This would also reduce the risk of fraud because currently some parties engaging in fraudulent activities are abusing the EMCS entry on expected time to delivery. For example, if the ARC states that goods should be delivered in 15 days, parties engaging in fraud might collect goods, take them to an unauthorised warehouse, consolidate these goods with other goods, and then re-use the ARC number for the original goods until the goods are delivered in line with the expected time of delivery. Alternative proofs of exit not accepted - One company has experienced 1-2 instances in the last few years when proofs of exit were not accepted. However, in these cases alternative evidence was provided and accepted, and this only involved the exchange of a couple of s. - Another company experiences considerable issues with regard to alternative proofs of exit not being accepted when goods are being moved from Spain to Gibraltar and from France to Switzerland. In both cases, this is caused by a lack of coordination between EMCS and NES. For instance, on NES Box 29 for the Gibraltar orders the company needs to enter the EU office of exit, which is Cadiz as this is the last port out of the EU; however, if this done, EMCS says it should be an English port. NES does not accept an English port in box 29, so the company has to enter Cadiz in NES and Dover in EMCS. This has to be done to make the order valid and so the paperwork that is needed can be printed off. However, despite these problems, the company does not tend to have anything that stays open beyond a 4 month period. Where movements do have to be closed manually, the company would contact the EMCS helpdesk to close the movement. Sometimes, it can take the EMCS helpdesk as long as 2-3 months to respond, and sometimes the EMCS helpdesk says to contact HMRC, even when HMRC has said that EMCS helpdesk should be contacted. This is less of a problem for this company as they have an allocated HMRC officer due to the size of the business, but this could be a problem for smaller businesses. Office of expert not receiving confirmation of exit results. - The company has not really faced any major problems in relation to the office of export not receiving confirmation of exit results. This perhaps happens once or twice a year, and is very straightforward to deal with. Q6.1 (b) What is the immediate impact of reported issues? Estimated costs for Economic Operators and Member States Capacity for monitoring and control Level of risk of fiscal fraud For HMRC, the movements that have remained open would be particularly resource intensive to deal with if HMRC opted to close them manually, as alternative evidence would have to be provided and checked in all cases. In HMRC s view, these open movements do have an implication for the level of risk of fraud, but these risks existed under the old paper-based system too. HMRC suggested that there would ideally be some way for the customs and excise arrangements to be aligned (e.g. to ensure that and ARC number is entered on the customs declaration). Overall, however, HMRC thought that the system is fine, and there is just a compliance issue. Potential revenue loss due to inadequate One company noted that approximately 30 movements in the last 8 months (out of 1,440 movements in the last 8 months) have had to be closed manually. This happens for a variety of reasons, e.g. 240

241 evidence for proof of exit / exemption or suspension of taxes in the case of import Legal uncertainty? Shopping for easier procedures? movements that are older than a week cannot be receipted, so they have to be closed by the EMCS helpdesk; if there are errors in the documents, this cannot be dealt with through EMCS; etc. This process of manual completion is time consuming and takes approximately 2 hours per movement. Another company stated that it takes approximately 3-4 hours to deal with an instance in which there is a lack of cross-checking of the e-ad and the customs declaration for indirect exports. In one month, for example, this company encountered these types of problems with 3 of the 6 indirect exports it was dealing with. More generally, this company typically spends about 2 weeks per year obtaining alternative proofs. Another company noted that it might typically spend days undertaking a full investigation to generate the right information in instances when customs officers have outdated information on movements that are still open. This company generally finds that approximately 3 to 4 movements stay open a month. Of these, usually one relates to the port of exit issue in relation to exported goods described above, which takes considerable time to address. 6 Other issues Measurement issues One company noted that in addition to inconsistency in rules across Member States, different Member States also use different measurement approaches, and the units are not always clear in the documentation. Import duty One company noted that it occasionally imports spirits, and in these cases there is confusion about whether import duty is payable and what documentation is required to move goods from port to the warehouse. HMRC s fight against fraud Two companies expressed concern about the fact that there are no customs staff at the point of export in the UK, and therefore there is no checking of containers. In one company s view EMCS is not being used as an anti-fraud tool; rather, it is being used to find technical infringements to generate extra tax revenue. For example, in one instance another brewery that manufactures alcoholic beverages for this company had a system that did not generate an ARC number. This company then had to pay duty on the goods, even though they should have been duty-suspended, and then claim this back (to avoid the problem of double taxation), which creates cash flow issues. Another example is when this company delivered alcoholic beverages to a tax 241

242 warehouse in France. All of the necessary documentation was raised, and the French warehouse discharged the movement on EMCS. HMRC said that the movement guarantee in place was not valid because the haulier was using a guarantee on someone else s behalf, so a duty point was created, so duty (of 800k) was owed. In another company s view, there are some instances where EMCS has made fraud easier than it was under the paper-based system, when paperwork was needed for every movement. This is because it is now much easier to re-use an ARC number multiple times, as HMRC does not stop any vehicles at the point of perpetration (e.g. at Dover). It is enough to text by phone the ARC number to another driver once the vehicle has crossed the border. One possible improvement to the system would be to record the owner to be able to raise situations where the owner changes several times. SOURCES Desk Research: Excise Notice 196: excise goods - registration and approval of warehousekeepers, warehouse premises, owners of goods and registered consignors, October Excise warehousing: storage and distribution warehouse application for approval/amendment (EX68), January Excise warehousing: excise warehouse return (W1), April

243 Case study - Sweden Sweden Executive Summary Specfic issues investigated: All aspects of the evaluation were covered by the Swedish Case Study. As a result of the first round of data collection, particular attention has been paid to the following aspects: Benefits of the EMCS Correction of errors in the e-ad as a result of transport of energy products by ship Coordination between customs and excise (export) Main outcomes (conclusions) We don t hear a lot of complaints from our persons working in the tax warehouse we take pride of having a good tax authority everyone knows what to do everything is clear and well organised Overall, the case study in Sweden revealed an efficient and well working system for regulating the holding and movement of excise duty goods under suspension, appreciated by both economic operators as well as the tax authorities. The results of the case study therefore indicate that, notwithstanding certain particular issues, the application of Chapters I-IV of Directive 2008/118/EC in Sweden appears to have resulted in the creation of an efficient and effective system. In particular, the following general conclusions have been drawn: The procedure and requirements for authorization are reasonable and proportional, with no particularly burdensome requirements having been reported The EMCS represents a significant improvement from the paper-based system and the benefits absolutely outweigh the costs of setting up and running the system. Significant problems exist in the area of exports due to the ineffective coordination customs and excise systems Complementary to the above general conclusions, the Swedish case study has also revealed a number of areas which deserve particular consideration should further improvement of the situation be sought: 243

244 In the area of cross-border shortages, the application of Art. 10 of Directive 2008/118 has been reported by the Swedish tax administrations to be problematic. Specifically, it is not always clear whether Art 10(2) or Art 10(4) would apply and additional clarification would be welcome Specificities related to the dispatch of energy products via ships would welcome the possibility to apply a correction in the e-ad for bulk energy products by ship. Some economic operators suggested that the level of guarantees could be considered to be rather high, especially with respect to the movement of ethanol intended to be used as fuel (considered to be alcohol before it is blended to become an energy product). 1 Administration of authorisations Q1.1(b) What are the main conditions and requirements for granting the authorisation What are the main conditions and requirements for granting the authorisation The same (or similar) conditions apply to all types of registered economic operators in Sweden. The thresholds (in terms of minimum storage criteria) below which a tax warehouse cannot be established are: At least 500m3 (energy) No threshold applicable on tobacco At least 5000l (Alcohol) The main conditions for authorisations in Sweden relate to: Sufficient financial capacity, The existence of a real business case for authorisation and The technical requirements in terms of security of the warehouse (in the case of tax warehouses) In Sweden, all authorised warehouse keepers automatically receive an authorisation to be a registered consignor (hence explaining the large relative number of registered consignors in Sweden). 244

245 What level and type of guarantees associated with authorisation are applicable to the different types of authorised economic operators? o o o o What is the guarantee amount required for each type of tax warehouse / registered consignors / registered consignees authorised? How is the guarantee operated? (i.e. how is the level of security calculated?) Is there a guarantee monitoring mechanism? How are movement guarantees calculated and operated? General guarantees are calculated at 10% of the excise duty goods that are held at any time. According to the main rule, the guarantee amount must be at least an amount equal to 10% (ten percent) of the excise duty on the goods / products you hold at all times in your tax warehouse. For the calculation you should include all excisable goods / products available in your tax warehouse, regardless of whether you own the goods / products or not. Compulsory stock shall not be taken into account. This guarantee may lowered (down to zero) by special decision (following application request from the economic operators). A list of possible types of guarantees is made available for economic operators (including escrow accounts, bank guarantees) however, bank guarantees are the most used. The economic operators interviewed reported a wish to add insurance back to the list of accepted guarantees as it would reduce the cost of putting up guarantees. Movement guarantee: The movement guarantee is established in the form of a global movement guarantee which would cover all movements. It is calculated on the basis of a formula which takes into account daily averages. The guarantee amount shall be equal to the average excise duty on the goods / products moving under duty during a day. In calculating the average, you should only count the days in a year that you move goods / products under duty. For movements of ethanol attributable to CN code 2207 and taking place in bulk by ship or by pipeline, the guarantee shall be an amount equal to 10 percent of the alcohol tax on ethanol (100% by road or rail). The interviewed economic operators found the level of guarantees to be rather high, especially with respect to the movement of ethanol intended to be used as fuel, which is treated as alcohol until it is blended to become a fuel. The energy sector suggested that 1% of the tax value would be more appropriate for bulk movements of ethanol to overcome this difficulty. A particular problem related to movement guarantees specific to the energy sector was reported to be the fact that a movement guarantee has to be put up even when you don t have no physical movement of the goods (e.g. movement of excise goods within the same tank between the tax warehouses of different operators). 245

246 Guarantee monitoring mechanism: Once an economic operator establishes the movement guarantee, the EMCS will highlight the existence of a guarantee but not the value of it. The e-ad would not be validated in the absence of the tick-box. In cross border movements, the Swedish authorities mentioned that having access to the value of the established guarantee would be an interesting feature, albeit difficult to implement in practice because the question of what action to take when considering the amount insufficient would be difficult to answer and apply in practice in such a scenario. Q5.2 (a) Costs (financial and human resources) for Member States resulting from the management of authorisations, licenses and general guarantees; (Member States) What are the activities performed by Member States authorities prior to approving license/authorisation application How much time and resources are spent by Member States authorities for processing license/authorisation applications The following tasks are performed when assessing an application: Verifying that all requested information is provided Verifying whether the warehouse itself fulfils the technical criteria. Company visit (not for all cases) Financial capacity check (legal background check) Tax questions, economic crimes, tax history Within the Swedish Tax Authority, 12 persons FTE / year are involved in authorisations. It has been reported that, on average, it takes 1-2 days of effective work for the assessment of each application. The Swedish Authorities reported that, from the first moment of lodging an application - 25% are ready within 30 days and 80% are ready within 3 months. However, longer durations are due, in most cases due to the incompleteness of the application. In the first 9 months of 2015, 461 applications for warehouse keepers (A, T, E) were received, most of these in Alcohol (beer, small breweries). Tobacco authorisations amounted to the fewest (less than 10 applications). Reasons why certain activities are particularly resource intensive In 2014, 875 applications were decided upon as concerns authorisation for warehousekeepers and consignees and 761 for tax warehouses as well as 1700 requests concerning changes and/or ending of authorisations. Overall, the Swedish authorities believe authorisation of economic is necessary and reasonable, furthermore, they do not consider the process of authorisation to be a burdensome activity. 246

247 The Swedish authorities, although, report that economic operators often have problems understanding the requirements in terms of financial capacity leading to the need for support from authorities and a delay in the processing of the application. The Swedish authorities do not see any possibilities of improvement to the process of applications and the assessment of requirements as they consider no other shortcuts would be feasible. Q5.2 (a) Costs (financial and human resources) for economic operators resulting from the management of authorisations, licenses and general guarantees; (Economic Operators) What are the activities performed by economic operators authorities prior to approving license/authorisation application o Pre-conditions for approval? o Application procedure (information requested, forms necessary) o Submission of application (manual/electronic application) o Establishment of guarantees The process of authorisation in Sweden was reported to be rather straightforward. The process begins with the completion of a standardised form which has to be sent to the tax authorities. The application form includes: the company name, corporate number and for which product groups you are applying for. It needs to be signed by an authorized signatory. The application for authorized warehouse keeper needs to be accompanied by: A description of the type of business that you intend to pursue The name and personal - or corporate number the business owner, and of all others who have control over the business. The latest annual report. If the company is new or recently set up, the budget for the first year should be included. Information about the financial position (such as balance sheet and income statement for the preceding month). Information about how operations should be financed and information on potential credit providers / funders A certificate of registration Estimated tax on an annual basis. (Energy, carbon dioxide and sulphur tax) The application for tax warehouse needs to identify the address for the warehouse and the product groups for which you are applying for. It needs to be accompanied by: Drawing / sketch and detailed description of the place. If only a portion of a building will be used as a tax warehouse, this should be stated in the documents Description of the surrounding area 247

248 Description of the alarms and security devices. If such equipment is missing, describe how the goods otherwise are protected against theft. Documents showing that you own or otherwise disposes of the space, e.g. copy of signed rental agreements, partnership agreements or similar. If the space already is approved as tax warehouses for one or more warehouse keeper you must show - That the goods that each warehouse keeper keeps in the space will be kept physically separate, or - There are procedures to ensure that every time there are data showing which goods and quantity you storing in the space. How much time and resources are spent by economic operators in order to obtain license/authorization No application fee is charged in Sweden. Estimations by interviewed companies placed the time required for adding an additional tax warehouse to an existing authorisation at approximately 8 hours of effective work. Similarly, economic operators with simple operations reported that the process for authorisation was straightforward, clear and took no more than 1-2 days of effective work. More complex authorisation processes, would, not surprisingly take more time. One of the companies interviewed has recently gone through a corporate restructuring which resulted in the creation (and subsequent authorisation of a new company and several changes to the existing company. Both companies are/became authorized warehousekeepers with multiple tax warehouses. As a result, it was possible to estimate the internal resources required for the process: Internal preparation meetings: 2 hours Visiting the tax authorities: 15 hours Agreements: 4 hours Guarantees: 48 hours All other application work: 141 hours Total: 210 hours (approx. 26 working days) 248

249 The entire duration of application process was reported to take approximately 3 months in the above mentioned case. Reasons why certain activities are particularly resource intensive All interviewed operators which had recent experience with authorization considered the procedure and requirements to be reasonable and found that there are no particularly burdensome requirements. As a possible improvement measure, the economic operators interviewed suggested that the submission of the application form should be made possible online. 2 General arrangements for the movement of excise duty goods Q5.1 Are the current arrangements the most cost-effective way of collecting revenue? (Member States) What are the activities performed by Member States authorities in relation to monitoring trade/ logistics of excisable products (EMCS) How much time and resources (including Costs of IT systems) are spent by Member States tax authorities for monitoring trade/ logistics in excisable products? Reasons why certain activities are particularly resource intensive Extent to which EMCS has impacted the following issues compared to the previous paper-based arrangements: o o time and resources required to handle a typical movement the time required to close a movement (and release the guarantee); The process of validation of an e-ad (IE801 as MS of dispatch) does not involve any human resources as it is automatic: Validation is done if all codes are completed correctly, all necessary boxes are ticked (e.g. the existence of a guarantee) and that both receiver and sender are entitled to hold the goods. The process of validating a report of receipt (IE818 RoR) is also automatic. No officer is involved to check or validate the message. The initial cost for setting up the system were 30 million Swedish Kr (n.b. approx. 3.3 million EUR). Further developments have been made and these have amounted to another Mil Swedish kr (n.b. 4,3 4,9- million EUR). Minor upgrades and corrective versions result in a cost of some few million Swedish Kr / year. Notwithstanding particular practical issues (which are discussed below) the normal procedure for moving goods under the EMCS entails no particularly resource intensive activity for the Swedish authority. The Swedish administration stated that the benefits absolutely outweigh the costs due to the fact that significantly more information is now available in an electronic format resulting in an ability to act sooner in case of checks and controls. The main benefit of the system was reported to be the newfound ability to control all movements. On the paper based systems only high risk movements (Spirits and cigarettes) were checked. Another important benefit reported by the Swedish authorities was the fact that the system has freed up resources and that irregularities can now be spotted much easier. 249

250 o other benefits of an electronic tax environment (e.g. rapid and secure information exchange; record keeping). In the electronic system, we get a lot more information than before it is in all ways superior. The Swedish authorities have considered the EMCS a useful tool and are now applying it to national movements as well for alcohol and tobacco. There is no data available on whether implementation of the EMCS has resulted in increased revenues, however the Swedish authorities have deemed the benefits to outweigh the costs, especially as a safeguarding tool against loses and avoidance. Q5.1 Are the current arrangements the most cost-effective way of collecting revenue? (Economic Operators) What are the activities performed by Economic operators authorities in relation to monitoring trade/ logistics of excisable products (EMCS) How much time and resources (including Costs of IT systems) are spent by economic operators tax authorities for monitoring trade/ logistics in excisable products? Reasons why certain activities are particularly resource intensive Extent to which EMCS has impacted the following issues compared to the previous paper-based arrangements: o o time and resources required to handle a typical movement the time required to close a movement Overall, economic operators interviewed in the case study reported that the process for moving excise duty goods through the EMCS is easy, simple and straightforward. Instances of the system not being available were reported to very rare, and even when they occur, the back-up routines were reported to be clear. The sample of companies interviewed in Sweden include companies which access EMCS (i) through a dedicated web-platform provided by the authorities, (ii) those that use the services of a third party provider and (iii) those that have integrated it within their internal stock management systems. Companies (relative large companies with complex operations and numerous movements) which have integrated EMCS within their logistics system reported that the time for preparing an e-ad does not exceed a few minutes. Manual preparation of an e-ad through the dedicated web-platform was reported to take approximately minutes for each dispatch. Notwithstanding particular practical issues (which are discussed below) no particular problems with the normal procedure for moving goods under the EMCS were reported by the interviewed operators. All companies interviewed reported that the EMCS represents a significant improvement from the paper-based system. The main benefits reported related to the ability to follow-up movements (for both sender and receiver), to ease auditing and control the increase in efficiency and quality of movement documentation. 250

251 o (and release the guarantee); other benefits of an electronic tax environment (e.g. rapid and secure information exchange; record keeping). Q 5.2 (b) How do the compliance cost impact the economic operators depending on their size Costs (financial and human resources) resulting from the compliance with the above mentioned issues, relative to the size of the economic operator Generally speaking, the time required for preparing an individual e-ad is not dependent on the volumes concerned, meaning that the total costs for companies is proportionate to the number of movements, not the volumes transported. Companies which outsource the movement services to third party providers reported real costs paid to the service providers. These appear to be only somewhat relative to the number of movements effected: (e.g EUR / year for a company with daily dispatches and 3-5 daily receipts and approx EUR / year for a company which estimated approx. 70 deliverables and 50 receipts / month). The evidence collected under the case study therefore suggests that while, the costs for moving excise duties for smaller companies is smaller (reflecting the fewer number of movements), the difference is not proportionate to the difference in turnover meaning that smaller companies would incur much higher relative costs than larger companies. 3 The treatment of various exemptions to the normal sequence of events Q1.4 (b) What are the rules and procedures implemented in Member States, allowing excise duty on goods released for consumption as a result of an irregularity to be reimbursed or remitted? Processes / activities performed by Member States authorities and economic operators to ensure compliance with the arrangements related to reimbursement of excise duty. The following procedure is followed in case of a physical shortage of goods: In case of shortages (as well as excesses) the Swedish administration urges receivers to accept the e-ad with a remark of the discrepancy. When a shortage is visible in the RoR, the tax administration will first assess whether the explanations (if any) are sufficient. If no explanation message is given an investigation through the ELO channel is started to examine what has happened on the consignor side The dispatching MS would analyse stock accounts. (what has been shipped and not shipped) 251

252 to determine whether there has been a theft during the journey (MS of dispatch) to consider. Further investigation to claim the excise duty is done only if the shortage exceeds minimum thresholds (which are decided by the tax administration). The thresholds are not public but have been built-in the EMCS and could shift over time, depending on decisions made by the Administrations to make targeted controls. The application of Art 10 has been reported by the Swedish tax administrations to be problematic, especially with respect to Art 10(2): it is not possible to determine where the irregularity occurred. The Swedish authorities reported that it is not immediately clear, following this article, how much time a MS will have to determine that an irregularity has occurred. Specifically, it is not clear whether Art 10(2) or Art 10(4) would apply. The Swedish administrations have expressed a need for a clearer Art 10 which expresses when and on what grounds should the MS take action (e.g. how long shall you wait until you have to decide that you have the right to claim excise duty). The Swedish authorities mentioned that there are many situations in which it is not possible to determine where the irregularity has occurred and that, from a practical perspective, the Directive is not sufficient in prescribing it is not possible to determine but it would be necessary to also express a time limit in this respect. (n.b. This would apply to Art 10(2), as Art 10(4) has time limits expressed). An unclear Art 10 leads to both time lost for authorities, as well as excise duty loss, the Swedish authorities have reported cases where they have chosen not to proceed with the claim because of the lack of clarity surrounding the actions to be taken (leading to no-taxation in some cases). 5.1 (b) To what extent are current provisions resulting in increased / unnecessary admin costs? (Member States) Compliance cost impact of practical issues reported: Physical excess A physical excess is expected to be reported by the consignee in the RoR (whether the goods exceeding were transported under suspension or whether they were released for consumption is a theoretical discussion only). In a normal case, the consignee would report the excess (as an explanation) but express his agreement to accept it. In this case, he will accept the goods under suspensions and duty 252

253 o o o o o errors in the e-ad and the correction of errors Distribution on SEED about authorisation of economic operators Changes of destination / rejection Reimbursements Others would be due when the goods are released for consumption. The Swedish authorities consider that it s not a problem for the Directive to be silent on the issue of how to handle excesses as practice has shown that there are efficient and pragmatic solutions. They are of the opinion that it would be more complicated to try to set-up provisions on this as it would be more complicated to try to set it up as released for consumption in the MS of dispatch. If the wrong CN number is given but the consignee is permitted to handle these goods, then no practical problem would result, however, the consignee is expected to mention if the products were not in line with his order. A typing error consignees are expected to report errors in the RoR if authorities receive a sufficient explanation, the practical error can be resolved in order to clarify in the MS of dispatch, the admin cooperation channel would be used. Correction message In the very specific case of energy products, Sweden has reported experiencing an important number of issues related to the dispatch of energy products via ships. When moving energy products by ship, economic operators will not know the exact amounts until after the ship is loaded, thus only estimating the total volume when first issuing the e-ad. The issue came up after the introduction of EMCS when it could be seen that the volumes differed. Sweden believes it s a good idea to have a correction message possible for bulk energy products by ship. In practical terms, economic operators use work-arounds (like change of destination). These are visible in the number of sequencing, and this is one of the parameters when doing the risk assessments. The Swedish authorities did not endorse the possibility to correct more data in the e-ad, as then fraudulent behaviour could occur. On the issue of SEED information distribution Sweden, being a relative open data country does not see it as a problem to have more information publically (name and addresses). If this possibility would exist it would lower the cost for administration the operators would be able to check themselves instead of calling the administration to check (which they currently do). 5.1 (b) To what extent are current provisions resulting in increased / unnecessary admin costs? (Economic Operators) Compliance cost impact of practical issues Correction message: Economic operators in the energy sector reported problems with the preparation of e-ads for movements which involved the physical movement of energy products through a pipeline 253

254 reported: o errors in the e-ad and the correction of errors o Distribution on SEED about authorisation of economic operators o Changes of destination / rejection o Reimbursements o Others between the depot area and the ship. In this particular case, the preparation of an e-ad would have to be done prior to the commencement of the loading which means that the volume needs to be estimated (as the exact volume would only be known once loading of the ship is complete). In this particular case, the respondent considers that the procedures have not adequately considered the particularities of bulk movements of energy products by ship. Small shortages / excess: The energy industry mentioned that often (if not on all occasions) there are small differences between the quantity of goods shipped and received when moving energy products by ship. However, Member States take very different views on the accepted tolerances (ranging from 3-4% in some countries to 0,2% in other countries). Providing explanations (when required) was reported to be a highly costly operation in terms of human resources required. The lack of feedback on explanations was also raised as a problem (as it creates uncertainty for the company). Tax liabilities may also occur. Finally, language was also mentioned to be an issue, and operators have considered whether a standardised letter would not help alleviate the latter problem. A typing error: Economic operators interviewed reported that they typing errors in quantity are rare, but that when they occur, there is nothing to do but to cancel the e-ad and issue a new one and that, bearing explanations, the tax authorities accept this solution. Economic operators have reported that it would be useful if they could receive feedback from the authorities regarding the cancelled e-ad to clarify if that the solution has been accepted. SEED information distribution: Economic operators reported a need to see addresses in SEED as they would welcome to have clarity with respect to whether there is indeed a valid warehouse at the address the goods were dispatched to. Movement of samples: One of the economic operators interviewed raised a particular issue related to the movement of samples, which under the rules, have to move under EMCS, but for which, in practice, the utilisation of EMCS is difficult due to the fact that each individual product (if, for example you have a slightly different alcohol content, or different bottle size), requires the creation of a new item code in the EMCS) the administrative work involved makes it therefore complicated to move samples between countries. Another particular issue raised by one economic operator was the reconciliation between commercial terms (ex works) and excise terms, the problem exemplified revolves under the fact that, under excise terms, the seller is responsible for taxes until the report of receipt, but under ex works, it is the buyer who takes responsibility of goods. 254

255 4 Specific arrangements for the movement of excise duty goods Q5.2(a) What are the compliance costs for economic operator resulting from the application of the Directive? Additional compliance costs resulting from: o Unclear or inconsistent application of the rules (e.g. varying procedures for moving excisable goods) CN Code mismatches: One of the economic operator interviewed reported that often, a specific product is considered to fall under different CN codes in different Member States (even though the excise code would remain the same), leading to problems in closing movements, it has been reported this is the case of certain codes falling under Kerosene. The same operator mentioned that multiple CN codes have changed since the introduction of the ETD but that the legislation has not followed the changes. With respect to the fact that the ETD establishes different procedures for certain energy products 1, the Swedish authorities reported that they are not aware of any particular issues resulting from this and that a high continued relevance for maintaining the distinctions for these types of products remains. No general problems were reported by the Swedish authorities in relation to the cross-border movement of denatured alcohol. The main points raised by the Swedish authorities were related to alcohol based biofuels: According to them, the biofuels E85 - ED95 (the high alcohol) are well used on the Swedish fuel market and are important for the Swedish goal to reach a fossil free vehicle park. The authorities mentioned that, on a national basis no major problems exist, the alcohol in the products is considered to be partially denatured; the finished product is out of scope of alcohol and under the ETD. No problems with fraud are noted from these products. From the tax administration point of view: if the undenatured alcohol is moved, it will be moved under EMCS as alcohol, whereas if the product is in its finished form is an energy product. One of the (potential) problems reported is connected with the classification on the customs side. In 2013 proposals for new decisions on the classifications of the products E85 and ED95 were discussed on the customs side. Such classification decisions were feared by the industry to have effect on the excise issue. Currently, alcohol based bio-fuels fall under chapter 38, which works, however, the industry fears that changing such classification to chapter 22 would create potential problems. The view of the Ministry of Finance is that changes in the classification on the customs side should not 1 E.g. benzene (CN ) and toluene (CN ), Excisable energy products not listed in Art. 20(1), other products when declared for use as fuels 255

256 affect excise taxation decisions, as the classification on the excise side is linked to a specific moment in time (fixed CN version). In this case there has been work done before in a group on biofuels (2007 Fiscalis Project group on biofuels) on the classification issue landing in a classification in It must also be noted that even if a new classification would be under code 22, the Ministry of Finance would not consider that this would change the MS s possibility to exempt the product under art 27(1) b. On a national level, Sweden would therefore consider that any eventual classification change would not change how the products are seen from an excise point of view. However, if a finished product is to be moved within the EU, the MS s involved must have the same view on whether the product is an alcohol product or energy product for the EMCS to work in practice. A changed classification on the customs side would, in the opinion of the Swedish authorities, significantly raise the risk of MSs having different views on this issue. The Swedish authorities mentioned that, discussions with the energy industry in Sweden resulted in a need for the existence of a common (n.b. EU) understanding on a CDA for biofuels, which the industry would consider as sufficient security that all MS would consider the products the same way. However, such a CDA (or any other new form of exemption for biofuels) would have to be something that can work practically for the industry and it is not at all certain that such an CDA (or exemption) could be found and agreed upon. In such an absence, therefore, the Swedish authorities mentioned that it would be good not to bring modifications to the Directive. 5 Coordination between customs and excise Q6.1: (a) Which are the areas where the links between customs arrangements and excise arrangements do not work satisfactorily? Practical experiences and perceived problems as reported by stakeholders o Nr. and frequency of instances of movements having to be closed manually o Reported instances of problems e.g.: o Customs offices not having access to ARC number. o Lack of cross-checking of the Significant (both in terms of number of instances as well as their severity) problems were reported by both economic operators as well as the tax authority with respect to export, referring both to direct and indirect export. The main problem reported was the inclusion of the ARC code in the export declaration, a process reported to be very cumbersome. The problems result in a high number of EMCS operations not being closed or being closed after a long time. In practice, an economic operator involved in export would have to: Submit a customs declaration without ARC and an estimated volume to be exported. After loading, issue an EMCS movement an e-ed and finally receive an ARC. 256

257 o o e-ad and the customs declaration. Alternative proofs of exit not being accepted. Office of export not receiving confirmation of exit results. Correct the customs declarations, with correct value, arc, volume Send in an updated export declaration, a bill of lading and the ship s declaration to customs (in case of exports by ship which are most common from Sweden) Request authorities (customs and excise to manually close the E-AD. (which has been reported, by both authorities as well as economic operators to take up to a few months) The customs authorities would have to manually communicate to the tax authorities that the export was completed and that the goods have left the EU and finally the tax authorities would manually close the e-ad. This process is the result of a systemic problem as it occurs in all export in a form or another. It was reported by economic operators that about 25%-30% of exports would be particularly complicated while the rest would imply just moderate nuisance. The Swedish Tax Administrations has reported that in recent months, the situation has improved, however unclosed EMCS movements remain. Other minor issues related to the coordination between excise and customs have been reported: Expression of quantity (e.g. litres for excise and kilos for customs Difference between current CN codes and CN codes applicable for excise (valid at the time of entry into force of the respective Directive) Definitions of products Q6.1 (b) What is the immediate impact of reported issues? Estimated costs for Economic Operators and Member States Capacity for monitoring and control Level of risk of fiscal fraud Potential revenue loss due to inadequate The main problem resulting from the coordination problems expressed above is the added cost and inefficient use of human resources (for both economic operators as well as the tax authority). All interviewees who deal with export procedures estimated that the loss resulting from the above mentioned problem is significant, especially since it applies to all exports. 257

258 evidence for proof of exit / exemption or suspension of taxes in the case of import Legal uncertainty? Shopping for easier procedures? SOURCES Desk Research: SKV 5384 The Taxation Regulation SKVFS 2013:12 258

259 Case study - Lithuania Lithuania Executive Summary Specfic issues investigated: Main outcomes (conclusions) All aspects of the evaluation were covered by the Lithuanian case study. As a result of the first round of data collection, the key areas of interest for this case study was: particular attention has been paid to the following aspects: Granting and management of authorisations (special favourable arrangements for compliant behaviour, especially in term of the guarantee being waived or discounted) Fight against fraud (new types of fraud a problem in Lithuania) Practical problems related to lack of control of non-harmonised products Exceptions to standard movement procedure (approach for margin of error, lack of clarity of movement beginning/ending). Overall, the case study in Lithuania revealed an efficient and well working system for regulating the holding and movement of excise duty goods under suspension. The results of the case study therefore indicate that, notwithstanding certain particular issues, the application of Directive 2008/118/EC in Lithuania brought more efficiency and effectiveness in the system of tax administration. Moreover, the current system was particularly appreciated by economic operators, who were in agreement that the electronic EMCS system has significantly decreased the amount of manual work spent on monitoring the holding and movement of excise duty goods and helped the companies to collects and exchange data with tax authorities in a more rapid and efficient way. However, some particular issues were reported in terms of unequal treatment of moving and holding specific products across different Member States. More particularly, the business representatives agreed that: The procedure and requirements for all types of authorizations are reasonable and proportional, with no particularly burdensome requirements having been reported. The EMCS represents an improvement from the paper-based system with no reported excessive cost of establishing the electronic system, which on company s request can be accessed through platform provided by tax authorities. Movement of denatured alcohol was reported as another area for improvements of the 259

260 existing regime, which currently allows application of different treatment across Member states which eventually results in significant losses for the economic operators or even prevents the trade of the product entirely. The general issues reported by all types of economic operator was the lack of flexibility in EMSC system, in terms of correcting mistakes in e-ad, which in case of any irregularities or human errors in filling-up the documentation currently results in additional administrative costs and delays. The Lithuanian tax authorities also agreed that current system functions rather well and allows the rapid exchange of information and efficient tax administration. EMCS is an integrated part of national electronic platform of Excise Information System (lit. Akcizų informavimo sistema AIS) and complements it in terms of movements of excise good across EU Member States. However, the number of weaknesses of the current EMSC system and electronic platform were reported which, in the opinion of tax authorities, constraint an effective risk management of holding and movement of excise duty goods and encumber rapid fraud prevention. More particularly, the issues reported by Lithuanian tax authorities revealed specific areas which deserve consideration should further improvement of the situation be sought: The unequal treatment of error messages which are caused by incorrectly filled e-ad documents across Member States: some countries allow movements of excise good to begin even if the information provided by economic operators are incomplete and inaccurate which causes major administrative issues and time/human resource costs in the receiving country. Different practical problems related to lack of control of non-harmonised products were reported, asking for more harmonisation across Member States. In terms of prevention of fraud and risk management, the main issue reported was the lack of supervision and control of transit movements which Member State could apply based on information provided by EMCS electronic platform; establishing a messaging system or an automatic overlook of movements arranged through a Member State s territory would be a welcomed improvement. Finally, the tax authorities agreed with economic operators on the lack of flexibility of EMSC system in terms of correcting mistakes, especially in comparison to more national electronic platform, which in Lithuanian authorities views provide more functionalities and advanced overlook options. 260

261 1 Administration of authorisations Q1.1(b) What are the main conditions and requirements for granting the authorisation What are the main conditions and requirements for granting the authorisation The similar administrative requirements apply to all types of registered economic operators in Lithuania. However, some additional conditions are set for the operators who wish to set up authorised tax warehouse and/or to become keepers of tax warehouse as well as those who want to become temporary registered consignees. The following types of authorisations of economic operators are possible in Lithuania: authorised tax warehouse keeper; authorised tax warehouse; registered consignor; registered consignee; temporary registered consignee. The main conditions for authorisation s approval The following documents have to be submitted in order to establish tax warehouse: Application to set up a tax warehouse; Documents showing official verification of the measuring instruments of intended excise products; Documents showing technological schemes of the production, mixing and other operations to be carried out with excise goods in the warehouse; Documents showing technical regulations of production, mixing and other operations to be carried out with excise goods; Documents showing official sealing schemes and sealing act of excise goods if these goods have to be sealed; Documents ensuring the protection against fraudulent movements (from and to the warehouse) of excise duty goods under duty suspension, including unauthorized removal from the warehouse; 261

262 Notification of the given identification code by Lithuanian Customs Department 1, if the keeper of the warehouse indicates the intended activities including moving excise goods from import place under duty suspension and moving excise goods to the place where they will be moved outside of the EU territory ; Other documents which may be required by the tax authority. The thresholds below which a tax warehouse cannot be established are set in terms of anticipated average amount of excise duty calculated at daily stock prices and shall be not less than: euros - if desire to establish a warehouse where only ethyl alcohol and alcoholic beverages and (or) manufactured tobacco would be considered under duty suspension arrangements; euros - if desire to establish a warehouse where only fuels and ethyl alcohol and alcoholic beverages and (or) manufactured tobacco would be considered under duty suspension arrangement; euros - if desire the establishment of the warehouse where the application of the excise duty suspension arrangement would be considered only for raw materials such as oil and gas and gaseous hydrocarbone; euros - if desire to establish a warehouse where only fuel (other than petroleum gases and gaseous hydrocarbons) would be considered under duty suspension arrangements. The above mentioned therholds, however, do not apply to economic coperators who are involved in manufacturing the exice products and only apply to those who which to store them. In Lithunia, all authorised warehouse keepers automatically receive a right to act as registered consignors with an exeption that they can only send goods to thier tax warehouse. If the tax warehouse is registered under different owner in Lithuania or any other EU Member State, the authorisation of registered consignor is needed. In the view of the national authorities this 1 Economic Operators Registration and Identification number (EORI) 262

263 simplification was implemented in order to ease the administrative burden on the economic operators who would otherwise have had to get two different authorizations for virtually the same purpose. The tax authorities see existing mechanism as ensuring full supervision and control over the process as well as fully sufficient in terms of collection of taxes. The administrative requirements for authorizations of registered consignees include: Submission of application form to become registered consignee; License authorizing economic activity with excise duty goods; Documents ensuring protection of received/moved excise duty goods; Documents showing official verification of the measuring instruments of intended excise duty products, if registered consignee intends to receive energy products; Other documents which may be required by the tax authority. Authorisations for temporary registered consignees are issued for a fixed movement, where the amount of excise duty is already calculated and guarantee payment is accepted (see more detailed explanation in the next section), the goods are received from a fixed registered consignor and the movement has to be finalised within 30 days from the date when the authorisation was issued. Therefore the application form for temporarily registered consignees include defining: Excise duty products, which consignee intend to move (their quantity and CN codes); Number of movements; The amount of excise duty to be paid; The detailed information of registered consignor that delivers the products: full title, SEED identification code, country; The dates of the intended movement; Certificate from Lithuanian Customs Department regarding approved CN codes. 263

264 All documents and their copies can be submitted online through Sate Tax Inspectorate s (STI) web platform which allows interactive completion of many forms, listed above. Documents can also be sent by registered mail, or brought to STI in person. Any of the above mentioned authorisations can be denied in the case of: Unpayed taxes and/or unsettled debts for STI and/or State Social Insurance Fund (lit. SODRA); Unsettled obligations for customs office; Recods of any types of financial fraud in economic operator s activities and tax history. No application fee is charged in Lithuania. What level and type of guarantees associated with authorisation are applicable to the different types of authorised economic operators? o o o o What is the guarantee amount required for each type of tax warehouse / registered consignors / registered consignees authorised? How is the guarantee operated? (i.e. how is the level of security calculated?) Is there a guarantee monitoring mechanism? How are movement guarantees calculated and operated? General guarantees are calculated at 100% of the excise duty goods that are held at any time on the tax warehouse on the average. Guarantee maybe discounted (and constitute 10%) under request of the trader and: in case the economic operator has been performing business related to excisable goods for 3 years or the tax warehouse has been active for more than 1 year, and if the economic operator have not been punished for financial infringements, and if the economic operator within last 12 months had no debts and paid taxes to STI and SODRA Approximately 20% of tax warehouses in Lithuania use this 10% discount. Guarantee may also be discounted (and constitute only 3%) under request of the tax warehouse and: in case bioethanol is produced and/or stored and in case bioethanol is stored and the tax warehouse has been performing activities related to excisable goods for more than 1 year, 264

265 and if economic operator had not been punished for financial infringements, and if the economic operator within last 12 months had no debts and paid taxes to STI and SODRA. Guarantee for tax warehouse can also be waived if: the economic operator is conducting activities with excise duty products for no less than five years the operator has no record of debts, infringement procedures and/or arrested/frozen assets the authorized capital of the operator is no less than 11.6 million euros and the calculated guarantee is not bigger than 50% of the authorized and registered capital Additionally, guarantee may also be entirely waived for tax warehouse in which small breweries perform their activities and the owner of the tax warehouse has not been punished for financial infringements, has no debts has property of a certain value. There are 24 such tax warehouses in Lithuania. The economic operators of petroleum products and have a duty to maintain the State petroleum reserves (granted by law) are exempted from the guarantee payment as well. The guarantee for tax warehouse owner is calculated as a percentage of duty amount calculated by the average quantity of excise goods, expected to be under a duty suspension arrangement at the tax warehouse at the same time each day on the average. Q5.2 (a) Costs (financial and human resources) for Member States resulting from the management of authorisations, licenses and general guarantees; (Member States) What are the activities performed by Member States authorities prior to approving license/authorisation application Generally, the list of activities performed by the state authorities include: Verification whether all required documents are provided; Administrative check of all submitted forms and, if necessary, request for corrections, clarifications, included detailed check of financial performance and tax history; Physical visit to the establishments of the tax warehouse and verification whether the 265

266 warehouse fulfills the technical criteria. The requirements for temporary registered consignees are considered to be generally lower (e.g. no detailed physical check of the warehouse is required), especially if the operator initially provides the proof of paid financial guarantee (or a proof that such guarantee is waived). According to the Lithuanian tax authorities the lower requirements were established because temporary registered consignees are already required to submit detailed information about the movement including the specific data on registered consignor the movement is received from, and data on the movement (or fixed number of movements) itself. Additionally temporary consignees are required to pay full 100% excise duty guarantee. These conditions provide the tax authorities with a very good overview and control tool for the movement and practically eliminate the risk of losing taxes in the act of fraudulent activity. How much time and resources are spent by Member States authorities for processing license/authorisation applications As set in the national legislation, the decision on providing all types of authorisations has to take place within 25 working days from the day the application was submitted and providing that no additional clarifications, documentation or corrections were requested. If such request was given after the end of the period of 25 days, the decision has to be made within 5 working days after the submission of additional documents. If the economic operators are asking to change the existing scope of the authorisation for tax warehouse (e.g. by adding new goods, changing quantities) the decision has to be made within 15 working days. If the operator is asking for changes in licence for registered consignor/consignee the decision has to be made within 10 working days. A major simplification of the procedure exists in terms of authorisation for temporary registered consignees. If such applicant submits the proof that the guarantee for an excise duty, covering 100% or excise duty amount for an intended movement, has been paid, the tax authorities make the decision of granting the licence for temporary registered consignee within 5 working days. In Lithuania s tax office one person (FTE) is constantly involved in the process of checking the administrative documentation submitted as part of application form and doing necessary background check of economic operators financial performance. At least one additional person (not FTE, workload depend on number of current applications) is also participating in the field visits to examine the establishments of the tax warehouses (this practice is mostly established due to national anti-corruption laws). 266

267 Reasons why certain activities are Application statistics: According to national tax authorities the following approximate numbers of applications are received per annum: 3-5 applications in relation to authorisation of the new tax warehouse keepers; Around 10 requests for authorisation of new tax warehouses and additional 30 to 50 changes of the existing registered warehouses are being processed each year (these changes include changes of the original composition of excise goods assigned to a particular warehouse, change of the activities of the registered economic operators, changes in addresses and other modification of original authorisation for a tax warehouse); There are approximately 15 to 20 permanently registered consignees and over 50 (up to 70) temporarily registered consignees, some of which take such authorisation almost every month. According to tax administration officers, the reason why some economic operators prefer temporary registration over the permanent one is based on the calculations of guarantee. The temporary consignee pays the guarantee for the movement which is later accepted excise duty payment, while permanently registered consignee pays the guarantee for the entire period of registration (i.e. the payment is frozen for as long as the consignee maintains its status) and additionally pays excise duty taxes for the products it receives. Therefore, according to tax authorities, a temporary authorisation might be favoured by the economic operators which lack sufficient working capital, or make not so frequent but large movements which count for large guarantees and do not want to keep a large financial asset frozen over the period of time, and also by entities that move Authorisations for registered consignors are much rarer 2 and virtually not existing. This is because according to existing simplification of Lithuanian tax law provisions registered owners of tax warehouses are given the rights of registered consignors (see explanation in the section above). Overall, the Lithuanian authorities believe that the authorisation of licences for economic operators 2 There has been a case of only one such registered consignor who latter unregistered realizing that there is no need of this particular authorization for his economic operations. 267

268 particularly resource intensive involved in holding and movement of excised good is reasonable. Furthermore due to existing lean cooperation between different agencies, especially the STI and Customs Department, the procedure is not seen as cumbersome even in the case of requesting economic operators to provide additional documentation or corrections in the application form. The tax authorities reported that generally the time frame set by national laws is either fully respected or the decision on requested authorisation is made even faster. Therefore, in relation to authorisations, no activities were reported as particularly burdensome or requiring improvements to the process. Q5.2 (a) Costs (financial and human resources) for economic operators resulting from the management of authorisations, licenses and general guarantees; (Economic Operators) What are the activities performed by economic operators authorities prior to approving license/authorisation application o Pre-conditions for approval? o Application procedure (information requested, forms necessary) o Submission of application (manual/electronic application) o Establishment of guarantees How much time and resources are spent by economic operators in order to obtain license/authorization The process of authorisation in Lithuania was reported to be reasonable and no complaints over the existing requirements were mentioned by the economic operator during the conducted interviews. In practise all interviewed economic operators confirmed that they had to comply with the requirements set in the national law and explained in detail in previous section. No special pre-conditions for approval were mentioned by the operators. The economic operators found it difficult to define the exact time allocated for getting the required authorizations. One of the main reasons for that is because all of the interviewed businesses had been established more than ten years ago and they had obtained all necessary licenses for producing, moving and/or distributing excise duty goods before staring any economic activity. In the opinion of the economic operators, the required documentation for authorizations regarding holding and movement of excise duty products constituted a rather small share of overall administrative work load and was not seen as specifically cumbersome. The fact that all interviewed economic operators were (permanent) registered consignees also might have contributed to the fact, that economic operators did not see the process of getting the authorizations/licenses as resource intensive since no renewals of permanent authorizations are required by Lithuanian law. Reasons why certain activities are particularly resource intensive As mentioned earlier, the interviewed economic operators did not perceive the process of acquiring any type of authorizations as burdensome activity. However, one economic operator in the energy sector reported that the most time consuming procedures which took place before 268

269 submitting the application were the necessary laboratory procedures in relation to getting technical certifications, such as documentation verifying the measuring instruments, technological schemes, etc. What are the obligations of economic operators in relation to holding and storing excisable How much time and resources are being spent in order to comply with the obligations related to holding and storing excise duty goods Reasons why certain activities are particularly resource intensive All economic operators have to keep accounts of their stocks. Based on reported amount and value of excise products the authorisation to keep a tax warehouse can be cancelled or the guarantee amount can be recalculated. The cancelation or recalculation of the guarantee takes place every half a year on the conditions that: If within six 6 months of tax warehouse activity it is revealed that during these 6 months the average value of excise products held at tax warehouse was 10% lower than the minimum threshold. Adjustment of guarantee amount is recalculated at the end of each calendar quarter and the guarantee for operating the warehouse is changed if there is more than 5% difference between the planned excise duty value of the average amount of products held in tax warehouse at one point in time, which stated in the authorisation and the actual amount of the average excise duty value which was calculated for that calendar quarter. Recalculation can result in either increase of decrease of guarantee. None of the economic operators reported any of the activities related to obligations for holding and storing excisable goods as particularly resource intensive. 2 General arrangements for the movement of excise duty goods Q5.1 Are the current arrangements the most cost-effective way of collecting revenue? (Member States) What are the activities performed by Member States authorities in relation to monitoring trade/ logistics of excisable products (EMCS) How much time and resources (including Costs of IT systems) are spent by Member If no irregularities are detected (e.g. wrong CN codes, mistakes and errors in filling the e-ad document) the process of validation of an e-ad normally does not involve any human resources and is done automatically. Validation procedure is done if all codes are completed correctly, the existence of a guarantee is confirmed and that both receiver and sender are entitled to hold the goods. (The Lithuanian tax authorities have been asked to provide more detailed information in terms of estimation of the time and human resources spent on monitoring trade/ logistics in excisable products. The answer is currently pending.) 269

270 States tax authorities for monitoring trade/ logistics in excisable products? Reasons why certain activities are particularly resource intensive Tax authorities reported that the control over the process movement of excise duty goof under suspension becomes particularly burdensome in cases where other countries allow movements to start despite the initial error messages (e.g. No.906) in the system, which theoretically should prevent any movement from being dispatched. The main remark regarding the functionality of the EMSC is the lack of validation of the required fields in the electronic system. This allows some consignors to skip the required information, which results in error messages in the system. If the country where such consignor is registered is not strict about denying such incorrectly filled movements, the error message eventually becomes a problem for a consignee s authorities. The examples were given in more frequent cases, such as movements of alcohol and tobacco products: According to the existing EU regulation, the concentration of alcohol in beer should be given in the measurements used by the country which receive the goods. However, frequently the alcohol beverages, particularly beer, are received with Plato degrees instead of calculated alcohol concentration used in Lithuania. Another example was given in tobacco sector, where cigarettes, especially form Poland are frequently moved without identifying the price, although is it required by existing regulations. In such cases human interaction is necessary for checking the other supplementary documentation of goods and/or taking sample and sending it to the laboratory for determining the content of the product. Extent to which EMCS has impacted the following issues compared to the previous paper-based arrangements: o o time and resources required to handle a typical movement the time required to close a movement The Lithuanian tax authorities reported that the introduction of EMCS system brought transparency to the movements of excise products especially within the EU territory. Before the EMCS system Lithuanian tax authorities already had a national electronic Excise Information System (lit. Akcizų Informacinė Sistema AIS), which already had all EMCS functionalities on the national level. Therefore the introduction of EMCS, which became an integrated part of AIS, was not perceived as a significant change of administering the excise duty products under duty suspension regime. Nevertheless, the EMCS: 270

271 o (and release the guarantee); other benefits of an electronic tax environment (e.g. rapid and secure information exchange; record keeping). shortened the time needed to handle a typical movement by at least 30% since before the introduction of e-ad all movements which were registered electronically in Lithuanian system had to printed out and sent; additionally all received document had to be registered in the electronic system ; significantly reduced the time needed to close a movement and made the process of releasing of guarantee more rapid; enabled an overlook of the movements done in the EU. Q5.1 Are the current arrangements the most cost-effective way of collecting revenue? (Economic Operators) What are the activities performed by Economic operators authorities in relation to monitoring trade/ logistics of excisable products (EMCS) How much time and resources (including Costs of IT systems) are spent by economic operators tax authorities for monitoring trade/ logistics in excisable products? Overall, in the view of economic operators, the process for moving excise duty goods through the EMCS is easy, time saving and reliable. The functioning of the system and its accessibility has improved significantly over the years and currently does not create virtually any problems from the technical side of processes. The sample of companies interviewed in Lithuania include: two companies which access EMCS through a web-platform created by the national authorities and is freely accessible to any economic operators and one relatively large company, which have integrated the EMCS system with their internal stock management system. Companies that use dedicated web-platform and manually prepare the e-ad documents reported that the procedure usually takes from a few minutes up to maximum 10 minutes for each dispatch. The people who work directly with EMCS on the daily basis were also involved in the interviews and reported that the system had ben flawed in the very beginning but currently runs very smoothly. The larger company which operates in energy sector and conducts rather complex movements integrated EMCS within their accounting and logistics system. It reported that the time for process of filling up the information for getting e-ad is automatic and takes only a few minutes. The interviewees also noted that the benefits for having such integrated system clearly outweigh the costs of installing it. Reasons why certain activities are Generally, the economic operators agreed that there are no particular problems with the normal procedure for moving goods under the EMCS. 271

272 particularly resource intensive However, one economic operator in the energy sector largely involved in moving petroleum products reported a specific problem related to problem of measurements of the petroleum products. Namely, under the EMCS petroleum products have to be counted by volume (i.e. using litres as the main measurement). In the view of this economic operator, which is also a petroleum product manufacturer, this is a highly impractical solution, because in its production chain the operator uses weight (i.e. kilos and tones) to define the size of the products and ultimately the size of the movement. These differences in measurements mean that each time conversion has to take place, which also has to be performed manually since the density of the petroleum products differs depending on the natural resources which operator is supplied. This conversion is a human resource intensive activity. It starts from people involved in taking samples of product s density, bringing and testing them in the laboratory, then administrative/accounting staff filling in the results in the electronic company s stock registering system which automatically converts and sends data to EMCS. In companies view, the switch to product weight based system in EMCS would decrease the workload of their staff working on managing EMCS by at least 20%. Extent to which EMCS has impacted the following issues compared to the previous paper-based arrangements: o o o time and resources required to handle a typical movement the time required to close a movement (and release the guarantee); other benefits of an electronic tax environment (e.g. rapid and secure information exchange; record keeping). All interviewed economic operators agreed that the introduction of EMCS electronic platform has simplified the procedures and significantly shortened the time for the release of guarantees. The economic operators also appreciated the fact that the information of movements can be easily accessed, followed-up and audited. Q 5.2 (b) How do the compliance cost impact the economic operators depending on their size Costs (financial and human resources) resulting from the compliance with the above mentioned issues, relative to the size of the economic operator In general terms, the economic operators agreed that the time required for preparing the e-ads is not dependent on the volumes per movement but on the number of movements. Therefore, the cost for administering EMCS system proportionally increases with the increased number of movements. Furthermore, one economic operator in the energy sector reported that the costs of administering the movement particularly increase when different types of products falling under EMCS are being moved. Moreover, in the view of the same economic operators, the choice of transportation also has an impact on time spent on administering the movement. The transportation by ship 272

273 and railway were reported as causing relatively more administrative costs (also in relation to the fact that these types of movements usually involve different excise products). Regarding the size of economic operators, no particular correlation between the relative size (in terms of number of employees), number of movements and employees working directly with EMCS was indicated (e.g. one economic operator that employs around 1400 people and conducts around 120 movements per month indicated that around 10 people are involved in the entire process of administering movements; other smaller operators, employing around people and conducting on the average 70 to 150 movements per month reported that it takes only one full time employee to deal with EMCS procedures). 3 The treatment of various exemptions to the normal sequence of events Q1.4 (b) What are the rules and procedures implemented in Member States, allowing excise duty on goods released for consumption as a result of an irregularity to be reimbursed or remitted? Processes / activities performed by Member States authorities and economic operators to ensure compliance with the arrangements related to reimbursement of excise duty. The application of Art 10 has been reported by the Lithuanian tax administrations to be rather ambiguous, especially in terms of determining where the irregularity occurred. The Lithuanian authorities reported that it is not immediately clear following this article, how much time a Member State will have to determine that an irregularity has occurred and what should be the formal procedure of investigating where the shortage occurred, especially in the case when products have been transported through more than one country. The tax administrations have expressed a need for a clearer Art 10 which expresses when and on what grounds should the Member State take action (e.g. how long shall the Member State wait until claiming excise duty). Furthermore, the control aspect in relation to physical check of the goods transported through a Member State territory was given as a possible solution to the problem when which it is not possible to determine where the irregularity has occurred. A level of uncertainty under Art 10 leads to both estimated additional time costs for administration, as well as excise duty loss, reported by the Lithuanian authorities. The economic operators in the energy sector also agreed that some small levels of detected shortages and excesses are inevitable due to nature of the products they are moving and different boundaries of tolerance in various Member States (see explanation below). Therefore the process of dealing with these situations should be in some way clarified and simplified. 273

274 5.1 (b) To what extent are current provisions resulting in increased / unnecessary admin costs? (Member States) Compliance cost impact of practical issues reported: o o o o o errors in the e-ad and the correction of errors Distribution on SEED about authorisation of economic operators Changes of destination / rejection Reimbursements Others Lithuanian tax authorities reported that any case of exemption to the normal sequence of events creates a considerable administrative burden, since each of the case has to be dealt with individually. Moreover it usually includes contacting the tax authorities in other Member States, which can be especially cumbersome depending on the time of their response. The following treatment of occurring problems was reported: Typing errors and other types of errors in e-ad the authorities reported that a considerable number of errors still occur when the movements are allowed to start in some Member States despite incomplete information provided in e-ad form (e.g. in some cases economic operators fail to fill in the price of goods, or fill in the wrong measurements, such as Plato degrees for beer instead of alcohol concentration, which is used in Lithuania). In order to clarify in the Member State of dispatch, the official communication and cooperation between tax administrations is needed and in practise it can take a long time. In many cases the Lithuanian authorities actually have to take a sample of product and send it to the laboratory, in order to determine the contents of the product. In these cases, the costs in terms of administration and time increase exponentially, not to mention the fact that the guarantee for the movement cannot be released in the meantime. Physical excess a physical excess is expected to be reported by the consignee. In a normal case, the consignee would report the excess and express his agreement to accept it. In this case, he will accept the goods under suspensions and duty would be due when the goods are released for consumption. Physical shortages see the explanation above. In principal, each case is dealt with individually. In general the Lithuanian authorities would endorse the possibility to make the EMCS more flexible in terms of correcting data in the e-ad document under supervision of tax authorities. If this possibility existed it would lower the cost for the administration: the operators would be able to check themselves instead of requesting the administration to perform the check. Another suggestion made by the authorities was to establish an automatic validating system over the required fields in filling the e-ad document. This way the system would not allow to push the button 274

275 and send the message for the national authorities unless all the required fields are covered and measurements and other features of the products are tailored for the country that is supposed to receive the goods. This way a lot more clarity and robustness could be introduced to the EMCS that would also considerably lower the costs for the national authorities. 5.1 (b) To what extent are current provisions resulting in increased / unnecessary admin costs? (Economic Operators) Compliance cost impact of practical issues reported: o o o o o errors in the e-ad and the correction of errors Distribution on SEED about authorisation of economic operators Changes of destination / rejection Reimbursements Others Small shortages / excess: The economic operators in energy industry mentioned that often there are small differences between the quantity of goods shipped and received when moving energy products. However, Member States take different views on the accepted boundaries of tolerances, ranging from around 0,5% in some countries to almost 5% in other countries). The harmonisation of requirements across the EU would therefore be highly appreciated by the economic operators. An error in preparation of e-ad: All economic operators interviewed reported issues related to some sort of errors created in filling-up e-ad documentation. The operators stressed that in the case of incorrectly prepared and submitted e-ad (e.g. errors ranging from typing mistakes to missing information) there is nothing to do but to cancel the e-ad and issue a new one. This includes an official request with corresponding explanations, submitted for the tax authorities, which take time and human resources from both sides in terms of filing and processing the request. Economic operators unanimously agreed that some flexibility in terms of correction of mistakes in submitted e-ad document in EMCS platform would be much welcomed and could save significant administrative costs. SEED information distribution: Economic operators reported a need to harmonise the requirements for filling SEED documents, such as filling up addresses in SEED documents. In the view of economic operators that would increase clarity with respect to identifying the address the goods were dispatched to. 4 Specific arrangements for the movement of excise duty goods Q5.2(a) What are the compliance costs for economic operator resulting from the application of the Directive? Additional compliance costs resulting from: o Unclear or inconsistent application of the rules (e.g. varying procedures for The interviewees from both, national authorities and economic operators, sides suggested that there would be less room for interpretation and risks for potential fraudulent activities if the products listed in Article 20(1) would all be subject to the control and movement provisions under EMCS without any exceptions. The authorities underlined that the movement procedures for many of these products depend on the declaration of economic 275

276 moving excisable goods) operators and in reality can be very difficult to verify since the difference in content between lubricants and certain low quality motor fuels can be very obscure. Moreover fraudulent economic operators might even find the ways of putting special additives to fuels to mask and classify them as lubricants during the movement. Once the movement is closed the additive can easily be removed and the product can be used as fuel, avoiding excise taxes in the process. In the view of the authorities, the risk of fraud of this and other cases could be significantly reduced by moving them under EMCS. The light regime for coal, coke and lignite, electricity, natural gas, on the other hand, meets the needs of the administration and the authorities expressed their views that the actual administration costs of monitoring movement of these products would cost more than possible revenue from the taxes. Furthermore, there is no specific risk for fraud perceived for these products in Lithuania. With regards to denatured alcohol one economic operator expressed specific concern over the different systems existing in Member States, which even prevented the operator from trading with another Member State. In Lithuania denatured alcohol according to Article 27(1)(a) of Directive 92/83/EEC has to be moved with an SAAD although it is exempt from excise tax. However, in other countries, such as Estonia, the treatment is understood differently and in the end if the operator from Lithuania wants to move product to Estonia it has to be responsible for freezing the movement guarantee amount until the final confirmation of release for consumption is received from Estonia. Then the operator have to send the request to national tax authorities, so they could close the movement manually and release the guarantee. In the view of the interviewed economic operator, it was too big of the financial burden for the company and so goods were never moved. Another important point regarding denatured alcohol, which was raised by both the national authorities and the economic operators is that Member States do not recognize the same denaturing methods for denaturation. This leads to situations where economic operators are not treated equally. In the view of the authorities, Lithuanian rules are in many cases stricter than those in other Member States. Therefore it creates unequal competition between operators using virtually the same product but in different Member States. 5 Coordination between customs and excise Q6.1: (a) Which are the areas where the links between customs arrangements and excise arrangements do not work satisfactorily? Practical experiences and perceived problems as reported by stakeholders o Nr. and frequency of instances of movements having to be closed manually o Reported instances of Lithuanian Tax administration reported the following problems regarding existing arrangements between tax and custom services: Tax administration is dependent on the proper functioning of Export Control System (ECS). If the e-ad related to export is not closed properly, tax authorities have to devote more resources to clarify circumstances of transactions related to export and export processing. This problem is especially related to situations, when due to technical reasons ECS stops functioning properly. Then the officers of customs office switch to paper-based declarations 276

277 o o o o problems e.g.: Customs offices not having access to ARC number. Lack of cross-checking of the e-ad and the customs declaration. Alternative proofs of exit not being accepted. Office of export not receiving confirmation of exit results. and later on are not transported to electronic format. This means that in order to close the movement the tax authorities have to receive the paper based declaration form from the customs office and only then are able to manually close the error message. Furthermore, since customs office is more interested in imports rather than exports; therefore, processing of export declarations is done more formally. Tax administration, however, cares more about nature of transactions and chains of transactions, so export declaration is not considered to be a sufficient document proving exit from EU territory. In the view of tax authorities, risk is particularly high when the point of exit is in a different Member State than the one where the export declaration is processed. Without any physical check of goods at the border there is no way to be sure that the products have indeed left the EU territory. Therefore, more attention and formalised control would be welcomed by Lithuanian tax administration. Q6.1 (b) What is the immediate impact of reported issues? Estimated costs for Economic Operators and Member States Capacity for monitoring and control Level of risk of fiscal fraud Potential revenue loss due to inadequate evidence for proof of exit / exemption or suspension of taxes in the case of import Legal uncertainty? Shopping for easier procedures? Although the reported cases regarding technical faults of ECS are rather rare, they significantly increase time costs of the tax administration Each movement that is not marked electronically has to be processed manually and dealt with individually. According to the statistics provided by the tax authorities in the first quarter of 2015, around 0.1% of all movements (30 movements in total) had be closed manually due to problems caused by lost automatic connection between EMSC and ECS systems. In the opinion of tax authorities, the current system, where no physical checks of declared goods are enforced, creates a high risk of fraudulent activities. The sectors that Lithuanian authorities are particularly concerned about are tobacco, alcohol products and diesel. If the fraudulent activities are conducted they result in instant losses of excise taxes, value added taxes; therefore pose a threat to country s economy. 277

278 6 Other issues Use of EMCS in fraud prevention An important issue raised by Lithuanian tax authorities was the fact that under current EMCS arrangements the Member State has no effective means to supervise and control the movements of excise duty goods when they are being moved transit through country s territory. Since no automatic messages regarding the planned traveling path of the movement are sent by EMCS system to the Member State s authorities, the tax administration is completely blind in terms of type, amount or value of the excise products that are currently in their state s territory. When the e-ad is finally closed at the country which receives the goods there is no way to make sure the goods have indeed reached the destination, since to physical checks are performed. The authorities are forced to trust the honesty of the traders. According to the Lithuanian tax authorities there are indications of a great volume of suspicious movements of diesel products, conducted between Poland and Latvian territories. In the view on tax authorities they constitute a high risk of fraudulent activities where possible no (or much smaller amounts of) products actually reach the final destination. Instead they stay within Lithuanian borders and might be sold in shadow market, avoiding excise and value added taxes. This would have a series of implication form losses in state s revenue to elimination of product quality control. As a solution the Lithuanian tax authorities proposed to establish a new functionality in EMCS which would allow the authorities to easily track the movements that are arranged through its territory, if not for physical control than at least for estimation of the volume of goods being moved. These numbers crossed with other calculations indicating the size of the shadow economy in the country could help to identify the potential risks, react in real time and possibly prevent such fraudulent activities. SOURCES Desk Research: National laws and regulations of the Republic of Lithuania: Lietuvos Respublikos akcizų įstatymas, 2001 m. spalio 30 d. Nr. IX-569, Vilnius Lietuvos Respublikos Vyriausybės 2002 m. birželio 4 d. nutarimas Nr. 821 Dėl akcizų įstatymo nuostatų įgyvendinimo" (šiuo metu galiojanti aktuali redakcija) 2010 m. rugpjūčio 2 d. Valstybinės mokesčių inspekcijos prie Lietuvos Respublikos finansų ministerijos viršininko įsakymu Nr. VA-88 patvirtintos Akcizais apmokestinamų prekių, kurioms taikomas akcizų mokėjimo laikino atidėjimo režimas, gabenimo taisyklės. 278

279 Valstybinės mokesčių inspekcijos prie Lietuvos Respublikos finansų ministerijos viršininko įsakymas Dėl valstybinės mokesčių inspekcijos prie Lietuvos Respublikos finansų ministerijos viršininko 2002 m. birželio 17 d. įsakymo Nr. 157 Dėl akcizais apmokestinamų prekių sandėlių registravimo" pakeitimo" 2010 m. rugpjūčio 27 d. Valstybinės mokesčių inspekcijos prie Lietuvos Respublikos finansų ministerijos viršininko įsakymas Nr. VA-94 Dėl laikinai registruotų akcizais apmokestinamų prekių gavėjų registravimo" 2010 m. rugsėjo 3 d. Valstybinės mokesčių inspekcijos prie Lietuvos Respublikos finansų ministerijos viršininko įsakymas Nr. VA-98 Dėl valstybinės mokesčių inspekcijos prie Lietuvos Respublikos finansų ministerijos viršininko 2004 m. balandžio 27 d. Įsakymo Nr. VA-62 Dėl prekybininkų registravimo" pakeitimo" 2010 m. rugsėjo 3 d. Valstybinės mokesčių inspekcijos prie Lietuvos Respublikos finansų ministerijos viršininko ir Muitinės departamento prie Lietuvos Respublikos finansų ministerijos generalinio direktoriaus įsakymas Nr. VA-97/1B-553 Dėl akcizais apmokestinamų prekių, kurioms taikomas akcizų mokėjimo laikino atidėjimo režimas, gabenimo tais atvejais, kai neveikia Valstybinės mokesčių inspekcijos Akcizų informacinė ir (arba) Muitinės deklaracijų apdorojimo sistema, taisyklių patvirtinimo" 2002 m. birželio 14 d. Valstybinės mokesčių inspekcijos prie Lietuvos Respublikos finansų ministerijos viršininko įsakymas Nr. 156 Dėl akcizais apmokestinamų prekių apskaitos" 279

280 Case study - Germany Germany Executive Summary Specfic issues investigated: All aspects of the evaluation were covered by the case study on Germany. As a result of the first round of data collection, particular attention has been paid to the following aspects: The authorisation of economic operators The treatment of shortages and excesses The use of EMCS to fight fraud Main outcomes (conclusions) The case study in Germany has shown that overall stakeholders are satisfied with the current arrangements. In particular the introduction of EMCS is seen as a great step forward, allowing saving costs and time, as well as improving the capacities to maintain an overview over all movements. In Germany all movements of excise duty goods have to be done under EMCS, even when they take place within the country. Two of the interviewed economic operators underlined that the German authorities were stricter when handling authorisations and irregularities with movements under duty suspension compared to other EU Member States in which they were active. All stakeholders agreed that the smooth functioning of excise procedures and authorisation processes depends to a large extent on a good cooperation between the authorities and the economic operators. A good relationship can allow authorities to alleviate requirements for granting authorisations or solve irregularities much faster. Where cooperation between the authorities and the economic operators, but also between the authorities of different Member States is not functioning well, the known problems with EMCS have a greater impact in terms of time to be invested. The requirements to receive an authorisation for a tax warehouse or as a registered consignor or consignee were not considered to be overly burdensome by economic operators, although specific requirements in terms of guarantees could be alleviated. For authorities, granting authorisations involves a great amount of work supporting economic operators in the preparation of their applications. In terms of costs, the introduction of EMCS seems to be more advantageous for companies handling many movements, in particular with regards to the handling of irregularities. Bigger companies have more 280

281 capacities to systematically deal with irregularities and build up expertise in handling these issues. Shortages and excesses in particular with movements of spirits and energy were noted as a recurring issue, as well as the correction of errors in e-ads. The German authorities rely on handling irregularities on a case by case basis. In this relation, the interviewed economic operators would like to see more consistency in the rules applied by the different customs offices in Germany but also by authorities of other Member States. Two of the interviewed economic operators insisted that other remedies should be found to handle errors in e-ads. Instead of excise duty becoming due they suggested to introduce fines in these cases. None of the interviewees had a strong opinion on the specific arrangements that are in place for some excise products. The authorities suggested including bulk movements of lubricating oils in EMCS to reduce the risk of fraud. There was agreement among the interviewees that the link between customs and excise procedures was problematic. In particular the manual closing of movements in EMCS after an export was resource intensive, for both authorities and economic operators. The EMCS was seen as a relevant tool to reduce the risk of fraud but further improvements were suggested, such as the development of automatic risk assessment for each movement. This could be implemented at national but also at EU level. Furthermore, it would help anti-fraud officers to get access to all EMCS movements and not only those that are coming from or going to Germany. 1 Administration of authorisations Q1.1(b) What are the main conditions and requirements for granting the authorisation What are the main conditions and requirements for granting the authorisation Any person intending to produce, hold, receive or dispatch under suspension or sell in retail alcohol, tobacco or energy products has to apply for a license or authorisation and to comply with certain requirements. This includes a written application to receive an authorisation as registered consignee, consignor or tax warehouse with the responsible main customs office (Hauptzollamt HZA). 1 To the authorisation an excise registration number is assigned. Authorisations are granted, under the reservation of the right of revocation, to persons against whom there are no concerns about their reliability in the field of taxation, who ensure proper accounting and provide their annual accounts on time. Where there are 1 The German customs authorities are organised under the Ministry of Finance. There are five federal finance directorates (Bundesfinanzdirektion) which implement the strategic guidelines of the Ministry of Finance and support the main customs offices in their tasks. The operational tasks are conducted at local level through 43 main customs offices (Hauptzollämter) and 271 customs offices (Zollämter). The persecution and prevention of crime related to customs of medium and severe gravity is done by the Customs Criminological Office (Zollkriminalamt) and eight customs investigation offices. (Zoll online, 2015) 281

282 indications of a risk for tax fraud, the authorisation is linked to a security payment. In order to receive an authorisation to operate a tax warehouse, the location needs to be set up as to allow for monitoring of the production, treatment and movement of excise duty goods by the authorities. To this end specific documents, in particular a detailed site map are required. As wine is not subject to excise duty in Germany, the legislation on the authorisation of tax warehouses does not contain provisions regarding the storing and movement of wine. However, as wine can be subject to excise duty in other Member States, it is possible to operate a tax warehouse for the purpose of receiving wine from and for the movement of wine through other Member States. What level and type of guarantees associated with authorisation are applicable to the different types of authorised economic operators? o o o o What is the guarantee amount required for each type of tax warehouse / registered consignors / registered consignees authorised? How is the guarantee operated? (i.e. how is the level of security calculated?) Is there a guarantee monitoring mechanism? How are movement guarantees calculated and operated? Guarantees for the authorisation of tax warehouses only apply where there are indications of a risk for tax fraud. The amount of this guarantee depends on the concerned product category. An operator of a tax warehouse for energy products is obliged to install a guarantee which is based on the excise duty that would be due for the amount of energy products held over the two months with the highest number of movements were they released for consumption. Guarantees for tax warehouses for other excise products are based on the excise duty value of products over a yearly average. They range between the duty for products released for consumption over the period of one month (cigarettes and smoking tobacco), one month and a half (sparkling wine and ethyl alcohol) and two months (beer, cigars and cigarillos). The exact amounts are set by the HZA and are reviewed regularly, allowing for adjustments where necessary. For a new tax warehouse, the level of guarantee is based on an estimate of future trade and compared with companies of similar size. To become a registered consignee, it is necessary to install guarantees at the equivalent of one month excise duty for alcohol and tobacco products, and of two months for energy. These guarantees cannot be waived based on a risk assessment. Movement guarantees are paid by consignors and are set up according to the excise duty due for the product to be moved. For movements of products under duty suspension within Germany, the guarantee can be waived if no risk is suspected. It is also possible to reduce the level of movement guarantees for alcohol and tobacco products on demand of the economic operator, based on a risk assessment which involves the degree of cooperation with the customs authorities and the capital of a company. Movement guarantees for energy products that are transported by pipeline or by sea can be waived. 282

283 Q5.2 (a) Costs (financial and human resources) for Member States resulting from the management of authorisations, licenses and general guarantees; (Member States) What are the activities performed by Member States authorities prior to approving license/authorisation application In Germany, the HZA are responsible to check and approve authorisation applications. The assessment of applications includes primarily the review of the provided documents and information such as the indicated business figures, the site map of tax warehouses and the listed products that will be held and moved. Additionally, the officials verify information in the commercial register, search for notices on insolvency and request information from the tax offices. A risk assessment is made through information held by customs authorities. Based on this information the guarantee is calculated. In addition, the localities have to be approved through an on-site visit. This visit cannot always be scheduled prior to the approval of an application but will then be conducted shortly after the authorisation has been granted. Following the approval, the authorities always monitor the first movements under EMCS. Another important part of the work of the HZAs is taking place before companies submit their applications for authorisation. The interviewed officials noted unawareness among those applying for authorisations about the legal requirements. Often authorities are required to support economic operators in the process towards submitting an application by informing them about legislative requirements and then the specific documents to be provided. How much time and resources are spent by Member States authorities for processing license/authorisation applications Time and resources spent on processing applications vary strongly between the cases and make it difficult to establish an average. The interviewed officials said that an application procedure took between two and three weeks once all required documentation is received. Procedures for the authorisation of tax warehouses are more complex and take longer than the review of applications for registered consignors or consignees. Authorisations for holding and moving energy products are more complex than for tobacco and alcohol. 283

284 Each application is handled by one HZA officer and is checked by a second one. The checks on site are conducted by a specific service. The authorisation process is done in close cooperation with the economic operator. Many of them receive support prior to the submission of their application through the HZA. The amount of time and resources that the customs officials spend to prepare applications with the economic operators is not measured but are considerable. In an ideal case, the approval of an authorisation request could be done in less than a day but missing documents and lack of awareness of economic operators that demands an additional exchange between the authorities and the companies makes this task much more time and resource intensive. Absolute numbers of applications per year are not available. The amount of granted authorisations show the following picture: Tax warehouses: on average 500 new authorisations per year between 2012 and 2014 Registered consignee: on average new authorisations per year between 2012 and 2014 Registered consignor: on average 45 new authorisations per year between 2012 and While applications for authorisations as registered consignees, in particular for alcohol and alcoholic beverages are very high, the energy sector is more stable and therefore rarely sees requests for authorisations. Reasons why certain activities are particularly resource intensive The authorities saw no concern in the varying degree of complexity of the application process when comparing the different products and the different types of authorisations as they are linked to different risk levels. Overall they did not consider the processing of applications to be particularly time or resource intensive. They indicated however, that the time spent on preparing applications and explaining requirements to economic operators was significant. When asked about ways to improve the process, the interviewees suggested real-time monitoring of movement guarantees. This could ensure that every movement of a company is covered by a guarantee. Currently, it is possible that an economic operator is responsible for several movements of excise duty goods under suspension at the same time while his guarantee does not cover them all. With real-time monitoring this could be avoided in the future. 284

285 Q5.2 (a) Costs (financial and human resources) for economic operators resulting from the management of authorisations, licenses and general guarantees; (Economic Operators) What are the activities performed by economic operators authorities prior to approving license/authorisation application o Pre-conditions for approval? o Application procedure (information requested, forms necessary) o Submission of application (manual/electronic application) o Establishment of guarantees Economic operators need to present the following documents with their application for a tax warehouse authorisation: A statement from the commercial register a site map of the tax warehouse explaining the functions of the rooms, areas and installations an explanation of the type of products handled, of the procedures for production, processing and treatment, as well as for the storing of products. For all types of authorisations a questionnaire has to be completed in which details on record keeping need to be provided, as well as the financial details and information on movements as described above. Further documents mentioned by the interviewed economic operators include certificates of good conduct and information on the qualification of employees. The HZAs can require further information or documentation if they are needed to calculate tax revenue or for fiscal control. Inversely, it is also possible for the HZAs to waive any of the above requirements. Applications are completed manually and submitted by post. There is no need to pay a fee for an application for authorisation and all authorisations are valid for an unlimited amount of time. Of the interviewed companies one had only a tax warehouse authorisation and the other two held authorisations as registered consignor and consignee in addition. One of the operators reported that he had to provide for a guarantee for the tax warehouse, one of the companies had the guarantees waived for part of their authorisations and the third did not need to provide any guarantees for their authorisation. One of operators criticised that the conditions for authorisations and requirements in terms of guarantees in Germany depended on the responsible HZA. Practices would vary between the locations. It was said that in some cases the relationship between operator and authorities was deciding over the level of guarantee where an actual risk assessment would be a more transparent way to 285

286 determine this. Another company considered the market entrance for new companies to be difficult due to high requirements in terms of guarantees. New companies need to prove that they are able to carry the risk linked to the excise goods they are working with. How much time and resources are spent by economic operators in order to obtain license/authorization The experiences with regards to time and resources spent to obtain authorisations varied between the interviewed operators. While two of them were satisfied with the procedures, another one was more concerned about delays in the approval by the authorities. One of the interviewed economic operators recalled a recent renewal of their authorisation. This was a quick and unbureaucratic process thanks to a good relationship with the local HZA. Problems arose only at the time of the control visit by the authorities. It was a problem that specifically formed employees had to be present during the on-site control visit which was difficult to ensure as the company works in shifts. Another operator reported that for a recent opening of a tax warehouse the completion of the request for authorisation took one day and was completed with one phone call to the HZA. A few days later the authorisation was received. An application for a warehouse for a new company would take a little longer in terms of fulfilling the requirements of the application between one and five days are needed - but so far the question of timing has not been critical to the operator. The third operator noted that for completing requirements for authorisations of smaller units two to three days were sufficient while for larger parties this could be work for up to two weeks. The interviewee underlined the fact that the different HZA varied strongly in the time it took them to process applications. In some places six to eight weeks would be common while in other places even after two months no news were received from the authorities. In a recent case, it took three months to change documents for an already established company. Reasons why certain activities are particularly resource intensive Two of the operators did not consider the requirements to receive an authorisation to be a particular burden. The necessary documentation is available within the companies and does not need to be specifically prepared for an authorisation request. It was noted however that some of the requirements made it difficult for companies from other Member States to open a tax warehouse in Germany. The third operator criticised the authorities for increasingly following the example of the questionnaire that is used for customs purposes to define authorised economic operators. This questionnaire asks for very detailed information about companies that work in a fast changing market. Consequently, answers to questions about logistic processes, security arrangements in the warehouse and IT implementation can only provide a snapshot of the current situation and would not be valid for the extent of the validity of an authorisation. The interviewee called the trend towards the AEO form a barrier to trade and did not understand why a known and established company needed to fulfil these requirements. Compared to other Member States the requirements in Germany were seen to be particularly burdensome. This economic operator was the only one who had recently been involved in new authorisation processes. Therefore it is possible that the others did not notice the recent changes in the application process yet. With regards to guarantees one of the economic operators noted that they created particular administrative burden. The regular 286

287 checks and recalculations of the level of guarantee were very resource intensive. Making estimations about movements for the coming years was noted to be a difficult exercise and that often it was not possible to adapt the level of guarantee with a bank on a short notice. Beside the administrative costs, blocking a guarantee sum can also be a financial loss for a company as it cannot be invested elsewhere. None of the other operators referred to guarantees as a problematic area. It was criticised that when handling energy products it was impossible for the economic operator to have the guarantees waived by the authorities while this was the case for other products. It is also interesting to note that none of the interviewed operators evoked the issue pointed to by the interviewed authorities who noted a lack of awareness among economic operators about the legislative requirements for excise duty suspension leading to requests for support by the operators. An explanation would be that the three interviewed operators have been in the market for a while and thus are experienced with the system and the requirements. On the contrary, one of the economic operators even remarked that the authorities were overburdened and lacked the necessary knowledge in the field of authorisations which meant that the company ended up explaining procedures to tax officials. What are the obligations of economic operators in relation to holding and storing excisable How much time and resources are being spent in order to comply with the obligations related to holding and storing excise duty goods The following obligations have to be fulfilled when storing and holding excisable goods: record keeping, such as keeping of a stock book inventory of the tax warehouse information of the authorities in case of changes in the operation and the use of the tax warehouse for other purposes information of the authorities in case of destruction or irretrievable loss of products. The HZA can demand further obligations to be completed. Two of the economic operators listed their obligations. These included: regular information of authorities (some of them monthly) on stocks the obligation to be available and present for inventories information of authorities in case of standstill in production, changes in the used raw materials information of authorities if guarantees change preauthorisation of constructions on the site Movement guarantees and the use of EMCS can be waived for movements within Germany. In that 287

288 case, obligations apply to inform authorities on a monthly basis. One of the operators stated that he had two employees who worked to comply with the obligations. They worked about ten minutes per day on ensuring the record keeping and then completed further tasks. The other two operators were not able to indicate the time and resources spent on these tasks as they were spread over several employees and departments, or were seen as parts of more general tasks. It can also be noted that one of these did not see any particular obligations that needed to be complied with. Reasons why certain activities are particularly resource intensive The interviewed economic operators presented differing opinions whether there were obligations requiring more resources and time than others. One of the interviewees did not mention any specific tasks and showed to be rather satisfied with the requirements. One of the interviewed operators stated that compared to other EU Member States the obligations for holding and storing excise goods were particularly complex and thus requiring more resources. Another one mentioned the requirements in terms of book keeping, in particular under the spirits law (Branntweingesetz) to be very resource intensive. The operator also underlined that waiving guarantees would not always be an advantage. In one case it had not been possible to move goods to another EU Member State because a guarantee for the movement was required which in Germany had been waived. 2 General arrangements for the movement of excise duty goods Q5.1 Are the current arrangements the most cost-effective way of collecting revenue? (Member States) What are the activities performed by Member States authorities in relation to monitoring trade/ logistics of excisable products (EMCS) How much time and resources (including Costs of IT systems) are spent by Member States tax authorities for monitoring The following tasks are performed by the German authorities in relation to monitoring of excisable products moved under EMCS: Customs authorities ensure the correspondence of moved products with the supporting documentation They compare the consignments registered in EMCS with the data of accounting They handle cases of irregularities The authorities provide a web platform for the access to EMCS The customs criminological office (Zollkriminalamt ZKA) ensures a general risk assessment for movements 288

289 trade/ logistics in excisable products? The customs investigation office conducts checks in specific suspicious movements. The following numbers were provided in terms of employees of the authorities involved in the monitoring of trade and logistics of excisable products under EMCS in Germany: employees employees employees This data was calculated taking into account full-time and non-full-time employees and the fact that some of them do not work their entire time with EMCS. Germany was one of the first countries fully implementing EMCS. It is not only used for movements between the Member States but also within Germany. For the introduction of EMCS, the customs administration had estimated costs of EUR 25 million. A cost-benefit analysis was conducted prior to the introduction and came to a positive result. Reasons why certain activities are particularly resource intensive Extent to which EMCS has impacted the following issues compared to the previous paper-based arrangements: o o o time and resources required to handle a typical movement the time required to close a movement (and release the guarantee); other benefits of an electronic tax environment (e.g. rapid and secure information exchange; record keeping). Notwithstanding particular practical issues (which are discussed below) the normal procedure for moving goods under the EMCS entails no particularly resource intensive activity for the German authorities. Before the introduction of EMCS handling a normal movement took the authorities approximately 12 minutes to complete. Today, when a movement is not presenting any irregularities there is no work for the administration involved. The time to complete an entire movement used to take between 20 and 30 days with the paper based documents, as they had to be sent by post. Today closing a movement takes six days. Besides the time saved, the authorities also noted that their work has become more complex. Using the EMCS can be more bureaucratic once a problem is noted. Today, when there is a mistake made in the e-ad or a technical problem appears, this is highlighted immediately leading to work for the authorities. The introduction of EMCS has improved the possibilities to control movements. The paper based accompanying administrative document was not accessible to the ZKA. Now they have access to all movements and can conduct risk assessments based on the information. This allows for a more strategic approach. However, also the types of fraud that are dealt with have changed. This makes a comparison of the time spent less clear. While in the past it was common to find falsified stamps, today the loopholes of EMCS are exploited. Q5.1 Are the current arrangements the most cost-effective way of collecting revenue? (Economic Operators) What are the activities performed by In Germany, companies can access EMCS either via a web-platform made available by the tax authorities or through a third party software. Of the interviewed economic operators, one used the authorities 289

290 Economic operators authorities in relation to monitoring trade/ logistics of excisable products (EMCS) How much time and resources (including Costs of IT systems) are spent by economic operators tax authorities for monitoring trade/ logistics in excisable products? Reasons why certain activities are particularly resource intensive Extent to which EMCS has impacted the following issues compared to the previous paper-based arrangements: o o o time and resources required to handle a typical movement the time required to close a movement (and release the guarantee); other benefits of an electronic tax environment (e.g. rapid and secure information exchange; record keeping). internet EMCS application (IEA), one relied on a third party software and one operator had developed their own software. For two of the companies the share of employees working with EMCS was less than one percent. The third company which in comparison dealt with less movements per year but overall was also much smaller in number of employees, had six percent of their employees working with EMCS. Notwithstanding particular practical issues (which are discussed below) the normal procedure for moving goods under the EMCS entails no particularly resource intensive activity for economic operators in Germany. Two of the economic operators welcomed in general the use of an IT system for the movement of excise duty goods under duty suspension. The third one was more sceptical, wishing there was an opportunity to use a paper based form in some cases. This operator used the IEA which requires a manual input of all data that is, compared to the use of AADs where data can be copy-pasted from excel files, more time consuming. At the same time, the paper based processes were time consuming for the signatures that were required. With EMCS this operator spent about 15 minutes to complete an e-ad for a ship or a truck and approximately one hour for a train. Another economic operator also reported 15 minutes as the average time to complete an e-ad. This operator underlined the advantages of EMCS in terms of faster movements that are also easier to monitor. Overall costs had increased since the introduction of EMCS but costs such as for the IT software were considered appropriate. On the other hand, human resources were shifted from handling paper to working with IT, making processes faster. For the third economic operator, handling a movement was with two to five minutes comparably faster. The company reported that with the paper based process the same work took about 20 minutes. Due to the many problems with irregularities that this operator encountered, on average handling the administration of one movement would take approximately four hours. The number of employees had to be increased since the introduction of EMCS. 290

291 Q 5.2 (b) How do the compliance cost impact the economic operators depending on their size Costs (financial and human resources) resulting from the compliance with the above mentioned issues, relative to the size of the economic operator Relative to the size of the economic operator, the interviews showed that for businesses with fewer movements it was not economical to pay for a third party software. The market for third party software was described as an oligopoly with high prices and little choice. Consequently, these companies have to handle the drawbacks of the system provided by the authorities, such as the fact that there is no copypaste function. Overall, the introduction of EMCS appears to be more advantageous for companies handling many movements. 3 The treatment of various exemptions to the normal sequence of events Q1.4 (b) What are the rules and procedures implemented in Member States, allowing excise duty on goods released for consumption as a result of an irregularity to be reimbursed or remitted? Processes / activities performed by Member States authorities and economic operators to ensure compliance with the arrangements related to reimbursement of excise duty. In Germany, irregularities related to the movement of excise duty goods under duty suspension are dealt with by the HZAs. They work based on to-do lists organized by types of irregularities. Instances are approached case by case. The customs officials check the cases judging whether irregularities are linked to honest mistakes or are potential fraud. The officials get in touch with the economic operators who are asked to explain the concerned irregularity. Where needed cooperation with the fiscal control service is set up and involved Member States are contacted. In case of shortages or excesses, the authorities are tasked to identify where these irregularities occurred. To this end, the authorities contact the concerned economic operator who is invited to explain the irregularity. Where no explanation can be found, excise duty becomes due (for shortages in the Member State of destination, for excesses in the Member State of dispatch). The interviewed customs officials noted that due to varying methods recognized in the Member States for the measurement of volumes, irregularities were very common for movements of spirits and energy products. These products are also likely to be subject to fluctuations during transport. To this end, in Germany margins of tolerance are in place within which varying volumes noted by consignors and consignees are not to be considered irregularities. If a shortage or excess is within the margins of tolerance, customs officials can mark this in EMCS, otherwise they will investigate with the operator. The interviewees stated that margins for excesses were quite generous in Germany and thus irregularities in this context were rather rare. However, they also pointed to the fact that shortages and excesses were not established uniformly across the Member States which also meant that economic operators were not treated equally. If an error in an e-ad is found, the HZA will determine which authority is responsible for the further treatment of the case by identifying whether the movement was taking place under duty suspension or whether the movement has become excisable due to the error. A correction of an e-ad by the consignor is not possible in Germany. An economic operator who identifies an error in the 291

292 documents needs to contact the authorities. The customs officials will then handle the mistakes carefully, identifying the source of the mistake and ensuring that it is not linked to potential fraud. They will then cancel the e-ad and the operator has to complete a new one. According to the interviewed authorities, changes of destination are often linked to errors in the e-ad, such as a consignee who has a new excise number which is not reflected in the documentation of the consignor. In these cases the HZAs have to identify the error and cooperate with the other involved Member States. It was noted that there are cases where the concerned consignee does not react to the requests of the authorities. For those cases there are no indications for the Member States how to react. It is possible to impose a fine to economic operators who do not respond to requests from the authorities but this is not always a mean to ensure swift cooperation. If a consignee rejects a delivery, EMCS requires the consignor to change the destination. As there is no deadline for economic operators to complete this procedure, a rejection of delivery provides opportunities for fraud. During the time span until the consignor changes the destination, the authorities have only limited insight on where the goods are located and where they are being moved to. The authorities suggested that the cases of change of destination and rejection of delivery could be reduced if the consignee had to confirm his/her status as recipient of the sent goods in EMCS. Currently, consignees are not made aware that a movement is shipped towards him/her and is not able to inform the consignor in case of errors in an e-ad. Reimbursement of economic operators causes problems where it follows an excess of goods moved to another Member State. The German authorities can only provide for reimbursement where simple accompanying documents can be presented. As this is not the case for excise goods to be taxed in another Member State, such decisions need to be taken on a case by case basis which creates additional administrative work. Procedures followed by economic operators to ensure compliance with the arrangements in case of irregularities follow the requirements imposed by the authorities. Once they are informed about a problem with a movement, they have to identify the source of the issue. All three interviewed operators highlighted that handling of irregularities depended to a large extent on the cooperation with the authorities. Where there was a good relation in place with the responsible HZA problems could be solved unbureaucratically and swiftly. However, two of the interviewees also noted that some German authorities were following the rules very strictly and that they knew of other Member States where more workarounds were in place. They furthermore argued that human mistakes should be treated with more flexibility. An honest mistake should not be leading to excise duty becoming due but instead imposing a fine could be a solution. Excise duty should only become due where there is no good explanation for an irregularity. If an economic operator is informed about a shortage or an excess in a movement, an internal investigation follows to find the source of the issue. The communication with the authorities can take 292

293 place partially over the phone but decisions and explanations also need to be provided in paper. The economic operators confirmed the statement of the authorities that in particular for spirits and energy products shortages and excesses were very common due to fluctuations during transportation. These irregularities can only be noted once a movement arrives at its destination; it cannot be checked during the transport. In this context, one of the operators noted that the current legislation was not reflecting the actual situation. Article 10 of Directive 2008/118/EC focuses on when and where irregularities occur but with some movements this will never be possible to establish. As a result irregularities are always identified with the consignee. Economic operators cannot correct errors in the e-ad once they have submitted it. If they want to change an e-ad, they have to contact the authorities who cancel the e-ad and a new one has to be completed. One of the operators who had a comparably low number of employees noted that situations were common where a train is loaded with their goods the day before the actual movement. They also complete the administrative documents in advance. If then the next day it is noted that one of the wagons is defective all administrative work has to be redone and the e-ad submitted the day before needs to be canceled. Two of the interviewed operators furthermore saw a particular burden in the fact that when an error is not convincingly explained or simply not noted by the operator, excise duty becomes due for the movement. They argued that it would be a more reasonable solution to impose a fine in these cases. Another issue linked to mistakes in the e-ad are situations where an error causes the duty suspension procedure to be opened incorrectly. If the goods are then moved to another Member State, duty has to be paid in Germany already, although the economic operator did not intend to do so. It will then not be possible to get a reimbursement in the country of destination because the duty was paid in another Member State. One of the economic operators dealt with changes of destination regularly. The interviewee mentioned cases where for example a movement is done by ship and due to low tide the delivery cannot reach the intended consignee. Often there is no direct contact between the consignor and the consignee. In a case of change of destination a long chain of different parties can be involved. In these cases it would be much easier if the consignee could put data into EMCS to directly contact the consignor about the movement. All the interviewed operators reported to regularly use SEED to verify information about their business partners. However, none of them was convinced that the provided information was sufficient. One of them said that SEED suggested a false safety when an excise number was confirmed. In addition to SEED, German operators can use a register based in Stuttgart where more information can be verified. Economic operators can send all the data they have from another economic operator to that register and receive information whether the provided details are correct. Despite the broader scope of information that can be verified, economic operators also considered the German register to be insufficient since they only receive statements on whether the suggested information was correct or not. 293

294 A spelling mistake in an address could lead to a notice that the address was wrong but would not highlight were exactly the mistake was. A final problem pointed to by one of the economic operators is related to cases of theft of goods in another Member State. In those situations, excise duty becomes due. It happened several times to the concerned company that they received a notice of payment for excise duty of the national authorities where the goods had been stolen. This notice was written in the national language of the country where the theft took place and was thus not understandable for the operator. The economic operator suggested that such notices should better be transmitted via the national authorities of the operator to avoid misunderstandings or information being overlooked. In fact, EMCS could be used for such purposes. 5.1 (b) To what extent are current provisions resulting in increased / unnecessary admin costs? (Member States) Compliance cost impact of practical issues reported: o o o o o errors in the e-ad and the correction of errors Distribution on SEED about authorisation of economic operators Changes of destination / rejection Reimbursements Others The interviewed customs officials underlined that cost impacts of irregularities depended on the cases and could not be generalized. According to them, the time spent on cases can be reduced significantly by ensuring close contact with the economic operators from the moment when they request an authorisation. The swift treatment of irregularities depended also to a large extent on the cooperation with the authorities of other Member States. The interviewees remarked that with some Member States cooperation was more difficult and responses could be awaited for a long time. A lack of cooperation could in particular be a problem in cases of suspected fraud. The support of other Member States can be crucial for investigations. Issues with shortages and excesses are to some extent linked to the varying methods of measuring products and the differences in margins of tolerance between the Member States, according to the interviewed authorities. They require a lot of additional work from the administrations in exchanging with economic operators on the reasons for the irregularities and with other Member States to avoid double taxation. Workload is significantly more important with shortages, as the margins for excesses are more generous in Germany. One of the means to reduce compliance costs would be to change in EMCS the fact that excesses or shortages within the margins of tolerance are highlighted as incidents. This change would need to be implemented in the national system. For the authorities the differing margins of tolerance of the Member States were no problem in practice. The correction of errors in e-ads was mentioned as a very resource intensive task with regards to the exchange with economic operators. In some cases the HZAs are not in the position to decide on cases and need to involve one of the five Federal Finance Directorates (BFDs) or even the Ministry of Finance. The lack of an option for economic operators to correct e-ads creates high bureaucratic costs. When considering a change to the current procedures it would however be of high relevance to avoid creating opportunities for misuse and fraud. Errors in e-ads become even more time consuming for the authorities where they are not identified straight away but only noted at the arrival of the goods, leading to a rejection of delivery. 294

295 As referred to above, the German authorities have set up a register in addition to SEED, which allows economic operators to verify information about consignees. Also authorities can check information in this register. Replying to requests of operators is seen as an additional but necessary task. Some of the interviewed customs officials saw a potential to install a similar register at European level but also considered data protection issues. Others were of the opinion that the current system was sufficient. Finally the interviewees suggested that clarity for economic operators could be increased by harmonizing the rules for handling excesses and shortages. Currently, in Germany excesses require economic operators to pay excise duty. This is not the case in all Member States as excesses do not fall within the scope of Article 10 of Directive 2008/118/EC when they are considered as having occurred before the movement. According to the interviewed authorities, another mean to improve processes would be a reinforcement of cooperation between Member States authorities. This would include creating a contact list with the responsible department for the type of movement. Currently, the Excise Liaison Office of the concerned Member State has to be contacted in order to receive further information. By directly contacting the responsible officer, a lot of time could be saved. 5.1 (b) To what extent are current provisions resulting in increased / unnecessary admin costs? (Economic Operators) Compliance cost impact of practical issues reported: o o o o o errors in the e-ad and the correction of errors Distribution on SEED about authorisation of economic operators Changes of destination / rejection Reimbursements Others The three interviewed economic operators considered the cost impact of irregularities to be of different scale. One of them, also having a comparably lower number of movements, only rarely encountered irregularities. The interviewee stressed however that whenever there were practical issues, these would be of high sensitivity due to the high amount of excise duty that could potentially be at stake. Another operator reported no experiences with rejections or reimbursements but considered that while being single cases, handling errors in e-ads and shortages or excesses was a very time consuming task. The third economic operator encountered irregularities on a daily basis, in particular linked to shortages and excesses but also had experiences with the other practical issues. The time to handle irregularities was said to depend on the case but could take between one hour and two days. Similar to the customs officials, the economic operators noted that the time to solve issues depended on the cooperation between them and the authorities. Also noted was the dependency on the cooperation between the Member States authorities. One of the operators recalled cases where movements were blocked for up to two months as the involved Member States could not agree on how to solve an irregularity. Another operator suggested that there was a role for the European Commission to urge Member States to cooperate better in the field of excise duty and EMCS. All operators agreed that procedures could be facilitated by including possibilities to exchange with authorities or between Member States within EMCS. In such way it would become possible to link messages to the concerned movement instead of communicating with the authorities via in parallel to the e-ad. By providing a field for comments in EMCS some of the time for coordination could be reduced. With regards to shortages, one of the operators with a high number of movements reported to handle approximately 20 explanations for shortages per week. The company encountered a particularly high number of shortages and excesses due to 295

296 fluctuations during transport and measuring methods varying between the Member States. As a consequence three full-time employees were needed to handle these types of irregularities. The concerned operator considered the investigations of authorities to be excessive and suggested to limit the requests for explanations from authorities to cases of clear discrepancies in volumes. Another operator thought similar to the interviewed customs officers - that the procedures in case of shortages and excesses could be improved through better implementation of administrative cooperation between Member States in the area of excise duty. It was furthermore suggested to apply the same rules to shortages and excesses since where economic operators do honest business both of these irregularities are related to fluctuations in transport. The cost impact of the correction of errors in e-ads was considered to be high by all interviewees. All of them were concerned that even when only a small mistake was made there was no way to correct the error in the e-ad. Instead the customs authorities needed to be contacted to request the cancellation of the movement and new documents had to be completed. In some cases this process can be quite time consuming, in particular if authorities do not react swiftly. During this time, the economic operator is not able to access the documents and is liable for the involved excise duty. One of the economic operators stated that the cancellation of an e- AD and the completion of a new one for one train involved about one hour of work. Two of the operators agreed with the considerations of the interviewed authorities with regards to imposing fines in case of a mistake in the e-ad instead of having to pay excise duty for the entire movement immediately. All interviewed operators considered the information available on SEED to be insufficient and regularly used the services of the German register in Stuttgart to verify information. On the one hand, they verified each new client; on the other they did yearly checks of their entire partner companies. One of the operators reported that the responses to their requests would take the authorities about one day which for some ad-hoc deliveries would be too long. As stated above, the economic operators also saw the German register as not providing sufficiently detailed information. The three interviewed companies stated that they would support a system containing more data and had no concerns about the protection of their data if access to the register was restricted to registered economic operators handling excise duty goods. 4 Specific arrangements for the movement of excise duty goods Q5.2(a) What are the compliance costs for economic operator resulting from the application of the Directive? Additional compliance costs resulting from: o Unclear or inconsistent application of the rules (e.g. varying procedures for moving excisable goods) In the context of this case study several specific arrangements for the movement of excise duty goods were discussed with the customs authorities and economic operators. These included: the provisions for energy products listed in Article 20(1) of Directive 2003/96/EC when they are not intended for use as heating fuel or motor fuel excisable energy products not listed in Article 20(1) of Directive 2003/96/EC (so called lowrisk energy products) specific products when declared for use as fuels including lubricating oils, fats and 296

297 vegetables oils, and ethanol based bio-fuels the special regime for energy products covered by Article 21(5) of Directive 2003/96/EC the provisions for alcohol denatured according to Articles 27(1) (a) and (b) exemptions for small wine producers and certain consignees. The interviewed customs authorities were overall satisfied with most of these provisions and did not refer to any additional compliance costs. Neither were they aware of significant cases of fraud based on these provisions. The main point of concern were the provisions for excisable energy products not listed in Article 20(1) and specific products that could be used as heating or motor fuels. The interviewees highlighted the risk of fraud for these products and suggested that they should be included in EMCS. Products that based on their physical and chemical composition can be used as heating or motor fuels should be included in EMCS in case of transport as a loose product. This should include CN to and A loose product is defined by the Implementing Regulation for energy tax (Energiesteuer-Durchführungsverordnung) as an unpacked energy product in a container that is either part of its mean of transport or an ISO tank container or an energy product that is in any other container of a volume of less than 210 litres. Two patterns of fraud with lubricating oils have been detected in Germany. On the one hand, high boiling oils, gas oils and similar products are used to create mixtures that are then declared as lubricant or dissolvent (CN ). During the production these products have been changed in a way that no longer allows them to be treated as gasoil according to excise provisions. However, they can be used as motor or heating fuels based on their chemical or physical characteristics. On the other hand, there are cases of fraud where large quantities of lubricating oils are moved from another Member State to Germany and then either sold further in the country or brought to other Member States. The interviewed authorities insisted to restrict the use of EMCS to lubricating oils that are moved as a loose product to avoid creating additional burden for honest producers of lubricating oils and for 297

298 authorities. With regards to specific arrangements for the movement of some excise duty goods the interviewed economic operators had only little experience from practice and hence no strong opinion on the concerned products. One of the operators involved in the trade with lignite and heavy mineral oils (CN ), suggested that these two products should be moved under duty suspension. This could harmonize the currently very different approaches in the Member States. Authorities requested different documentation for movements and some required specific authorisations that were not common in other Member States. Where these products are transported a lot it would make sense to include them in EMCS. Another operator faced specific conditions for the movement of side products in the production of bioethanol. The operator reported that in the past they had been giving these products to sewage plants for their disposal. Since the introduction of EMCS, these products had to be moved under the EMCS to be under duty suspension. However, sewage plants usually do not have access to EMCS which means for the operator that either excise duty needs to be paid for the movement or it needs to be organized via a third party. In both cases, additional work for the economic operators is involved. 5 Coordination between customs and excise Q6.1: (a) Which are the areas where the links between customs arrangements and excise arrangements do not work satisfactorily? Practical experiences and perceived problems as reported by stakeholders o Nr. and frequency of instances of movements having to be closed manually The interviewed authorities reported several links between the customs and excise arrangements that do not work to their satisfaction. The opening of export procedures is done manually by the responsible customs authorities. Usually, this is a smooth process and can be completed in little time. However, there are movements that are more difficult and which make work more time consuming. One of the problems is that there is no automatic comparison in place between the documentation in EMCS and customs declarations in the AES (Automated Export System). As the documents have fields of different length, it is not possible to compare them automatically. The interviewees noted that that there was work done to circuit this problem. Reported instances of problems e.g.: o o Customs offices not having access to ARC number. Lack of cross-checking of the e-ad and the customs declaration. When exports take place via other Member States, the customs office of the Member State of export is not able to access the ARC number to clearly identify the movement. The interviewees would welcome an official way to request an ARC number. Specific issues with alternative proofs of exit were not noted by the interviewed customs officials. They reported that in Germany alternative proofs were recognized. A main consequence of the missing link between customs and excise arrangements is that movements are not closed in EMCS after an export. Here the authorities depend on the initiative of the economic operators to inform them about an export. When this is not done systematically, it is possible to impose fines or revoke an authorisation but it creates additional work for the authorities. Furthermore, they cannot impose these consequences on operators outside their Member State. The information about exports also 298

299 o o Alternative proofs of exit not being accepted. Office of export not receiving confirmation of exit results. depends on the cooperation between Member States. Some are faster than others in contacting the involved economic operators. In that sense, the authorities suggested to introduce clear guidelines for economic operators setting deadlines for informing authorities about exports. The extent of the issue between customs and excise procedures becomes clearer when looking at the number of EMCS movements that had to be closed manually: In 2014, approximately 4,500 movements had to be closed based on alternative proofs of exit. This corresponds to 2.8 percent of all EMCS export procedures. Among the interviewed economic operators, one was not involved in exports outside the EU. The other two reported different problems with the link of customs and excise procedures. Similar to the authorities, the interviewed companies experienced the consequences of the missing link between the AES and EMCS with movements remaining open and operators having to provide alternative proofs of exit. In order to close an EMCS movement and ensure that excise duty would not become due for the concerned movement, the operators have to contact the customs authorities. They noted that the authorities of different Member States demanded different documents as alternative proofs of exit. Another issue mentioned by one of the economic operators is the need to provide the authorities with an ARC number when exporting products. The ARC number is only provided once the e-ad is completed. The e-ad needs contain information about the volume of the delivery. For liquid products this can only be established once the products are ready for transportation. As a consequence, to export these products the e-ad is completed to receive the ARC number but has to be changed again afterwards, once the goods are actually moved. Q6.1 (b) What is the immediate impact of reported issues? Estimated costs for Economic Operators and Member States Capacity for monitoring and control Level of risk of fiscal fraud Potential revenue loss due to inadequate evidence for proof of exit / exemption or suspension of taxes in the case of import Legal uncertainty? Shopping for easier procedures? The immediate impact of the issues was reported to be high in terms of administrative costs for the authorities. They saw a smaller impact on the risk of fraud and for EU trade. The reported problems create work to coordinate between the registration of exports and e-ads. This includes manual editing of export notifications and the individual review of alternative proofs for exit. The mentioned processes create additional work for the authorities and are a time loss for economic operators. The authorities in Germany working with EMCS are also responsible for customs. Therefore they are able to make a link between the information on EMCS and the German IT tool for customs ATLAS. Consequently they referred to either economic operators or other Member States as the sources of problems in the area of coordination between excise and customs. In a normal export procedure the interviewed HZAs are not involved, it is the local customs offices that are responsible. This slightly limited the available insight on the daily problems and their impacts. The HZAs get involved in the export procedure when an export message is not confirmed by the economic operator. This can be the case where economic operators are not aware of their responsibilities in the process. According to the authorities, many companies work with different employees handling exports and movements within the EU. As a consequence a lack of communication within one firm can increase the likelihood of movements remaining open. Furthermore, problems with the export of good under duty suspension appear more often with companies having little export procedures and thus lacking knowledge about this type of operations. One of the economic operators active in the export of their excise duty goods reported having to close approximately

300 movements manually per year. The other one stated to request the closing of 300 movements per year. Both underlined the financial risks and administrative costs of unclosed EMCS movements. They furthermore stated that the issue was linked both to exports starting in Germany and those moving via another Member State. Receiving an alternative proof of export can be particularly burdensome when dealing with customs offices in countries from outside the EU. The procedures can take very long, especially when documentation is required from another continent. 6 Other issues The use of EMCS as a tool to fight against fraud In the context of this case study, the possibilities and limits of using EMCS to fight against fraud with excise products were discussed with the federal Customs Criminological Office. The interviewee highlighted that EMCS had provided for improved opportunities to monitor movements and identify suspicious transactions. At the same time, the use of EMCS created new ways to commit fraud. In Germany, no automated risk assessment is in place. Currently movements are checked if they are related to operators or tax warehouses that have been suspicious in the past. It would be possible to develop an automated screening of movements within the German system but would even better to implement something similar at EU level. To reduce the risk of fraud, it was suggested that anti-fraud units should have access to all movements and not only those that involved Germany. This would allow identifying patterns by monitoring movements of a suspicious operator with other Member States. Currently, to conduct such a check it is necessary to work together with other Member States administration to get information about movements, which means losing time. Other ways to reduce the risk of fraud would include making it obligatory to refer to the number plate of a truck or a train used for a movement in the administrative documents. At the same time, the duration to complete a movement within 92 days should be reduced to a more reasonable time limit. The current practice allows for fraud by conducting several movements with the same e-ad during the long period that it is valid. It would be useful to have a system that automatically checks the content of e-ads on their plausibility. For example where volumes have to be indicated it should not be possible to insert a letter. This could reduce errors in e-ads and limit the risk for fraud at the same time. When economic operators close a movement their IP address should be verified to ensure that the movement is closed in the tax warehouse where the goods were delivered to and not from somewhere else. Finally, it would help investigations for authorities to have access to details about the final customer and not only the tax warehouse that goods are delivered to. This could be achieved by providing a VAT number of the consignee in EMCS. The concerns raised by economic operators with regards to the limited information available in SEED were not shared by the Customs Criminological Office. They considered the information provided through the national register to be sufficient to prevent fraud. SOURCES Desk Research: 300

301 Biersteuergesetz vom 15. Juli 2009 (BGBl. I S. 1870, 1908), das durch Artikel 1 des Gesetzes vom 16. Juni 2011 (BGBl. I S. 1090) geändert worden ist Biersteuerverordnung vom 5. Oktober 2009 (BGBl. I S. 3262, 3319), die durch Artikel 4 der Verordnung vom 1. Juli 2011 (BGBl. I S. 1308) geändert worden ist Branntweinmonopolgesetz in der im Bundesgesetzblatt Teil III, Gliederungsnummer 612-7, veröffentlichten bereinigten Fassung, das zuletzt durch Artikel 238 der Verordnung vom 31. August 2015 (BGBl. I S. 1474) geändert worden ist Branntweinsteuerverordnung vom 5. Oktober 2009 (BGBl. I S. 3262, 3280), die zuletzt durch Artikel 2 der Verordnung vom 11. Dezember 2014 (BGBl. I S. 2010) geändert worden ist Bundesministerium der Finanzen, 2015: Verbrauchsteuern; available at Accessed Energiesteuer-Durchführungsverordnung vom 31. Juli 2006 (BGBl. I S. 1753), die zuletzt durch Artikel 1 der Verordnung vom 24. Juli 2013 (BGBl. I S. 2763) geändert worden ist Energiesteuergesetz vom 15. Juli 2006 (BGBl. I S. 1534; 2008 I S. 660, 1007), das zuletzt durch Artikel 239 der Verordnung vom 31. August 2015 (BGBl. I S. 1474) geändert worden ist Schaumwein- und Zwischenerzeugnissteuergesetz vom 15. Juli 2009 (BGBl. I S. 1870, 1896), das zuletzt durch Artikel 4 des Gesetzes vom 16. Juni 2011 (BGBl. I S. 1090) geändert worden ist Schaumwein- und Zwischenerzeugnissteuerverordnung vom 5. Oktober 2009 (BGBl. I S. 3262, 3302), die durch Artikel 3 der Verordnung vom 1. Juli 2011 (BGBl. I S. 1308) geändert worden ist Tabaksteuergesetz vom 15. Juli 2009 (BGBl. I S. 1870), das zuletzt durch Artikel 23 des Gesetzes vom 25. Juli 2014 (BGBl. I S. 1266) geändert worden ist Tabaksteuerverordnung vom 5. Oktober 2009 (BGBl. I S. 3262, 3263), die durch Artikel 1 der Verordnung vom 1. Juli 2011 (BGBl. I S. 1308) geändert worden ist Weingesetz in der Fassung der Bekanntmachung vom 18. Januar 2011 (BGBl. I S. 66), das zuletzt durch Artikel 1 des Gesetzes vom 16. Juli 2015 (BGBl. I S. 1207) geändert worden ist European Commission, 2014: Study on the measuring and reducing of administrative costs for economic operators and tax authorities and obtaining in parallel a higher level of compliance and security in imposing excise duties on tobacco products. Case study report Germany. Prepared by Ramboll Management and Europe Economics. 301

302 Case study - France France Executive Summary Specfic issues investigated: Main outcomes (conclusions) All aspects of the evaluation were covered by the case study on France. As a result of the first round of data collection, particular attention has been paid to the following aspects: Management of authorisations and operation of guarantees Shortages and determining the end of the movement Effectiveness of EMCS in the fight against fraud Coordination between customs and excise (export) Overall France appears to have well-functioning arrangements in place for the holding and movement of excise goods. The national system (EMCS Gamm@) is well-used and the administration are promoting its use for national movements as well as EU movements. Economic operators satisfaction with the system was in general very high and reported EMCS to be an excellent service to use when everything was functioning normally. France is characterised by a high number of economic operators who are authorised (approximately 39,000 authorisations active) as authorisation is obligatory for many activities (e.g. producing wine) above certain thresholds. Information on requirements and procedure to obtain an authorisation is clearly published online, and a number of guarantees are in place for more flexible payment of the tax. There are clear rules on how the guarantee is to be calculated. The administration s priorities appear to be focused on ensuring EMCS is an effective tool in the fight against fraud, and a number of suggestions were made for improvement, including limiting the maximum possible journey time and exploring ways to control number plates with a particular focus on preventing DAE tournants use of a single e-ad to cover multiple movements. 1 Administration of authorisations Q1.1(b) What are the main conditions and requirements for granting the authorisation 302

303 What are the main conditions and requirements for granting the authorisation Authorised warehousekeepers or AW (article 302 G du CGI) The application for accreditation is made to the competent Customs and Excise service. The competent authority is the one in whose jurisdiction the tax warehouse is established. The applicant has to produce the following documents : - ID card ; - a presentation of the activity; - a modem of stock record for agreement, - The location plan and detailed plan of the premises or whose approval is requested; - A permanent residence permit or exploitation and / or extract from the Commercial Register (K bis); - The statutes of the company; - The latest balance sheets (last three if possible) except for new companies. - The act designating the head of the company if the articles do not specify, and a specimen signature; - Proxies from officers competent to sign deeds involving the company; - Submission of a guarantee. When the administration authorises an applicant to be an AW, an excise number is assigned to them. Registered consignors (article 302 H ter du CGI) The application for accreditation is made to the Customs and Excise territorial jurisdiction of the place of establishment from which the goods are shipped. The applicant has to produce the following documents : - ID card; - Authorization for the establishment and / or extract from the Commercial Register (K bis); - The statutes of the company; - The latest balance sheets (last three if possible). Newly established enterprises are not required to submit the balance sheets and tax discharge; - The act designating the head of the company if the articles do not specify, and a specimen signature; - Proxies from officers competent to sign deeds involving the company; - Submission of a guarantee. When the administration authorises an applicant to be Register Consignors, an excise number is assigned. Registered consignees (article 302 H ter du CGI) The application for accreditation is made to the Customs and Excise territorial jurisdiction of the place of the establishment concerned, the receipt of alcohol and alcoholic beverages. The applicant has to produce the following documents : 303

304 - ID card; - presentation of the activity; - Authorization for the establishment and / or extract from the Commercial Register (K bis); - The statutes of the company; - The latest balance sheets (last three if possible). Newly established enterprises are not required to submit the balance sheets and tax discharge; - The act designating the head of the company if the articles do not specify, and a specimen signature; - Proxies from officers competent to sign deeds involving the company; - Submission of a guarantee. When the administration authorises an applicant to be Registered Consignee, an excise number is assigned. These operators are registered in a national computer base named ROSA. This base communicates with EMCS and SEED. Authorisation as a warehousekeeper is obligatory in France for the following activities: Production or processing of alcohol, intermediate products, sparkling wines, not sparkling wine or other fermented beverages or beer; Receipt, holding or dispatch of tobacco under suspension of excise duties; Holding of alcohols, intermediate products, sparkling wines, non-sparkling or other fermented beverages or beer received or purchased and intended for shipping or for resale. The thresholds (in terms of minimum storage criteria) above which an operator must become authorised are: 10 litres of spirits or alcohols 20 litres of intermediate products, 90 litres of wine or other fermented beverages (of which maximum 60 litres of sparkling wine) 60 litres for sparkling wines, 110 litres of beer. Authorisations for tobacco operators is handled by the central administration (Directorate General). A state monopoly system is operated in France; approximately 30 authorisations were reported to be in operation. What level and type of guarantees associated with authorisation are applicable to the different types of Guarantees Authorised warehousekeepers Authorisation guarantee (crédit d'entrepôt): covers the rec holding and production of products under duty suspension. 5-10% (dep 304

305 authorised economic operators? o o o o What is the guarantee amount required for each type of tax warehouse / registered consignors / registered consignees authorised? How is the guarantee operated? (i.e. how is the level of security calculated?) Is there a guarantee monitoring mechanism? How are movement guarantees calculated and operated? on the products) of suspended excise duties, calculated based on the maximum monthly stock of the yearly reference period. Movement guarantee (crédit d'expédition): Necessary both for national movements and intra-eu movements. Calculated based on the amount of potential excise duty for the annual fiscal year of the business. The percentage (corresponding to one month of fiscal activity of the trader) varies depending on the perceived risk of the mode of transport: Railway: 5% of potential excise duty Railway (pre-routing): 10% of potential excise duty Other (road etc.): 10% of potential excise duty (possibility of reduction to 5% when the operator can continually prove the clearing of movements within one month) Liquidation credit : to pay excise duties of goods released for consumption globally the 10 th day of the following month. The credit de liquidation is obligatory when there is deferral of payment of excise duty with the monthly recapitulative statement. Clearance credit : allow the payment of the taxes after the 10 th day of the following month. The credit d enlevement is optional and allows the operator to defer payment of the tax by one month. Both of these last credits are calculated as 10% of the excise duty for the annual fiscal year of the business. Registered consignees Liquidation credit : see above Clearance credit : see above Registered consignors Movement guarantee (see above). Règlement du cautionnement n CIA 200 au 1er juillet 2001 The amount of guarantees shall be either indefinite or limited. - If the security is indefinite, the guarantor undertakes (for each of the charges subject to guarantees) to pay the amount according to the scale of charges in force at the time the event occurring (for which the operator is responsible) regardless of the importance of tax bases. 305

306 - When the guarantee is limited in amount, the guarantor undertakes, whatever the nature of event that makes the tax due, to pay the amounts imposed on it within the numerical limit of the underwritten global security. As an exception to that principle, and for payment by credit secured obligations, the lease engages in the numerical limit of the particular coverage purchased. Methods of payment permitted for all guarantees: group bond; through a credit provider or with an insurance company. Operators are exempt from providing the guarantee in a number of circumstances, including: - Small wine producers (less than 1000 hl) - National movements of alcohol and alcoholic drinks Q5.2 (a) Costs (financial and human resources) for Member States resulting from the management of authorisations, licenses and general guarantees; (Member States) What are the activities performed by Member States authorities prior to approving license/authorisation application The application is processed by the competent local customs office (unless the authorisation is for tobacco, in which case it is handled by a central team). For energy products, authorisation is done at the regional level. The following tasks are performed when assessing an application: Verifying that all requested information is provided Verifying whether the warehouse itself fulfils the technical criteria. A site visit (only if deemed necessary) Number of requests received yearly Authorised warehousekeepers 1360 Registered consignees 80 Registered consignors 0 How much time and resources are spent by Member States authorities for processing license/authorisation applications As the application is handled at the local competent customs office, no information was available on the time and resources required to process an authorisation. Authorisation is done using a paper procedure so there is no data on application times and resources etc. The administration is considering developing an electronic system that would facilitate monitoring of such 306

307 data, but it is not yet available. Reasons why certain activities are particularly resource intensive No tasks were reported to be particularly resource intensive in terms of approving the authorisations. However, setting up a guarantee service was reported to be quite burdensome. The administration indicated that they spend a lot of time explaining the rules, conditions of guarantee etc. to economic operators. This also includes explaining the regime of excise duty, how to be registered in EMCS etc. Q5.2 (a) Costs (financial and human resources) for economic operators resulting from the management of authorisations, licenses and general guarantees; (Economic Operators) What are the activities performed by economic operators authorities prior to approving license/authorisation application o Pre-conditions for approval? o Application procedure (information requested, forms necessary) o Submission of application (manual/electronic application) o Establishment of guarantees How much time and resources are spent by economic operators in order to obtain license/authorization Reasons why certain activities are The authorisation request is made for specific excise product categories. Pre-conditions for approval are covered above. The operator has to apply for authorisation by submitting a paper application to the competent local customs office. No application fee is charged in France. The time required varied depending on the operator and type of authorisation required. One operator (wine producer) reported that the process was relatively quick and the entire authorisation took approximately 3 weeks (estimate). For one medium-sized operator (it was estimated that the authorisation process took two full-time employees to collect the necessary documents and manage the relationship with customs, as well as two people to be present when customs were on site. One operator described how the paper dossier ran to over 80 pages when submitted. The resources required to apply for authorisation was broadly estimated at between 1-2 weeks. The entire process to become authorised was estimated to take between 1-2 months. However, one operator reported how they had one person from customs on site every day after operation started to check production (before metres were installed). The most difficult aspect was considered by the operators to be the high financial guarantee required, 307

308 particularly resource intensive even for a non-limited guarantee (calculated based on the volume moved during the year). Another operator (wine producer) reported no particularly difficulties and was generally satisfied with the process. 2 General arrangements for the movement of excise duty goods Q5.1 Are the current arrangements the most cost-effective way of collecting revenue? (Member States) What are the activities performed by Member States authorities in relation to monitoring trade/ logistics of excisable products (EMCS) How much time and resources (including Costs of IT systems) are spent by Member States tax authorities for monitoring trade/ logistics in excisable products? Reasons why certain activities are particularly resource intensive Extent to which EMCS has impacted the following issues compared to the previous paper-based arrangements: o o o time and resources required to handle a typical movement the time required to close a movement (and release the guarantee); other benefits of an electronic tax environment (e.g. rapid and secure Validation of the e-ad is automatic as long as all necessary criteria are fulfilled. In the central administration, there are two employees in the business team (EMCS Gamm@). To develop EMCS, they also have two employees. The administration works with a private operator for a part of EMCS and also customs officers for another part. There are also risk analysis teams in regional offices (on all customs matters including excise). There is no specific risk analysis tool. Only on EMCS Gamm@ (the national EMCS application) the administration have a tool which gives them the opportunity to search movement data/operators to flag up potentially risky movements. There are three employees in the Excise Liaison Office (administrative cooperation). No activities were identified as particularly resource intensive other than a number of practical operational issues described in section 3. Information on the resources required was simply not available. However, EMCS has clearly been an improvement and has reduced the time required by operators and the French customs officials to handle movements. EMCS has reduced the time required e.g. through eliminating paper. In France, the economic operator can use the national system and there is a function to automatically fill the e-ad, to facilitate the procedure for the operator. In general it was indicated that it was easier for operators to fill in the e-ad, and the elimination of paper has meant that there are no longer delays for customs to receive the paper forms. One indicator of the success of EMCS is that the administration are promoting the use of EMCS even for national movements in France 308

309 information exchange; record keeping). Q5.1 Are the current arrangements the most cost-effective way of collecting revenue? (Economic Operators) What are the activities performed by Economic operators authorities in relation to monitoring trade/ logistics of excisable products (EMCS) How much time and resources (including Costs of IT systems) are spent by economic operators tax authorities for monitoring trade/ logistics in excisable products? Overall the EMCS was seen by economic operators to be an easy to use service that works well. Levels of satisfaction with the general arrangements were relatively high. Economic operators in the case study typically had a team of staff to work with EMCS. For example one operator described how they had a team of 4-5 employees to generate e-ads and ensure compliance, to handle approximately 2000 outgoing movements (per year)two economic operators in the case study connected to EMCS using third-party software, but they still had to generate each e-ad. Another operator reported that they only had 1-2 employees using the system, handling approximately 5 international movements per month. This operator used the web-based application provided by the customs authorities. Reasons why certain activities are particularly resource intensive Extent to which EMCS has impacted the following issues compared to the previous paper-based arrangements: o o o time and resources required to handle a typical movement the time required to close a movement (and release the guarantee); other benefits of an electronic tax environment (e.g. rapid and secure information exchange; record keeping). One operator described how EMCS is perfect when it works but it was not seen to be sufficiently reliable. The most time-consuming aspects in relation to movements were considered to be related to practical issues. EMCS was considered to be a perfect system when everything was functioning well. However, one trader identified problematic instances when EMCS was not available and they had to use the fall-back system, indicating that this happened approximately every 2 months. One issue was that they had to request authorisation to use the fallback procedure, which meant that some consignment departures can be delayed. This creates problems such as duplicate e-ads. Overall, EMCS was assessed to have decreased the time needed to devote to each movement. One trader noted that they needed 10 minutes to generate an e-ad, whereas previously the paper-based system required 15 minutes per e-ad. A smaller trader (wine producer) reported that it took approximately 15 minutes to create an e-ad using the web application if there was a pre-saved e-ad template already available and approximately 30 minutes if not. Using the electronic system was reported to be both quicker and easier, with one benefit being that the details of the movement and consignee don t have to be entered each time (if they are previously saved). However, other benefits of the e-ad were signalled, including having an overview of open movements and benefits of quicker closing and document management. 309

310 Q 5.2 (b) How do the compliance cost impact the economic operators depending on their size Costs (financial and human resources) resulting from the compliance with the above mentioned issues, relative to the size of the economic operator One medium-sized operator described how they had a high number of movements for their size, so any issue with operation was of high concern. 3 The treatment of various exemptions to the normal sequence of events Q1.4 (b) What are the rules and procedures implemented in Member States, allowing excise duty on goods released for consumption as a result of an irregularity to be reimbursed or remitted? Processes / activities performed by Member States authorities and economic operators to ensure compliance with the arrangements related to irregularities. Shortages In France, a tolerance is applied for the circulation of bulk alcohol who is called pertes pour creux de route (losses because of hollow of road). A discharge for these losses varies according to the distances travelled, the nature of products, the transportation, the duration, the season and the legally noticed accidents. Three conditions must be met: - the recognition of the alcoholic products before their inscriptions in the stock record of the consignee; - the reality of the losses; - custom s services must be informed as soon as possible. If the consignee decides to submit the Report of Receipt as delivered but not conformed, he can write in the observations case creux de route. This observation is considered as an information for the customs services. The administration identified a problem with the nature of paragraph 2 and 4. of Article 10 of the Directive. The main problem is defining the end of the movement. At the moment there is only an as means of communicating the end of a movement. The main problem is agreement between Member States on what constitutes the end of the movement. This has an impact on which Member State will be able to assess the tax. Art 10(2) applies when it is not possible to determine the place where the problem occurred, then it is considered to have occurred in the MS where the irregularity was detected. Rather than additional administrative burdens, the main challenge identified was related to fraud department is facing challenges from an MLC perspective they 310

311 have to figure out who is going to tax what. In general Art 10(4) is mostly applied i.e. it is MS of dispatch who will tax. For some Member States, communication was easier as they were involved in a Multilateral Control (MLC) and could come to an agreement. 5.1 (b) To what extent are current provisions resulting in increased / unnecessary admin costs? (Member States) Compliance cost impact of practical issues reported: o o o o o errors in the e-ad and the correction of errors Distribution on SEED about authorisation of economic operators Changes of destination / rejection Reimbursements Others The impact in terms of costs to ensure compliance appeared to be limited for the administration. The priority for the French administration was more related to limiting the fraud risk posed by a number of current arrangements. Change of destination/rejection The administration was satisfied with the adequacy of current arrangements to supervise a change of destination of a movement under duty-suspension. In terms of errors in the e-ad, if there is a wrong number on the e-ad, the e-ad is considered as invalid. In this case the consignor is considered to not have accompanying document and is sanctioned (consignor has to pay taxes and a fine). If the goods have been taxed it will be considered as a duty paid movement (SAAD). If the quantity is not right, there are several possibilities: if goods are still at the tax warehouse, the consignor must cancel the e-ad and create a new one. If this is not the case, he must inform the consignee about the problem. The consignee can accept the goods or he can refuse. When he refuses, the consignor finds another consignee or he takes back his goods. He has to perform a change of destination (CoD). One priority identified was the maximum journey time in the e-ad, which the administration considered to be a fraud risk because it did not always reflect the actual travel time needed for the consignment. This increases the risk of mirror loads i.e. multiple consignments using the same ARC number. One suggestion was for standard journey times at EU level, you could have (it is currently a maximum of 92 days in some Member States). Number plates was identified as a current fraud risk: traders are required to put the number plate information in the e-ad, however a fake number may be used. The number plate is impossible to control on the road if it doesn t match what is on the e-ad. Fraudsters can change number plates and when the truck arrives, they are changed back. There is no validity control during road checks. There are currently limited solutions for this kind of control. 311

312 France have an ongoing MLC with the UK to check plate numbers as to whether the plate number exists. France and the UK have had this possibility for one year to check if the plate number exists. One option is to have a non-validity of the e-ad if the number plate is wrong, but checking this in practice would be challenging. A fraud risk was also considered associated with the period of 5 days which economic operators have to submit the Report of Receipt after arrival of the goods. The administration considered that this left open the possibility of DAE tournants similar to the aforementioned mirror loads one e-ad used to cover several fraudulent consignments. 5.1 (b) To what extent are current provisions resulting in increased / unnecessary admin costs? (Economic Operators) Compliance cost impact of practical issues reported: One operator (wine producer) reported no practical problems experienced with the identified issues and highlighted that the system worked very well. o o o o o errors in the e-ad and the correction of errors Distribution on SEED about authorisation of economic operators Changes of destination / rejection Reimbursements Others The current arrangements for shortages were considered to be a problem for other economic operators. It was of high priority for one producer of denatured alcohol. They gave the example of how when they act as consignor of a tanker, they don t know how the shortage has been calculated or if it exceeds the tolerance in the Member State of destination. In this scenario, the lack of harmonised tolerances raised the possibility for them of an unexpected tax liability. One issue was given of a customer situated in another neighbouring Member State: the consignor received a request from the authorities of another Member State to pay the excise duties. The consignor asked the customer how they noted the shortage and identified an error. However, in order to solve the problem the French operator noted that they could not communicate directly with the customs in the Member State of destination. They have to communicate with the FR customs. In their quality policy, their first objective is to ensure compliance and there is no problem with customs. One suggestion was to permit evidence and documentation to be submitted using EMCS to support explanations for shortages (documentation cannot currently be submitted using EMCS). Similar instances were also reported related to disagreement of the calibration charts of storage vats, and therefore the measurement of the volume. For them they wanted to see the measurement of the alcohol received done in the road tanker, and not in the consignee premises. One particular problem was identified that the volume of pure alcohol of a consignment is not compulsory information in the e-ad (only volume and strength). However this was reported to cause difficulties in case a shortage is mentioned and there is uncertainty on the strength of the alcohol. 312

313 4 Specific arrangements for the movement of excise duty goods Q5.2(a) What are the compliance costs for economic operator resulting from the application of the Directive? Additional compliance costs resulting from: o Unclear or inconsistent application of the rules (e.g. varying procedures for moving excisable goods) The economic operators interviewed in the case study reported no lack of clarity on the rules related to the movement of specific products. In terms of determining the intended use of certain energy products, France have a national computerised system called ISOPE. Using this system the energy products are released for consumption. The operators choose codes meaning use as fuels and pay the excise duty on the 10 th day of the following month (guarantee credit d enlèvement ). In terms of excisable energy products not listed in Art. 20(1) of Directive 2003/96/EC, France indicated that these products are not subject to the control and movement provisions of Directive 2008/118/EC. It was explained that since it is not always easy to identify the final end use and destination of these products soon enough in the supply chain, there is a possible risk of fraud. It is when the release for consumption occurs that this information is finally known. However, it was pointed out that the moment at which the release for consumption occurs for these products, upon their entrance on the national territory, is not very clear. French Customs have written a note to the Commission on this subject, particularly focusing on petroleum bitumen. In terms of energy products, lubricants and bituminous minerals (e.g ) were considered as potentially high risk products by the administration. The administration noted that for bituminous minerals, most operators telephone beforehand, and warn the administration of the movement. The administration were in favour of including lubricants and bituminous in EMCS to improve monitoring when such products are moving. Regarding the biofuels with a low level of taxation, the administration explained that they are strictly monitored so the risk of fraud was perceived to be low. Regarding liquefied natural gas (LNG), French authorities raised a concern about the risk of double taxation linked to the impossibility to control the movement of this energy product. Gaseous forms of natural gas (CNG) circulate by pipeline flow so that there is no control issue. However, liquefied natural gas and biomethane can circulate by road, in the same way as conventional fuels. However, they indicated that in the absence of an accompanying document, it follows from paragraph 1 of Article 21 of Directive 2008/118 / EC, there cannot be any movement under duty suspension. Therefore, the administration was of the opinion that LNG, such as CNG, should be taxed at the latest, at 313

314 the output of the LNG terminal, even if it is intended for a use other than motor fuel or heating. It would then be up to the operator, if necessary, to request a claim with the competent customs services. Furthermore, the administration pointed out that the lack of formalities for the movement of LNG exposes operators to the risk of double taxation, in the absence of monitoring the tax already paid in another Member State. However, in France strong opposition to this approach from gas industry professionals was noted. In terms of denatured alcohol, the administration reported that completely denatured moves under the SAAD. In France (national movement), they don t require any document for this completely denatured alcohol. France have authorised use of the Euro denaturant. For EU movements of partially denatured alcohol (PDA), the administration recommends the use of EMCS. Overall the level of satisfaction with the current arrangements to monitor movements was reported to be good. The risk of fraud identified was related to smuggling (i.e. removing the denaturants and using the alcohol in alcoholic beverages without paying any excise duties). Some problems were also reported for products produced in France to be exempted in other Member States (i.e. their exemption is not recognised in other Member State. 5 Coordination between customs and excise Q6.1: (a) Which are the areas where the links between customs arrangements and excise arrangements do not work satisfactorily? Practical experiences and perceived problems as reported by stakeholders o Nr. and frequency of instances of movements having to be closed manually o Reported instances of problems e.g.: o Customs offices not having access to ARC number. o Lack of cross-checking of the e-ad and the customs Administration The administration reported no problems with the list of issues given. For them, problems arose when the customs office of export is in a different Member state to the customs office of dispatch. If the office of export is not in France, there is a possibility that there is no automated link (EMCS/ECS) in the Member State of export. In this case, the use of alternative proofs will be necessary. It was noted that this question was the subject of a Fiscalis/Customs project group at EU level. Manually closed movements (when customs office of export is not in France) , ,

315 o o declaration. Alternative proofs of exit not being accepted. Office of export not receiving confirmation of exit results. To manually close a movement, the customs office of the consignor must receive the information from the customs office of export. The operator usually has to bring the proof to his local customs office. Normally it s not work done by the customs office of export in a different Member State, which can cause problems. In terms of solutions to establish a link between the EMCS and the ECS, France reported that they mention the e-ad as a supporting document in Box 44 of the export declaration, as it allows for submission of more than one document, and is more practical for operators who are exporters. The administration indicated that they don t want to have a limit of one declaration per e-ad, but preferred some flexibility for the export movement in this respect. One issue raised by the administration was the lack of link between the physical goods and the documents. They suggested introducing the capacity to have in the e-ad the real information about where the goods are physically. Economic Operators One economic operator described how they sometimes exported goods via Antwerp in Belgium (although in general they try to avoid this because of possible complications). In Antwerp, the notification by ECS is done by the Belgian customs, i.e. they have to manually close the movement. However, sometimes the closure doesn t complete and they cannot call the Belgian customs directly. Another trader described how they occasionally received a request from French customs to prove that the goods had left the EU (in cases where the recipient had not confirmed receipt of the goods), but that it was relatively easy to provide this information (e.g. export document, receipt). Q6.1 (b) What is the immediate impact of reported issues? Estimated costs for Economic Operators and Member States Capacity for monitoring and control Level of risk of fiscal fraud Potential revenue loss due to inadequate evidence for proof of exit / exemption or suspension of taxes in the case of import Administration The administration explained that the consequences of the identified issues fell more upon the economic operator - after the excise goods are out of country, the operator simply wants to close the movement. One issue was reported with the proof of exit - when the office of export is not in France. However, there were no statistics on how frequently this occurs. Most of the time, operators export from other ports such as Antwerp. When the export is made from France (i.e. direct export) it s easier. When it s from other countries, they did not have that many reports of problems from economic operators. The French administration they explained they will do the maximum to have whatever alternative proof to clear the e- AD. Economic operators In the specific situation described above (manual closure of the excise movement but an unresponsive customs in another Member State), this could result occasionally in the validity period coming to an end, 315

316 Legal uncertainty? Shopping for easier procedures? risking fines or excise duty having to be paid. From one economic operator s point of view, they were always nervous that the notification will be delayed, noting however that the EMCS was an improvement on the previous paper version in this respect. 6 Other issues None identified SOURCES Desk Research: Code Generale des Impots (CGI) French customs web pages : Règlement du cautionnement n CIA 200 au 1er juillet

317 Case study - Belgium Belgium Executive Summary Specfic issues investigated: All aspects of the evaluation were covered in the Belgian case study. As a result of the first round of data collection, particular attention has been paid to the following aspects: Administration of authorisations for energy products Handling of irregularities Coordination between customs and excise (export) Main outcomes (conclusions) Overall, the introduction of EMCS is considered to be a great advantage by authorities and economic operators in Belgium, reducing time to handle normal movements, increasing possibilities to monitor movements and facilitating record keeping. While in general the conditions and requirements for granting authorisations in Belgium are not overly onerous, there are some specific obligations representing burdens for economic operators. In case of excesses, shortages or errors in an e-ad the concerned goods are declared as released for consumption and excise duty becomes due. Procedures appear to be particularly resource intensive. Both operators and authorities underlined that they would like to see clearer guidelines on handling irregularities. The authorities would support including most of the products for which currently specific procedures are in place in the EMCS in order to reduce the risk for fraud. The missing link between excise and customs procedures leads to an important number of movements having to be closed manually, resulting in high administrative costs, increased the risk for fraud and can potentially prevent intra-eu trade. 317

318 1 Administration of authorisations Q1.1(b) What are the main conditions and requirements for granting the authorisation What are the main conditions and requirements for granting the authorisation In Belgium, authorisations for tax warehouses, registered consignors and consignees are managed by the regional offices of the customs and excise administration. In order to receive any kind of authorisation, the economic operator needs to be registered or based in Belgium. The operator needs to consent to monitoring and stock checks through the authorities. The operator needs to proof a clear track record in the field of excise duty and customs matters in Belgium. The interviewed authorities suggested that this might not be sufficient and it would be beneficial to introduce more strict conditions in terms of past activities to avoid situations where an economic operator has been convicted in another Member State for excise or customs related fraud, or where an operator has a track record of criminal activities with drugs more in general but the authorities cannot prevent the operator from opening a tax warehouse on these grounds. Minimum requirements in terms of annual average stock apply for tax warehouses storing energy products: for petrol: 500,000 liter; for kerosene: 500,000 liter; for gas oil; 500,000 liter; for heavy fuel oil: 1,000,000 kg; for liquid petroleum gas: 250,000 kg; for other energy products: 500,000 liter. In absence of such stocks, the authorisation can be provided to storage companies based on storage capacity of at least 10,000 m 3. Exceptions to these requirements are possible and can be granted by the regional directorates. According to the interviewed authorities, requirements for authorisations as consignors and consignees are similar to those applying to tax warehouses. This could however not be further specified in the interview. Consignees are obliged to immediately release received goods for consumption. In general, one authorisation per warehouse can be provided and only one warehouse keeper can be responsible per warehouse. However, it is possible for smaller economic operators to use the warehouses of others. In this case, the warehouse keeper will remain liable for the excise goods in the warehouse. 318

319 Under specific circumstances, it is possible to have one authorisation that applies to several warehouses. This is called central management and is possible within the territory of one regional directorate but can also be used when one authorisation should apply to tax warehouses spread over the territory of several regional directorates. In the latter case, the Central Administration of Customs and Excise Department is responsible for managing the authorisation. Some large companies in Belgium have central management in place for their tax warehouses. No data on the annual number of requests for authorisation has been made available. What level and type of guarantees associated with authorisation are applicable to the different types of authorised economic operators? o o o o What is the guarantee amount required for each type of tax warehouse / registered consignors / registered consignees authorised? How is the guarantee operated? (i.e. how is the level of security calculated?) Is there a guarantee monitoring mechanism? How are movement guarantees calculated and operated? Economic operators have to provide, both a guarantee associated with the authorisation, as well as a movement guarantee. They are treated separately. In Belgium, it is not possible waive or reduce the amount of the guarantee. Guarantees for tax warehouses have to correspond to 10% of the excise duty applicable to the goods produced, processed and or stocked in the warehouse over an average of two weeks. A national maximum is fixed at EUR 9 million. The level of guarantee can be set higher or lower than the 10%, depending on the decision of the responsible customs and excise office. Movement guarantees have to represent 100% of the excise duty that would be due on the moved goods. This is calculated to represent 100% of the annual movements. Again, authorities have the possibility to adapt the level of guarantee. Registered consignees equally have to provide for movement guarantees of 100% of the excise duty value of the goods that they receive. Q5.2 (a) Costs (financial and human resources) for Member States resulting from the management of authorisations, licenses and general guarantees; (Member States) What are the activities performed by Member States authorities prior to approving license/authorisation application The regional offices of the customs and excise administration receive requests for authorisation from economic operators in written form, including a number of required documents. These have to be assessed by the authorities. In addition an on-site visit is completed. In some cases the authorities check with other Member States whether the operators have an authorisation in another country. This can support the assessment of liability of the economic operator. According to the interviewed authorities, this is a comparably time consuming process, as a procedure for mutual assistance has to be followed. It could facilitate the process if the officials had access to databases of economic operators recognized in other Member States. 319

320 How much time and resources are spent by Member States authorities for processing license/authorisation applications Reasons why certain activities are particularly resource intensive It was noted by the authorities that the monitoring of authorisations could be improved. Within the first six months of operation companies should be under particular surveillance. A typical process for authorisation takes approximately three months. In the central administration, a team of eight employees is handling excise authorisations. At the level of the regional offices, smaller teams are dealing with the requests for authorisations. The interviewees did not have any data on the exact number, as the directorates were restructured recently. One of the aims of this process was to increase specialisation of the different officers. The interviewees did not mention any particularly resource intensive activities. Q5.2 (a) Costs (financial and human resources) for economic operators resulting from the management of authorisations, licenses and general guarantees; (Economic Operators) What are the activities performed by economic operators authorities prior to approving license/authorisation application o Pre-conditions for approval? o Application procedure (information requested, forms necessary) o Submission of application (manual/electronic application) o Establishment of guarantees Economic operators request their authorisation with the regional directorate for customs and excise. Once the first demand is approved, they also have to request an audit with a local office. This process usually takes about two months, depending on the time that the authorities take to conduct the necessary site visits and investigations. To finalise the approval of an authorisation, the economic operators need to install their guarantees. Every operator has to inform the authorities about the economic reason for the activity and for each product for which an authorisation is requested. Information that needs to be provided and tasks to be completed include the following: Provide a description of the applied production and processing activities Provide a map of the buildings, production and process units; and possibly tanks, charging and releasing installations, pipes and pumps For energy products: a list of storage tanks, mentioning the number and storage capacity of each tank Provide a description of the applied accounting methods regarding the production and processing, the stocks, the entry of goods and the release for consumption Set up a movement guarantee Set up a guarantee for the production, processing and storage of goods under the excise duty suspension regime 320

321 For petroleum and petroleum products two certificates from the Belgium Federal Public Services for Economy, SMEs, Self-employed and Energy must be provided. One concerning the subscription of the persons who act in the supply chain of the country and consumers of petroleum and petroleum products, and a second certificate regarding information that needs to be provided about the storage capacity for petroleum and petroleum products. As described above, economic operators who do not meet the requirements in terms of annual stocks can use the warehouse of another operator. Also the customs agencies have tax warehouses and offer services that small companies use widely according to the interviewed authorities. Operators can also register as temporary consignees. This demands them to request authorisation for every delivery and to immediately release goods for consumption upon receipt. One of the interviewed economic operators recalled a recent extension of their authorisation to a new product. They completed an application form with the authorities but were not informed in advance about how long the assessment of their request would take. The tasks that were perceived as particularly burdensome in this context was the need to provide original proofs of good conduct of all employees to handle e-ads, the need to provide a detailed plan of the warehouse and the description of the entire handling process. The authorities requested additional details after the first submission of the application. It was noted by the authorities that for economic operators the conditions and the process to receive an authorisation are very complex and access to information is limited. In particular for small operators this creates difficulties. How much time and resources are spent by economic operators in order to obtain Operators do not have to pay a fee for the application process. Both economic operators had their authorisation in place for more than ten years which made it difficult 321

322 license/authorisation for them to estimate the time and resources spent. Overall the guarantee for authorisation as a tax warehouse was noted to be very high by one of the economic operators. The maximum amount was easily reached. In comparison, the movement guarantee seemed to be rather low. The economic operators would welcome the option to have the level of guarantees reduced if they prove to be reliable in cooperation with the authorities. Reasons why certain activities are particularly resource intensive What are the obligations of economic operators in relation to holding and storing excisable How much time and resources are being spent in order to comply with the obligations related to holding and storing excise duty goods Reasons why certain activities are The completion of the documents for the expansion of the authorisation took one of the economic operators half a day. With the follow up calls to the authorities to be informed on the status of the application five to ten days of work were needed. On the length of the overall procedure, the operator was not informed by the authorities. There is no time limit in place within which the authorities have to process an application and in the end the overall process took almost a year. Another operator underlined the amount of time spent in phone call with the authorities in a process to add an external warehouse to an already existing one. As particularly resource intensive tasks the economic operators noted the establishment of guarantees. An important cost is the fee to be paid to the bank to install the guarantee. The process to expand an already existing authorisation was called particularly resource intensive where documents are required that have already been provided in the past. Finally, where energy products are stored in a warehouse some equipment has to be sealed. Information on the sealing has to be included in the documents provided to the authorities with the application. Wherever a sealing needs to be broken to allow for maintenance of equipment the authorities have to be contacted to verify that a new sealing has been put in place. All economic operators have to keep accounts of their stocks. These have to be kept in the tax warehouse. Where central management is in place, the authorities decide where the central account of stocks should be kept. In the other facilities local stock accounts have to be kept in addition. For each energy product, warehouse keepers have to keep a separate inventory. Between the warehouses under central management goods can be moved without using the EMCS but a normal commercial document. One of the economic operators did not consider the above mentioned obligations to be additional to the usual work. Another one noted that one full-time employee manages all customs and excise requirements related to holding and storing goods. None of the economic operators considered any of the activities related to obligations for holding and storing excisable goods to be 322

323 particularly resource intensive particularly resource intensive. 2 General arrangements for the movement of excise duty goods Q5.1 Are the current arrangements the most cost-effective way of collecting revenue? (Member States) What are the activities performed by Member States authorities in relation to monitoring trade/ logistics of excisable products (EMCS) How much time and resources (including Costs of IT systems) are spent by Member States tax authorities for monitoring trade/ logistics in excisable products? The Belgian authorities have set up a central team for supervision, control and detection of movements. This team is composed of 36 employees. In addition 1,591 tax and excise officers work in the regional administration. Authorisations are handled at central level by a unit for customs and excise. Out of 69 employees, eight handle excise authorisations. In regional teams another 474 people process applications for authorisation. There are two employees working in the Belgian Excise Liaison Office (ELO). In addition, there is a risk analysis unit. Besides the costs for these employees, the implementation of EMCS requested resources to set up an in-house ICT unit. In the past, even small changes to EMCS have been costly (at least EUR 200,000 was paid to implement changes). Currently, the authorities cooperate with IBM who have developed an application for the declaration of excise goods which saves a lot of money and time. Furthermore, resources involve about EUR 300,000 per year for ensuring automatic cross check of e-ads. Reasons why certain activities are particularly resource intensive Extent to which EMCS has impacted the following issues compared to the previous paper-based arrangements: o o o time and resources required to handle a typical movement the time required to close a movement (and release the guarantee); other benefits of an electronic tax environment (e.g. rapid and secure information exchange; record keeping). Notwithstanding particular practical issues (which are discussed below) the normal procedure for moving goods under the EMCS entails no particularly resource intensive activity for the Belgian authorities. The interviewees agreed that the introduction of the EMCS had been an important improvement to the much more cumbersome paper based procedure where all documents had to be stamped individually. Also the archiving of documents has become much easier. An estimation of saved time was not available but in can be noted that a normal movement has become faster. This can depend however on the concerned file and the movement itself. The EMCS has furthermore facilitated recordkeeping and allows for rapid and secure information exchange. It has become easier to monitor operators and possible to develop a risk analysis. Since the introduction of the EMCS it has been possible to save resources by closing some local offices. 323

324 Q5.1 Are the current arrangements the most cost-effective way of collecting revenue? (Economic Operators) What are the activities performed by Economic operators authorities in relation to monitoring trade/ logistics of excisable products (EMCS) How much time and resources (including Costs of IT systems) are spent by economic operators tax authorities for monitoring trade/ logistics in excisable products? Both economic operators highlighted the advantage of using EMCS. One of them was very satisfied with the current arrangements and did not see the need for further development of the system as this would risk making things more complicated, especially for small operators. The two interviewed economic operators use third party software to access the EMCS. For one of them, this system allows to maintain a good overview over all movements. The other one noted that the third party software is linked to monthly costs and he sometimes checks the status of an e-ad on the web-platform provided by the administration to double check the status of an e-ad. His software is linked to the ERP software of the company That allows for automatically completing an e-ad once goods for further outgoing movements come into the warehouse. The system automatically sends the e-ad s ARC number back to the ERP system. In terms of human resources one company has a customs and logistics manager who handles the systems overall. In addition another person handles the movements. The other company has nine full time employees in their customs service department who spend part of their time handling e-ads and has six full time employees working in shifts from the control room to monitor all movements. Wherever economic operators encounter problems with the EMCS, they can contact the Belgian EMCS helpdesk. Reasons why certain activities are particularly resource intensive Extent to which EMCS has impacted the following issues compared to the previous paper-based arrangements: o o o time and resources required to handle a typical movement the time required to close a movement (and release the guarantee); other benefits of an electronic tax environment (e.g. rapid and secure information exchange; record keeping). Notwithstanding particular practical issues (which are discussed below) no particular problems with the normal procedure for moving goods under the EMCS were reported by the interviewed operators. One of the operators underlined that overall there was no need to improve the EMCS. Both economic operators considered to save a lot of time by using the EMCS instead of handling paper documents. In addition the EMCS provides an overview of all movements that are still open. The use of the EMCS allows closing movements within one week and facilitates the administration. In the past, economic operators had to regularly remind clients to handle their paperwork. Today the EMCS automatically sends reminders and also reminds the economic operators themselves to stay in touch with their clients. One of the operators noted that it used to take him between five and 20 minutes to handle a movement in the past. Today, if everything goes fine, a between two and five minutes are necessary for one e-ad. Q 5.2 (b) How do the compliance cost impact the economic operators depending on their size Costs (financial and human resources) resulting from the compliance with the Both economic operators considered costs for smaller operators to be comparably higher. Those that do fewer and smaller movements still have to comply with the same administrative requirements. Therefore 324

325 above mentioned issues, relative to the size of the economic operator one of the operators suggested the introduction of facilitating measures for smaller movements. The other operator highlighted the costs of trainings for employees to handle EMCS, as well as customs and excise procedures in general. This could be a bigger burden for smaller companies. 3 The treatment of various exemptions to the normal sequence of events Q1.4 (b) What are the rules and procedures implemented in Member States, allowing excise duty on goods released for consumption as a result of an irregularity to be reimbursed or remitted? Processes / activities performed by Member States authorities and economic authorities to ensure compliance with the arrangements related to reimbursement of excise duty. If in Belgium an excess, shortage or error in an e-ad is noted the concerned goods are declared as released for consumption and excise duty becomes due. When a shortage occurs in a movement in which Belgium is the country of origin, the authorities depend on the administration of the country of destination to inform them whether excise duty has become due. Receiving this information is a cumbersome process, as the administrative cooperation does not foresee such an exchange of information. The Belgian authorities noted that Member States still do not agree whether shortages should be handled according to Article 10(2) of the Directive or Article 10(4). If a shortage is discovered in Belgium, it will be noticed in the report of receipt to the regional offices. The economic operator will be informed. In case of shortages of energy products the head of the excise office decides about normal allowances. The manager of the regional directorate will decide if the excise duty has to be paid. Then a letter is sent to the warehouse keeper. Similar procedures are in place for excesses. For both, excesses and shortages, the authorities would like to see clearer guidelines. In case of smaller errors in e-ads, the local offices can request the consignor to correct them. While the legislation foresees a direct release for consumption, the Belgian authorities can create exceptions for honest mistakes. In that sense, Belgium uses a very pragmatic approach allowing for corrections to e-ads. Although there is no legal basis for this a mistake that is recognised within one day can still be correcting by the consignor by annulling the e-ad. If mistakes are noted later a new e-ad can be issued in cooperation with the customs authorities. The changes are registered and can be retraced by the authorities. Changes of destination and the quality and accuracy of the SEED database were of no concern to the 325

326 interviewed authorities. The most common errors regarding the e-ad are the following: Differences between the Plato and alcoholic strength calculation for beer (Belgium requires economic operators to calculate excise duty for alcohol based on the Plato method and to indicate it in the e-ad). Receipt mentioned before the dispatch of goods took place Report of receipt is submitted more than five days after the arrival date. The solution to these three errors lies outside the EMCS. It requires correct and straightforward information of the economic operators. There are no sanctions in place for economic operators who do not submit their report of receipt within five days. The authorities suggested that it would be even better in terms of control to require the submission immediately after the receipt of the goods. The long time span to complete a movement is of concern to the authorities with regards to the fight against fraud. Theoretically, economic operators can use one ARC number to transport up to 20 mirror loads. Through more regular controls on the road this issue could be addressed, though a more realistic time span for movements would also mean an improvement. A further reduction of the risk of fraud could be achieved through linking e-ads to VAT movements to identify the real owners of the goods. One of the economic operators did not experience any problems in case of irregularities. Through internal quality checks mistakes could be avoided. The other operator had more negative experiences with irregularities. In case of shortages, the operator tries to explain the reasons, although these are not always clear to the company either. In many cases they end up having to pay excise duty. The time that passes until the first information is received form the authorities can be up to six months. When the request to pay excise duty is received from another Member State, language can be an additional burden; therefore the operator suggested that receiving such information from their own authorities would be preferable. The operator was also concerned that e-ads got lost very often (in one of 50 cases). In cases where an error in an e-ad clearly was an honest mistake from another operator the interviewed company would complete the report of receipt accordingly, providing the same wrong information to avoid a complicated procedure with the authorities. 326

327 With regards to these problems, the Belgian economic operators highlighted that they had quite important workarounds in place. An economic operator from another Member State noted that when authorities in Belgium discover irregularities, they assume that the economic operator will immediately pay the concerned excise duty. If he does not, an economic operator quickly receives a fine. This procedure is not known in other Member States and therefore foreign economic operators easily get this fine in Belgium. At the same time, the statutory limitations for irregularities are particularly long in Belgium. Shortages or excesses can be claimed by the authorities for up to five years after they occurred. In other Member States this can only be done within one year. For economic operators it is close to impossible to provide explanations for shortages or excesses after more than one year. 5.1 (b) To what extent are current provisions resulting in increased / unnecessary admin costs? (Member States) Compliance cost impact of practical issues reported: The interviewed authorities were not able to provide an estimation of resources needed to respond to irregularities. Each case had to be considered individually. However, in particular the procedures for shortages are long and cumbersome. o o o o o errors in the e-ad and the correction of errors Distribution on SEED about authorisation of economic operators Changes of destination / rejection Reimbursements Others 5.1 (b) To what extent are current provisions resulting in increased / unnecessary admin costs? (Economic Operators) Compliance cost impact of practical issues reported: o o o o errors in the e-ad and the correction of errors Distribution on SEED about authorisation of economic operators Changes of destination / rejection Reimbursements As one of the economic operators had no practical problems with irregularities, he did not report any compliance costs. The other operator noted that the costs of shortages could reach EUR 5,000 to 10,000. In addition, two hours would be needed every time to explain the reasons and then implement the payment if the explanation was not accepted by the authorities. Changes of destination can take up to two hours. These happen in 1 out of 25 movements. The economic operators managed to save costs on handling irregularities by directly working with the client who then has to get in touch with the consignor and any other parties involved in the movements to solve an irregularity, and by automatically checking SEED within their EMCS portal. Both operators suggested allowing for a check of the name and address of business partners in SEED to create and extra layer of 327

328 o Others certainty. 4 Specific arrangements for the movement of excise duty goods Q5.2(a) What are the compliance costs for economic operator resulting from the application of the Directive? Additional compliance costs resulting from: o Unclear or inconsistent application of the rules (e.g. varying procedures for moving excisable goods) Specific arrangements for the movement of energy products are implemented in Belgium as follows: Energy products listed in Art. 20(1) of Directive 2003/96/EC that are not used as motor or heating fuels, such as benzene (CN ) and toluene (CN ) are covered by the EMCS. The interviewed authorities saw a risk for fraud with these products. For movements of toluene (CN ) economic operators need an authorisation for energy products and electricity for the non-fuel use of toluene if they want to release it for consumption. Excisable energy products not listed in Article 20(1) of Directive 2003/69/EC are not moved under EMCS. They are in free circulation Coal gas, tar, pitch are moved with commercial documents Lubricants of CN codes to are in free circulation Fat and vegetable oils (CN 1507 to 1518) have to be moved in EMCS when they are intended to be used as fuels, otherwise they are in free circulation For ethanol based bio-fuels the required documents depend on the classification of the products. If they are falling within the CN codes mentioned in Art. 20(1) of Directive 2003/96/EC EMCS is applicable, otherwise commercial documents are used. The interviewees suggested that there would be less room for interpretation and risks if the products listed in Article 20(1) or in Commission Implementing Decision 2012/209/EU would all be subject to the control and movement provisions without any exceptions. This would mean that e.g. vegetable oils (CN codes 1507 to 1518) would be under EMCS even if they are not intended for use as heating fuel or motor fuel, or that products falling within CN codes would be under EMCS even if it is not a bulk commercial movement. The authorities underlined that the movement procedures for many of these products depend on the declaration of economic operators. They are responsible to correctly declare their movements. Especially for the categories of other specific products when 328

329 used as fuels, such as lubricants, the risk of fraud could be reduced by moving them under EMCS. The light regime for coal, coke and lignite, electricity, natural gas meets the needs of the administration. There is no specific risk for fraud perceived for these products. With regards to denatured alcohol, the authorities highlighted the complexity of the provisions. In Belgium, alcohol denatured according to Article 27(1)(a) of Directive 92/83/EEC has to be moved with an SAAD, while alcohol denatured according to 27(1)(b) is moved under EMCS. There are problems with the definition of these two products and furthermore with the consistency of the classification for customs purposes where no differentiation is done between the two product categories. Furthermore, Member States do not recognize the same denaturing methods for Article 27(1)(b) denaturation. This leads to situations where economic operators are not treated equally and in particular within Belgium economic operators have to follow stricter rules to have their denatured alcohol exempted than operators importing alcohol from other Member States. The lack of clarity encountered by the authorities was not perceived by one of the economic operators trading with alcohol denatured according to Article 27(1)(b). Fraud with denatured alcohol was not a concern for the authorities. Recently it was decided in Belgium to repeal the exemptions for small wine producers under Article 40 of the Directive. Problems have occurred where Member States of destination could not be aware whether a wine producer was a small producer according to the provisions of the Member State of departure. There is no database available that would allow Member States to verify this. While the risk of fraud in this context is considered to be rather small, the difficulties in terms of formalities for the operators were seen to be significant. In Belgium, it is already common practice for operators to have a tax warehouse anyways. Movements to exempt consignees suffer from a lack of coordination of the electronic procedures as the legislation does not foresee them to have access to EMCS. The Member States have to develop a national workaround which requires an important amount of additional work. 5 Coordination between customs and excise Q6.1: (a) Which are the areas where the links between customs arrangements and excise arrangements do not work satisfactorily? Practical experiences and perceived problems as reported by stakeholders o Nr. and frequency of instances of movements having to be closed manually o Reported instances of The coordination between customs and excise procedures showed to be an important issue in Belgium. The authorities reported that often movements would remain open after an export linked to the fact that economic operators were not following the valid procedures to inform about an export. The manual closing of movements was seen to be a cumbersome administrative procedure and requested particular monitoring of movements. In order to close a movement manually, the authorities follow the following steps: 329

330 o o o o problems e.g.: Customs offices not having access to ARC number. Lack of cross-checking of the e-ad and the customs declaration. Alternative proofs of exit not being accepted. Office of export not receiving confirmation of exit results. Opening screen EMCS Fill in ARC number and search Open the e-ad Click on close manually Complete the comment section by including the date of export and the Paperless Customs and Excise (PLDA) declaration number Send the comment Return to the opening screen of EMCS to start over. This process takes about two minutes for each e-ad. In addition, a cross-check between the e-ad and the customs declaration needs to be done manually by the authorities. This is currently a very slow process involving the following steps: Opening screen EMCS Fill in ARC number and search Open the e-ad Click on cross-check export Fill in the Movement Reference Number (MRN) status: PLDA declaration, Article, include a comment that the cross-check was completed, click on cross-check ok Click on message of receipt in the e-ad Complete the day of export in the calendar Click on apply modification and consult draft e-ad. Then the e-ad can be submitted. As the system is very slow, the submission takes usually about one minute. Overall, this procedure takes four to five minute for each movement. When an office of export does not receive information about exit results this is often due to the fact that operators do not complete box 8a of the e-ad to indicate the office of export or they indicate the wrong office. In these cases it becomes even more complicated to close movements. One local office reported to have about 40 movements per months that remain open due to this reason. One of the economic operators confirmed this stating that movements remained open three to four times a year. 330

331 One of the economic operators highlighted recent improvements in the coordination of procedures as an automatic link between the EMCS and the ECS has been introduced in Belgium which makes their work easier. They still have to complete some information in the ECS manually but a part has become automatic. Another economic operator however still needed to manually import information from e-ads to export documents. The interviewed authorities did not report a problem with the access to ARC numbers as all customs offices have access to EMCS. One of the economic operators reported however that the company had within their system an automatic procedure in place to hand the ARC over to the export document. The recognition of alternative proofs of exit was neither a problem for the authorities nor for one of the economic operators. Another one stated that getting an alternative proof of exit was a time consuming activity. Q6.1 (b) What is the immediate impact of reported issues? Estimated costs for Economic Operators and Member States Capacity for monitoring and control Level of risk of fiscal fraud Potential revenue loss due to inadequate evidence for proof of exit / exemption or suspension of taxes in the case of import Legal uncertainty? Shopping for easier procedures? The missing link between excise and customs procedures creates high administrative costs, increased the risk for fraud and can potentially prevent intra-eu trade. It requires an extensive monitoring of sent and received error messages to identify why a movement has not been closed and to ensure that it is not related to fraud. The manual cross-check between EMCS and ECS is very burdensome for the administration as the systems are very slow. SOURCES Desk Research: Service publique des finances, 22 December Loi relative au régime général d accise; C 2009/

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333 1.1 EMCS set-up and governance Appendix 6 - Operational context The Excise Movement and Control System (EMCS) is one of a number of trans- European IT systems currently operated by the European Commission (DG TAXUD). It is owned by both national administrations and by the Commission, with the latter playing a central coordinating role. As a trans-european system, EMCS relies on the Common Communication Network (CCN), a closed and secure trans-european IT network that allows the rapid exchange of electronic tax and customs information between Member State administrations. The Commission (assisted by external contractors) runs this single infrastructure entirely for Member States and provides operational support for components which are operated at EU level (known as the Common Domain). Costs of the Common Domain are split between taxation and customs. A central project team (CPT) led by DG TAXUD is responsible for all EMCS activities that have an impact on the Common Domain including coordination of the Central Project with the National Projects; development of the EMCS functional specifications and central applications; organisation of meetings, missions, workshops, trainings and other common communication initiatives. As well as the development of EMCS specifications, a number of central applications are developed and maintained by the Commission, including: Table 36 Key terms - EMCS tools and support System for Exchange of Excise Data (SEED) SEED-on-Europa Common conformance testing tools A service and support desk SEED is a register of economic operators to see whether a given excise number is valid and what categories of goods the operator in question is authorised to trade. Member States are responsible for their national databases while the Commission maintains the central register. Traders can consult part of the information online (validity of an excise number and the authorised categories of goods) on this application maintained by the Commission. For the various national applications. Designed to help Member States implement EMCS and provide advice and support on operational issues. Member States are responsible for setting up and for financing the national domain of EMCS, including the nationally developed excise application (NDEA) and the national SEED application. The EU level aspects of development and operation of EMCS within a number of forums. The EMCS Computerization Working Party (ECWP) is a forum for discussing functional, organisational and IT aspects, while the Committee on Excise Duty (CED), representing the Member States, assists the Commission with the planning, management and coordination of EMCS. The Excise Contact Group (ECG) allows bilateral communication on EMCS with the European trade associations. More informal thematic interaction related to the development and functioning of EMCS can take place within specific project groups 333

334 which can be financed by the EU Fiscalis or Customs programmes (currently Fiscalis 2020 and Customs 2020). 1.2 Procedures for movement of excisable products within the EU (intra- EU) The Directive establishes a system of tax warehouses, where excise goods may be held and produced under excise duty suspension, facilitating checks of production and storage facilities. Each authorised warehouse keeper receives a unique excise number. By ensuring that Member States can maintain control over authorisations of tax warehouses and authorised economic operators, the system is designed to allow the monitoring of the movement of excise goods and combat illicit trade and excise duty fraud. The data provided by SEED (System for Exchange of Excise Data) includes a validation of whether an authorisation for the excise number exists, and if it does, the number of authorised products, as well as which excise products are authorised to be handled by the trader or tax warehouse. 1 The use of SEED therefore helps to ensure that only authorised warehouses and warehouse keepers are able to engage in dutysuspended movements, and therefore should contribute to reducing fraudulent use of the tax warehouse system. Table 37 Key terms - actors Member State of dispatch Member State of destination Consignor Consignee Competent authorities the Member State from which the goods are sent the Member State where the goods are received the authorised economic operator who is sending the goods under duty suspension the authorised economic operator who is receiving the goods under duty suspension the relevant tax or customs authorities in each Member State. Much of the control and supervision is typically at regional or local level. Before the introduction of the computerized EMCS system, the movement of excise products within the EU was covered by Directive 92/12/EEC, which required the use of a paper Accompanying Administrative Document (AAD). The following provides an overview of the movement procedure as covered by the paper AAD, the transition period (April 2010 Jan 2011) and the EMCS electronic procedure which became obligatory from January 2011 onwards Paper-based procedure (1993 April 2010) Directive 92/12/EEC provided the legal basis for the holding, movement and monitoring of excise products since This included the use of the paper AAD (Administrative Accompanying Document). Articles 18 and 19 stipulate that the following procedure must be followed. The tax authorities of the Member States shall be informed by traders of deliveries dispatched or received by means of the AAD: one copy to be kept by the consignor, 1 The Commission and economic operators have no access to the name and address details of other warehouse keepers or tax warehouses, although the Member States have full access to this information. 334

335 one copy for the consignee, one copy to be returned to the consignor for discharge, one copy for the competent authorities of the Member State of destination. All consignments between Member States shall be accompanied by a document drawn up by the consignor. A copy of the AAD (or commercial document), duly annotated, shall be returned by the consignee to the consignor for discharge, within 15 days following receipt by the consignee. The competent authorities of each Member State of dispatch may provide for the use of an additional copy of the document for the competent authorities of the Member State of departure. The Member States of destination may stipulate that the copy to be returned to the consignor for discharge should be certified or endorsed by its national authorities. A basic visual representation of this procedure is set out in Figure 47. Figure 47 Arrangements as set out in Directive 92/12/EEC Source: Directive 92/12/EEC Phase in of EMCS until January 2011 On the basis of Decision 1152/2003/EC 2, EMCS was to be specified and developed by the Commission and the Member States in the period from 2004 to Due to technical issues, implementation of phase I EMCS was delayed by 1 year. Phase I of EMCS was put into operation on 1 st April 2010, running in parallel with the paper based system that had been in use since 1993 (all operators in all Member 2 Decision No 1152/2003/EC of The European Parliament and of The Council of 16 June 2003 on computerising the movement and surveillance of excisable products. 335

336 States were to be able to discharge electronic administration documents by sending electronic reports of receipt, whilst the paper based system continued in operation). Between April 2010 and January 2011, economic operators had the option of using either the paper AADs or the e-ad. Based on the agreed staged approach, most MSAs had chosen to be Initial Member States (IMS) with EMCS functionality as of April The following information is from the DG TAXUD Annual Activity Report R4 (01/01/ /12/2010). Regarding the uptake by economic operators, as of 1 st April 2010: In 9 IMSs, all economic operators supported both sending and reception of e-ads: AT, BG, CY, CZ, EE, HU, LT, LV, and RO; In 10 IMSs, all economic operators supported reception of e-ads, and a gradually growing number also supported sending of e-ads: BE, DE, ES, FR, IE, IT, LU, MT, SE, and SI; In 6 Non-IMSs, economic operators supported only reception of e-ads: EL, FI, GB, NL, PT, and SK; Movements to and from DK and PL were to be handled on paper until (1st January 2011). 3 EMCS completely replaced the previous paper based system from 1st January 2011 onwards (use of e-ad was compulsory) Basic movement procedure under EMCS (April 2010 present) Article 21 of Directive 2008/118/EC sets out the basic procedure for movement of excise goods under suspension of excise duty. The procedure is set out in further detail in Regulation 684/ which also details the content of the messages to be used. The procedure is mirrored in the Functional Excise System Specifications (FESS), which describe the rules and conditions for the exchange of messages in more detail. 5 The following is based on information from the FESS. Both consignor and consignee are permanently registered in the SEED database by their respective Member State administration. The consignor submits the e-ad and provides the movement guarantee. The Member State of dispatch validates the e-ad against SEED information and possibly complementary national information (e.g. guarantee information or the validity of VAT numbers). After validation, the e-ad receives a reference code called ARC (Administrative Reference Code) and is automatically returned to the consignor who, only then, dispatches the goods. The reference to the ARC has to accompany the movement. At the same time, the e-ad is sent to the Member State of destination and to the consignee. Optionally, the Member State of dispatch then submits it to risk assessment to raise flags and possibly issues requests for assistance. The Member State of destination may apply risk assessment and, according to the findings, send a spontaneous information message to the Member State of dispatch. When the goods arrive, the consignee establishes a Report of Receipt that he submits to the Member State of destination. The responsibility for the submission of the report of receipt is upon the consignee. The administrator may enter the 3 TAXUD R4 Annual Activity Report (01/01/ /12/2010) 4 Commission Regulation 684/2009 implementing Council Directive 2008/118/EC as regards the computerised procedures for the movement of excise goods under suspension of excise duty 5 FESS v3.61, Section 2 Core Business Basic Scenario 336

337 data physically instead of the consignee only if it is not possible for the Consignee to submit the report of receipt electronically. The Member State of destination validates it according to the e-ad and possibly to complementary information. After validation, the Report of Receipt is returned to the consignee for confirmation and to the Member State of dispatch that in turn automatically forwards it to the consignor. If the report of receipt does not describe shortages, return of the Report of Receipt discharges the e-ad and releases the guarantee provided by the consignor. The below figure provides a visual representation of the tasks described above for each of the actors involved. Figure 48 EMCS basic movement scenario as set out in Directive 2008/118/EC (compulsory use of e-ad from Jan 2011 onwards) Sources: FESS v3.61 (Section 2 Core Business Basic Scenario); Directive 2008/118/EC On 1st January 2012 Phase II of EMCS was put into operation. This incorporated the recording of control actions, the report of events during movements and the exchange of information for administrative cooperation between Member States Implementing measures While Directive 2008/118/EC provides the legal basis for the functioning of EMCS, more detailed rules and procedures related to the exchange of such messages, as well as the structure and content of the messages are set out in Commission 337

338 Implementing Regulation 684/ Annex 1 of the Directive contains the structure and content of the data elements which must be contained in electronic messages: (e.g. e-ad; report of receipt; cancellation message). The fallback paper document, designed to apply in situations where the electronic system is unavailable must also follow the structure and content of the e-ad message, as described in this regulation. 7 In order to describe all the computerised tools provided to economic operators and to administrations, the Functional EMCS System Specification (FESS) are produced by the Excise Computerisation Project (ECP) and by the EMCS Computerisation Working Party (ECWP), which falls under the supervision of the Committee on Excise Duty (CED). 8 The functional specifications closely mirror the requirements laid out in Implementing Regulation 684/2009. The Fall-back and Recovery Specifications (FRS) which are part of the functional specifications aim to identify exceptions, i.e. conditions that may make it impossible to use EMCS in its customary way, and to determine how the business must react to these conditions. 9 The Technical EMCS System Specifications (TESS) defines the EMCS architecture with respect to all electronic communications, taking into account business and application requirements. Figure 4 sets out the hierarchy of detail between the main relevant pieces of legislation and documentation. Figure 49 Main legislation and documentation describing EMCS functionality and messages Directive 2008/118/EC Provides for the scenarios to occur (beginning and end of movement; release for consumption; change of destination; cancellation etc.). Specifies broad rules to be adhered to (e.g. total quantity of goods cannot change). Regulation 684/2009 Determines the structure and content of the message to be used (e.g. e-ad); Sets out the procedural aspects for the exchange of messages. Functional specifications Describes detailed content of the information to be exchanged between actors in the functional message; Describes detailed rules and conditions for the exchange of messages. 1.3 Article 10 - shortages 6 As amended by Commission Implementing Regulation 76/2014 of 28 January 2014 amending Regulation (EC) No 684/2009 as regards the data to be submitted under the computerised procedure for the movement of excise goods under the suspension of excise duty. 7 It is necessary to determine the procedures to be used in a case in which the computerised system is not available. Recital 24, Directive 2008/118/EC. 8 The competence of the CED is provided for in Articles 44 and 45 of Directive 2008/118/EC. 9 Fallback and Recovery Specifications (FRS), v3.11, 2009, p

339 Table 38 Article 10 of Directive 2008/118/EC explained What does the Directive say? Article 10 (2) Where an irregularity has been detected during a movement of excise goods under a duty suspension arrangement, giving rise to their release for consumption in accordance with Article 7(2)(a), and it is not possible to determine where the irregularity occurred, it shall be deemed to have occurred in the Member State in which and at the time when the irregularity was detected. Article 10 (3) In the situations referred to in paragraphs 1 and 2, the competent authorities of the Member States where the goods have been or are deemed to have been released for consumption shall inform the competent authorities of the Member State of dispatch. Article 10 (4) Where excise goods moving under a duty suspension arrangement have not arrived at their destination and no irregularity giving rise to their release for consumption in accordance with Article 7(2)(a) has been detected during the movement, an irregularity shall be deemed to have occurred in the Member State of dispatch and at the time when the movement began, unless, within a period of four months from the start of the movement in accordance with Article 20(1), evidence is provided to the satisfaction of the competent authorities of the Member State of dispatch of the end of the movement in accordance with Article 20(2), or of the place where the irregularity occurred. What does it mean in practice? If a shortage is deemed to have occurred during a movement (i.e. before the end of the movement and in the Member State of destination), then the Member State of destination is competent to issue a tax assessment for the excise duty due on the deficiency. The authorities in the Member State of destination are obliged to communicate with the authorities from the Member State of dispatch if a release for consumption is deemed to have occurred. 10 The goods have not arrived at their destination and no irregularity has been detected. In this case the excise duty due on the deficiency is due in the Member State of dispatch, unless evidence is produced otherwise Refusal/rejection of a delivery Under the current arrangements it is possible for a consignee to refuse a consignment, for instance if he receives goods he did not order or if there is a data error in the e- AD. The following information is taken from the functional specifications (FESS). The current functional specifications describe two ways for a consignee to refuse the delivery of goods: 10 Some economic operators would like this to be interpreted as Member States being obliged to examine the circumstances first (e.g. shortage could be down to genuine error) and only then levy the excise duty. 11 There is a four month window during which evidence can be submitted, before the irregularity is deemed to have occurred in the Member State of dispatch. 339

340 if the goods have arrived, the consignee must submit a report of receipt (IE818) describing the detected shortages or excesses, if any; this report may include, if found relevant, refusal of the delivery, either totally or partially. If partial refusal, the consignee specifically mentions the refused quantities in the RoR. if the goods have not arrived yet and the consignee does not agree with the contents of the e-ad, he submits an alert message (IE819) to inform all involved parties, in particular the MSAs; this alert may or may not stand for a complete rejection of the e-ad; for instance: o o if a consignee receives an e-ad for goods he did not order, this may be a practical error where the consignor mixed the data concerning two consignments or selected the wrong line in the pick list of his address book. if a consignee receives an e-ad for goods he ordered but with a wrong designation of products, or a wrong quantity, this may be a practical error where the consignor selected the wrong line in the pick list of product codes or typed an erroneous number; in some cases, this may be an attempt of fraud as well. 12 It is the responsibility of the consignee to choose whether: he accepts that the goods continue moving and then he will solve the issue at arrival of goods ("alert"); or whether he wants to definitely reject the movement and then the consignor has to issue a change of destination (or a splitting) ("rejection"). In both cases, the concerned MSAs may apply risk assessment and the consignor is expected to submit a change of destination or a splitting operation. Provided that the goods have not left the place of dispatch yet, the consignor may cancel the e- AD after the consignee has rejected it. 12 FESS v3.61 Section 2 Core Business, p

341 Figure 50 Alert or rejection of an e-ad as proportion (%age) of dispatches per MS,

342 Appendix 7 - Number and types of authorisations Number and types of authorisations across the EU The purpose of this Appendix is to understand the size of the three sectors to which the provisions relevant to this study are applicable: alcohol and alcoholic beverages, manufactured tobacco, and energy products and electricity. To this end, a selection of available statistics on registered (active) economic operators is presented. The System for Exchange of Excise Data (SEED) statistics provide data on the number of authorisations granted in the sectors of energy, alcohol and tobacco products. The statistics also include a breakdown of the number of authorisations given for the following types of economic operators: registered consignees, registered consignors, tax warehouses, authorised warehouse keepers and temporary consignees. 1 The SEED statistics do, however, have some limitations when using them to determine numbers of active economic operators in each sector. The number of authorisations does not mirror the actual number of economic operators because an individual operator may hold authorisations for multiple product categories or products codes and even act as both e.g. an authorised warehouse keeper and a registered consignee, leading to the same operator being counted multiple times. With this in mind, the number of authorised warehouse keepers 2, registered consignors and registered consignees amounted to 104,953 in March This number is split by Member State as illustrated in Authorisation types by Member State For a brief overview of the composition of type of operator authorisation across EU-28, see Table 7 below. Table 39 Composition by type of operator in EU-28 Type of operator Number of Proportion of total authorisations number of authorisations in EU-28 Authorised warehouse keeper 75, % Registered consignee 25, % Temporary registered consignee 2,143 2 % Registered consignor 2,177 2 % Note: the number of authorisations does not refer to physical persons but to total authorisations per economic operator type. Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.52 1 ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED 2 In order to limit or reduce the risk of double counting, the number of authorisations for tax warehouses is not included in this analysis. The reasoning for doing this is the assumption that those operators having an authorisation to hold and operate a tax warehouse also possess (at least) another authorisation, e.g. as an authorised warehouse keeper. 342

343 By far the highest number of authorisations (irrespective of the type) is in France, which account for 38 % of all authorisations across EU-28, followed by Germany (9.7%), Italy (9.6%), Hungary (7.4%) and Spain (7.3%). Figure 51, below. Authorisation types by Member State For a brief overview of the composition of type of operator authorisation across EU-28, see Table 7 below. Table 39 Composition by type of operator in EU-28 Type of operator Number of Proportion of total authorisations number of authorisations in EU-28 Authorised warehouse keeper 75, % Registered consignee 25, % Temporary registered consignee 2,143 2 % Registered consignor 2,177 2 % Note: the number of authorisations does not refer to physical persons but to total authorisations per economic operator type. Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.52 By far the highest number of authorisations (irrespective of the type) is in France, which account for 38 % of all authorisations across EU-28 3, followed by Germany (9.7%), Italy (9.6%), Hungary (7.4%) and Spain (7.3%). 3 This is due to the fact that producers of fermented beverages (including wine and sparkling wine) fall within the scope of authorisations in France. 343

344 Figure 51 - Total number of authorisations by Member State FR DE IT HU ES SE NL AT GB BE DK PT PL CZ RO SK EL FI LU IE HR CY LV MT BG LT SI EE Total number of authorizations by Member State Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.51 Focusing on the types of economic operator authorisations in each Member State, the data shows that Hungary, France and Spain have a high concentration of authorised warehouse keepers relative to other types of authorisations. Countries like Slovakia and the Netherlands have a very high proportion of registered consignees. Sweden is the Member State with the highest proportion of registered consignors 4, relative to its total number of authorisations. Moreover, Finland has a relatively high share of temporary registered consignees. 4 This is due to the fact that authorised warehouse keepers automatically receive an authorisation as a registered consignor. 344

345 Figure 52 Composition (relative) of type of authorisations by Member State SK SI SE RO PT PL NL MT LV LU LT IT IE HU HR GB FR FI ES EL EE DK DE CZ CY BG BE AT Registered consignees Registered consignor Authorised warehouse keepers Temporary registered consignee 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.51 These relative numbers should however be compared with the absolute numbers or proportions, looking across the EU-28. Approximately half of all authorised warehouse keepers in Europe are registered in France. This is equivalent to 36,422 authorisations. Next is Hungary with 9.9 %, followed by Italy, Spain and Germany. 345

346 DE IT FR NL DK AT BE CZ PL SK SE ES PT RO GB HU EL LU IE CY MT HR LT SI FI BG EE LV Figure 53 - Distribution of authorised warehouse keepers by Member State 50.0% 48.3% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 9.9% 8.2% 4.9% 1.7% 0.6% 0.3% 0.2% 0.1% FR HU IT ES DE GB PT BE AT SE DK PL NL CZ RO EL HR FI BG IE LV LU CY LT MT SK EE % of all AWK across EU-28 Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.51 Germany has the highest number of registered consignees across EU-28, accounting for 25 % of all registered consignees in EU-28. Italy accounts for the second largest number of registered consignees with its 3,622, equivalent to 14 %. Figure 54 - Number of registered consignees by Member State Registered consignees Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.51 Spain accounts for most temporary registered consignees across all Member States (44% of all temporary registered consignees in Europe). 346

347 Figure 55- Number of temporary registered consignees by Member State ES FI DE BE FR DK EL LU PT RO IE AT NL CY SI SK HU SE LV GB LT IT PL BG HR EE CZ MT Number of temporary registered consignees Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.51 In terms of registered consignors, Sweden has by far the highest number of registered consignors, constituting 64 % of all consignors in Europe. Figure 56 - Number of registered consignors by Member State SE ES DE PL LV IT GB FI NL RO PT SK HU FR BE HR AT DK EE EL IE SI BG CY CZ LT LU MT Number of registered consignors Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.51 These numbers give an indication of the composition of type of authorisations in each Member State. The following section presents the structure of the authorisations per product category across the EU and can thus provide a picture of the overall market structure. 5 The numbers presented in the following section are also based on the SEED statistics and again it should be kept in mind that the number of authorisations does not mirror the actual number of economic operators, they rather serve as an indication of the market structure. Operators may hold multiple types of authorisations. 5 The SEED data available to the study team did not permit linking the number of authorisations in each Member State with the product category as detailed data on product category is only provided in relation to the type of authorisation and not to the Member States. 347

348 Alcohol sector The structure and concentration of the alcoholic beverage industry varies between the Member States depending on the alcoholic beverages/products concerned. In general, the wine industry is highly fragmented in terms of market shares whereas the beer and spirits industry is more consolidated and concentrated. Besides the large multinational companies of the brewing sector, small, medium and microbreweries have grown in importance over the past years in some Member States. This is confirmed by available statistics on authorisations from SEED cf. Figure 57. In the alcohol sector the most popular product in terms of number of authorisations among operators is still wine (W200) and sparkling wine (W300), which accounts for approximately half of all alcohol authorisations among economic operators. This is followed by authorisations in spirituous beverages (S200, 19,703 authorisations) which account for 11 % of all alcohol authorisations. Beer authorisations are relatively limited in number (B000, 10,627 authorisations, corresponding to approximately 6% of all authorisations 6 ) which reflects well the concentration observed in the market. Figure 57 - Top 3 alcohol product authorisations in EU-28 70% 60% 11% 50% 40% 30% 20% 10% 18% 33% S200 W300 W200 0% Proportion of all alcohol authorizations Note: these relative numbers include authorisations made by authorised warehouse keepers, registered consignees and consignors. Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.52 6 It is important to keep in mind that this does not reflect the actual number of operators, but gives an indication of the most frequent product authorisations in the alcohol sector. 348

349 Tobacco industry The tobacco industry is characterized by tight regulations and restrictions, which has led to manufacturing companies consolidating heavily. This high market concentration is also reflected by the relatively low number of product authorisations in the tobacco sector. According to SEED data, only 5,500 authorisations were active as of March This is reflected in Table 40below. Table 40 Composition by type of operator for tobacco products Type of operator for tobacco Number of Proportion of total products authorisations number of authorisations in EU-28 Authorised warehouse keeper 3, % Registered consignee 1, % Registered consignor % Note: the number of authorisations does not refer to physical persons but to total authorisations per economic operator type. Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.52 By specific product codes, the top three, in terms of number of authorisations are cigars and cigarillos (T300), cigarettes (T200) and other smoking tobacco (T500). This is depicted in Figure 58 below. Figure 58 - Top 3 tobacco product codes in terms of number of authorisations in EU-28 70% 60% 50% 20% 40% 30% 20% 21% T500 T300 T200 10% 21% 0% Proportion of all alcohol authorizations Note: these relative numbers include authorisations made by authorised warehouse keepers, registered consignees and consignors. Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.52 Energy sector Energy products subject to excise duty can range from mineral oils (e.g. gas oil) to electricity, gas and coal. However, depending on the product the arrangements for supervision of movements of these products will differ (e.g. EMCS, Simplified Administrative Accompanying Document (SAAD), special arrangements). For some 349

350 products, the control provisions required will also depend on whether the product is intended for use as heating or motor fuel purposes. Energy products listed in Article 20(1) of Directive 2003/96/EC or Commission Implementing Decision 2012/209/EU move under EMCS. 7 For these products the rules laid down in Directive 2008/118/EC apply, including the provisions of Chapters III and IV, even if the intended use is not as heating fuel or motor fuel. 8 These include, inter alia, products such as fats and vegetable oils (if intended for use as fuel), benzene, toluene etc., petroleum oils and oils obtained from bituminous minerals (excl. crude), methanol (if intended for use as fuel). The oil sector is characterised by few, large refiners, with established distribution channels. However, independent oil traders also play an important role in this sector and are active in all fields apart from crude oil production; that is in importing, wholesaling, retailing, distribution, logistics and refining. In some of the Member States independent traders play an important role. The abovementioned market structures in the energy sector are reflected in the SEED data. Authorised warehouse keepers represent a smaller part of the total number of authorisations than for the other excise products. In contrast, the share of registered consignees is more important, as presented in Table 41 below. Table 41 Composition by type of operator for energy products Type of operator for energy Number of Proportion of total products authorisations number of authorisations in EU-28 Authorised warehouse keeper 16, % Registered consignee 10, % Registered consignor 5, % Note: the number of authorisations does not refer to physical persons but to total authorisations per economic operator type. Source: ITSM_LOT2-SC EMCS, version 1.00, EMCS Monthly Statistics Report March 2015, SEED; p.52 Out of a total of 32,043 authorisations, only 4,552 are applicable to all energy products. This gives an indication that in the energy sector, operators are specialised and generally are not involved in multiple industries e.g. oil and electricity. The three most frequent authorisations are for the following product codes (EPCs), which are set out in Regulation 684/ : - E430: Unmarked gasoil (diesel) 10-3,355 authorisations (10% of all energy authorisations) ; - E440: Marked gasoil(diesel) - 1,890 authorisations (approx. 6% of all energy authorisations); - E480: Certain light and medium oils and preparations, of petroleum or bituminous minerals 11-2,082 authorisations (approx. 6% of all energy authorisations). 7 Decision 2012/209/EU deals with CN code Cf. Article 2(4), last paragraph of Directive 2003/96/EC: 'However Article 20 shall apply to these energy products.' 9 Regulation (EC) No 684/2009 on the computerised procedures for the movements of excise goods 10 This product code corresponds to products falling within CN codes to Products falling within CN codes , , in bulk commercial movements 350

351 There are a number of goods listed in Article 2 of Directive 2003/96/EC which are not listed in Article 20(1) 12 or in Commission Implementing Decision 2012/209/EU. The movement of these products is not controlled by EMCS and therefore their storage is not registered in SEED. For example, for coal, coke and lignite there is a provision for a duty-suspension arrangement outside the EMCS via authorisations for economic operators (cf. Article 21(5) last subparagraph of Directive 2003/96/EC). In this case, Member States are allowed to levy and collect excise duties according to national procedures. How movements of such products are supervised in practice is also within the scope of this evaluation. Special arrangements apply to electricity whilst electricity is an excise good, its storage is not reflected in SEED data because it is not held. According to Art 21(5) of Directive 2003/96/EC electricity shall be subject to taxation and shall become chargeable at the time of supply by the distributor or redistributor. The electricity market is characterised by national wholesale markets, and vertical integration of generation, supply and network activities, creating few dominant generators in national markets. 13 Article 21(5) also sets out special rules which cover natural gas in gaseous and in compressed and liquefied state (and therefore its movement is not covered by EMCS). As is the case for electricity, excise duty becomes chargeable on natural gas at the time of supply. Tax is levied and collected according to procedures laid down by each Member State. Natural gas may be transported either by road, sea or by fixed pipeline. 12 These include, inter alia, products such as coal, lignite and coke, medium and heavy mineral oils in which the weight of the aromatic constituents exceeds that of the non-aromatic constituents and lubricants

352 Appendix 8 Economic value of movements under suspension and estimates of the volume and value of fraud (detailed figures) Almost all member states confirmed a very low amount of duty-paid movements, in the order of less than 1% (implying duty suspended close to 99%). There was some variation in reported percentages but these were because Member States provided response in relation to movements (and not volume). We used a percentage of 99% to calculate the total value of the goods that were moved under duty suspension. The total value of goods imported to and exported from each member state was obtained from Eurostat international trade databases, which were multiplied with the percentages each member state provided. These were then added up to show the total value of goods that were moved under duty suspension in the EU. Table 42 Movements under duty suspension: intra-eu trade (2014) 1 Alcohol ( 000) Tobacco ( 000) Energy ( 000) MS Imp. Exp. Imp. Exp. Imp. Exp. AT 415, , , ,577,750 2,509,048 BE 1,488,437 1,265, , ,827 47,621,312 30,029,531 BG 98,732 53,400 53,515 5,201 1,057, ,053 CY 79,269 1,363 46,131 2, ,219 1,613 CZ 316, , , ,496 4,266,369 3,889,097 DE 4,346,961 2,184, ,616 2,136,305 41,359,965 21,329,137 DK 675, , , ,892 2,686,178 5,008,635 EE 258,208 84,134 30,832 5,585 1,041, ,501 EL 203, , ,268 68,313 1,580,741 2,447,011 ES 1,110,290 2,096,410 1,235, ,186 7,830,396 10,510,164 FI 293, , ,847 1,202 3,616,058 4,814,098 FR 2,025,057 5,302,642 1,576, ,891 27,759,740 14,209,334 HR 67,213 19,137 52,279 9,355 1,545, ,725 HU 136, , , ,658 3,788,797 2,603,278 IE 438, ,078 73,655 59,752 4,825, ,570 IT 1,005,772 3,389,939 1,774,334 6,362 11,740,129 6,359,827 LT 331,779 53,530 92, , ,515 2,740,691 LU 205,258 46, , ,785 1,771,378 95,501 1 Alcohol and alcoholic beverages include the following CN codes: 2203, 2204, 2205, 2206, 2207 and 2208 (as defined in Directive 92/84/EC). Manufactured tobacco includes the following CN codes: , , , , and (as defined in Directive 95/59/EC). Energy products and electricity include the following CN codes: , 2701, 2702, , 2901, 2902, , 3403, 3811, 3817, and 2716 (as defined in Directive 2003/96/EC). 352

353 LV 365,023 46,566 54,568 17,654 1,097, ,484 MT 33,955 2,574 14,465-1,043, ,182 NL 1,593,194 1,244, ,583 1,644,717 34,486,664 57,902,068 PL 455, , ,465 1,714,989 4,163,052 6,215,878 PT 281, , , ,943 3,383,031 2,776,657 RO 141,890 30,305 97, ,563 1,091,210 1,097,243 SE 840, , ,462 4,854 7,034,557 8,138,688 SI 55,918 40,181 62, ,831,014 1,392,311 SK 193,951 82, ,788 2,993 2,337,687 3,292,117 UK 3,906,199 2,809, , ,453 15,264,164 33,832,778 Total 21,364,451 21,697,194 9,192,871 8,867, ,196, ,755,220 Table 43: Movements under duty suspension: extra-eu trade (2014) 2 Alcohol ( 000) Tobacco ( 000) Energy ( 000) MS Imp. Exp. Imp. Exp. Imp. Exp. AT 21,287 65, ,681, ,353 BE 123, ,527 21,623 72,769 16,879,392 14,451,365 BG 16,579 36,113 4, ,494 4,266,673 2,210,833 CY 3,840 19,711 1,567 4, ,778 1,335 CZ 27,252 57,429 2,432 13,353 5,570, ,801 DE 665,922 1,300,280 60,028 1,094,583 49,563,801 5,999,428 DK 144,660 82,174 1,011 63,612 3,665, ,434 EE 19, , , ,873 EL 13,384 50,748 4, ,716 14,827,500 8,139,269 ES 254,921 1,403,015 25, ,140 48,974,615 11,634,801 FI 80,079 41, ,011 8,422,715 1,516,686 FR 364,316 6,770,930 6, ,448 47,867,528 6,509,418 HR 22,706 48,272 2,206 29,696 1,723, ,880 HU 7,632 21,676 3,578 3,571 5,920, ,503 IE 77, , ,116 1,897, ,514 IT 172,131 2,698,156 2,103 18,876 50,523,090 11,357,322 LT 34, ,001 13, ,857 5,594,421 1,563,814 LU 2,290 1, ,061 1, LV 35, , , ,758 25,034 MT 3, ,033 4,614 2 Alcohol and alcoholic beverages include the following CN codes: 2203, 2204, 2205, 2206, 2207 and 2208 (as defined in Directive 92/84/EC). Manufactured tobacco includes the following CN codes: , , , , and (as defined in Directive 95/59/EC). Energy products and electricity include the following CN codes: , 2701, 2702, , 2901, 2902, , 3403, 3811, 3817, and 2716 (as defined in Directive 2003/96/EC). 353

354 NL 520,345 1,539,515 19, ,330 65,033,741 22,299,284 PL 57,329 82,728 2, ,607 14,754,868 1,303,172 PT 5, ,201 9,357 54,438 7,468,839 2,175,316 RO 15,921 14,096 6,108 30,895 4,596,105 2,243,715 SE 218, ,395 1, ,331 10,995,441 2,341,032 SI 8,017 20, ,287, ,430 SK 7,535 5,373 1, ,342,291 24,878 UK 1,472,637 4,833,260 3,923 74,498 47,247,423 9,523,560 Total 4,396,705 21,810, ,421 3,178, ,501, ,050,117 Table 44: Movements under duty suspension: intra-eu trade (2014) 3 Alcohol (1,000Kg) Tobacco (1,000Kg) Energy (1,000Kg) MS Imp. Exp. Imp. Exp. Imp. Exp. AT 217, ,659 13, ,711,776 2,805,999 BE 56 1,137 31,989 27,570 68,993,857 36,584,672 BG 67,397 66,241 6, ,493, ,857 CY 30, , ,496,182 2,055 CZ 253, ,403 15,457 30,840 10,190,263 9,918,672 DE 3,148,095 1,724,204 80, ,817 98,869,093 28,135,647 DK 323, ,561 7,603 3,254 3,787,593 8,201,465 EE 99,208 82,730 1, ,361,657 1,197,946 EL 110,280 59,112 14,121 6,284 2,271,304 3,745,367 ES 707,510 2,168,343 49,935 4,156 11,757,755 15,327,617 FI 104,155 71,793 6, ,157,091 7,149,086 FR 1,670,993 2,406,121 49,096 22,920 25,145,670 14,195,853 HR 72,461 17,039 3,110 1,307 2,140,534 1,059,151 HU 200, ,306 11,886 11,701 6,010,507 3,789,273 IE 332, ,205 4,545 4,239 9,430, ,301 IT 974,250 1,852,525 71, ,502,281 8,617,513 LT 205,217 84,916 11,052 19, ,600 4,768,823 LU 90,619 32,789 11,662 10,257 2,800,974 24,477 LV 191,436 37,061 3,879 1,970 1,761, ,291 MT 15,999 1, ,056, ,118 NL 942,443 1,222,773 44,565 74,973 58,004, ,663,442 PL 323, ,361 26, ,798 6,338,182 20,229,157 PT 320, ,229 10,094 21,143 5,475,057 3,968,803 3 Alcohol and alcoholic beverages include the following CN codes: 2203, 2204, 2205, 2206, 2207 and 2208 (as defined in Directive 92/84/EC). Manufactured tobacco includes the following CN codes: , , , , and (as defined in Directive 95/59/EC). Energy products and electricity include the following CN codes: , 2701, 2702, , 2901, 2902, , 3403, 3811, 3817, and 2716 (as defined in Directive 2003/96/EC). 354

355 RO 147,407 43,951 13,531 38,912 2,366,907 1,473,066 SE 544, ,661 6, ,335,811 11,388,655 SI 46,309 71,637 4,522-2,755,368 1,488,865 SK 236, ,213 8, ,116,949 5,420,195 UK 2,274,156 1,200,013 12,477 20,459 23,917,967 60,430,585 Total 13,650,469 13,887, , , ,039, ,444,952 Table 45: Movements under duty suspension: extra-eu trade (2014) 4 Alcohol (1,000Kg) Tobacco (1,000Kg) Energy (1,000Kg) MS Imp. Exp. Imp. Exp. Imp. Exp. AT 7,701 29, ,555, ,553 BE 76, ,861 1,844 8,315 38,526,671 24,191,561 BG 13,207 33, ,362 10,214,923 3,903,058 CY 1,492 2, , CZ 16,752 65, ,721 10,971, ,002 DE 322, ,518 5,124 68,574 98,455,710 5,005,784 DK 70,637 62, ,193 6,032,941 1,168,655 EE 13,472 22, ,524, ,783 EL 6,543 27,892 1,518 15,581 28,969,227 14,002,207 ES 109, ,050 1,087 7, ,071,470 19,394,124 FI 38,959 17, ,703,313 1,870,907 FR 184, , ,097 87,879,493 7,653,731 HR 31,309 59, ,622 3,640, ,026 HU 11,449 16, ,779,261 1,170,655 IE 31, , ,586, ,275 IT 147, , , ,915,564 16,514,303 LT 45, ,510 1,298 8,486 10,735,999 2,251,286 LU , LV 26, , ,618,492 55,618 MT ,169 9,301 NL 382,627 1,279,523 4,795 44, ,385,547 36,184,578 PL 24,315 57, ,797 34,574,435 4,291,905 PT 2, , ,626 18,053,072 3,399,042 RO 11,429 13, ,720 9,194,975 3,449,211 4 Alcohol and alcoholic beverages include the following CN codes: 2203, 2204, 2205, 2206, 2207 and 2208 (as defined in Directive 92/84/EC). Manufactured tobacco includes the following CN codes: , , , , and (as defined in Directive 95/59/EC). Energy products and electricity include the following CN codes: , 2701, 2702, , 2901, 2902, , 3403, 3811, 3817, and 2716 (as defined in Directive 2003/96/EC). 355

356 SE 130, , ,274 21,498,054 3,792,217 SI 6,671 20, ,369,529 65,072 SK 5,199 2, ,989,794 44,276 UK 750, , , ,288,476 14,711,969 Total 2,468,900 6,923,540 19, , ,977, ,631,781 Duty revenue estimates has been estimated using Eurostat EU-intra imports and duty rates (as published by DG TAXUD). Because Eurostat data is provided in 100 kg, alcohol volumes have been converted to hl using the following conversion factors (for kg to hl): Spirits - 1,0638; Tequila - 0,9509; Liqueurs - 1,0800; Calvados - 1,0638; Vodka - 1,0638; Arrack - 1,0638; Grappa - 1,0638; Beer - 0,9957; Wine - 1,0198. For cigarettes we used the equivalence 1000 cigarettes is equal to 1000 grams. In the cases where excise duty rate is calculated based on the alcohol contents we used the following assumptions: Spirits - 37,50%; Tequila - 37,50%; Liqueurs - 35,00%; calvados - 32,00%; vodka of alcohol strength of >45,4 % - 50,00%; Arrack - 62,50%; Grappa - 47,50%; Beer - 5,00%. Table 46: Duty revenue estimates (EU-intra trade imports) Alcohol ( 000) Tobacco ( 000) Austria 169, ,381 Belgium 63 - Bulgaria 25, ,912 Cyprus 33, ,362 Czech Republic 123, ,277 Germany 1,337,858 3,562,751 Denmark 546,282 1,055,060 Estonia 281,873 83,062 Spain 480, ,148 Finland 412, ,887 France 1,613,034 1,820,418 United Kingdom 5,488,114 1,676,850 Greece 259, ,982 Croatia 16,364 81,650 Hungary 66, ,296 Ireland 831, ,492 Italy 262, ,905 Lithuania 204, ,822 Luxembourg 84, ,785 Latvia 244, ,400 Malta 24,539 33,476 Netherlands 832,921 4,674,330 Poland 231, ,811 Portugal 157, ,006 Romania 44, ,

357 Sweden 1,064,071 1,025,824 Slovenia 23, ,006 Slovakia 64, ,325 Total 14,924,603 21,308,620 Note: tobacco revenues include only Cigarettes and Cigars and Cigarillos. Duty tobacco estimates in Finland, Greece, Hungary, Italy, Luxembourg, Netherlands, Portugal, Spain, include cigarette revenues only. 357

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