EU Outward Processing: ECJ Rules on Customs Errors

A-GmbH, a German company, sought to benefit from the EU's outward processing regime, a mechanism allowing reduced customs duties on goods temporarily exported, processed abroad, and reimported. The financial gains were real, but the procedural execution was not. Rather than following the authorized customs procedure, the company took a shortcut that mimicked the benefit without formally satisfying the requirements.

When the German Customs Authority issued a substantial back-duty notice, the company attempted to retroactively correct its declarations. While that did result in partial relief from customs debt, the case ended up before the Court of Justice of the European Union (ECJ), raising several important questions that extend well beyond one company's paperwork errors.

Background of the Case 

In 2014, the German Customs Authority permitted A-GmbH to use the outward processing, a special customs regime that allows a company to temporarily export EU goods outside the EU, process them there, and then re-import the finished product with customs duties applied only to the added value, rather than the full value of the goods. In this case, goods were exported to and re-imported from Switzerland as the finished product.

The authorization specified that only two German Customs Offices were allowed to handle the placing of the goods under this outward processing procedure. However, between 2015 and 2017, the company did not use those two specified Customs Offices, and, instead, bought crude groundnut oil in the Netherlands and exported it directly from there to Switzerland under a standard export procedure. 

Once the crude groundnut oil was processed in Switzerland, the company re-imported the finished oil into the EU under a standard import procedure and declared its customs value based only on the processing costs in Switzerland, rather than the full value of the processed goods. By doing so, the company took an approach that effectively mimicked the financial benefit of outward processing, without formally following the required procedure or using the authorized customs offices.

In March 2018, the German Customs Authority updated the authorization to include the Dutch Customs Office that had actually been used. Nonetheless, after reviewing the transactions, the German Customs Authority concluded that the company did not comply with the rules required to benefit from outward processing. Consequently, since the company never formally placed the goods under the outward processing procedure when exporting them, in July 2018, the Customs issued a notice demanding additional import duties.

The company challenged this decision and amended the original declarations filed with the Dutch Customs Authority to include the correct outward processing code and a reference to its authorization. Simply put, the company tried to retroactively correct the procedural error.

While the German Customs partially accepted this correction and reduced the amount of duties owed, it did not fully revoke its claim. The main reason for this decision was that the Customs held that the core issue, failure to properly use the outward processing procedure at the time of export, could not be completely remediated retroactively. 

The German Finance Court took the same position as the Customs and concluded that the company was not entitled to the reduced-duty treatment because it had never correctly initiated the outward processing procedure in the first place. Moreover, the Finance Court held that the lack of necessary authorisation in practice was not just a minor technical mistake. As a result, the Finance Court determined that the company had been grossly negligent in how it handled the procedure.

The company appealed before the Federal Fiscal Court, stating that the mistake was only procedural. While the Federal Fiscal Court suggested that the Dutch authorities’ decision to amend the export declarations should be valid across the entire EU customs territory and hinted that the issue might be more of a formal defect than a substantive one, noting that there was no indication that the company acted in bad faith, it remained uncertain about the legal outcome.

Main Questions from Request For Ruling

Faced with these legal doubts, the Federal Fiscal Court referred three questions to the ECJ for a preliminary ruling. The first question asked whether a company can still benefit from reduced import duties under the outward processing regime, despite having used the wrong Customs Office when exporting the goods.

The second question focuses on the scope of a provision that allows certain procedural mistakes to be overlooked if they do not affect the proper functioning of the customs system. Thus, the Court asked whether it applies only to obligations arising after goods have been correctly placed under the outward processing procedure, or whether it can also cover mistakes made at the very beginning, such as submitting the declaration to the wrong Customs Office.

Finally, the Court asked whether a newer legal provision, which allows certain customs debts arising from irregularities to be corrected, can be applied by analogy in this situation.

Applicable EU Law

To provide answers to the raised questions, the ECJ had to analyze and interpret several EU customs regulations, including the Community Customs Code, Commission Regulation (EEC) No 2454/93 of 2 July 1993, the Union Customs Code, Commission Delegated Regulation (EU) 2015/2446 of 28 July 2015, and Commission Implementing Regulation (EU) 2015/2447 of 24 November 2015. In this case, provisions from the EU VAT Directive were not considered or interpreted.

German National VAT Rules 

Given the scope of the dispute and questions raised by the Federal Fiscal Court, no national rules or regulations were taken into account.

Importance of the Case for Taxable Persons

Since the case involves access to customs benefits, compliance requirements relating to customs procedures, and explains key requirements for taxable persons engaged in these types of activities, it clarifies not only which and when certain requirements must be met, but also sets the limits on fixing customs errors. 

Analysis of the Court Findings

Since part of the case falls under the Community Customs Code, applicable from June 2015 to April 2016, and the latter part under the Union Customs Code, which became applicable from May 2016, the ECJ assessed it separately under these two legal regimes.

Based on the Community Customs Code, customs procedures with economic benefits, such as outward processing, are strictly conditional on prior authorization from Customs Authorities. The requirement is not merely an administrative one, but a core condition built into the system. Regarding the authorization for outward processing, it is only granted if it is demonstrably possible to link the processed goods back to the original exported goods. 

Notably, under the Community Customs Code, only Customs Offices listed in the authorization are empowered to accept declarations placing goods under the outward processing procedure. Thus, in addition to having an authorization in general, using the exact designated offices and procedures specified within that authorization is key. The ECJ also added that the outward processing procedure, which grants partial or total relief from customs duties, is an exceptional arrangement designed to facilitate certain economic activities. 

Furthermore, the ECJ noted that the legal framework governing so-called “single authorisations” at the time required coordination between the Customs Authorities of different EU countries. This means that where more than one EU country is involved, the authority receiving the application must consult the other concerned authorities, and those authorities must agree before such an authorisation can take effect across borders. If there is no such agreement, an authorisation issued by one EU country does not automatically extend to others and therefore cannot be treated as valid EU-wide.

On the account of whether errors made by the taxable persons can be cured retroactively by later amending the export declarations, the ECJ stated that the Community Customs Code does not allow retroactive amendments to replace the requirement of prior agreement between customs authorities.

The ECJ then turned to the interpretation of the Union Customs Code. The ECJ noted that there is one important structural change in the newer legislation. More specifically, unlike the previous regulation, the new Customs Code no longer generally requires a single, centrally coordinated authorisation involving prior agreement between multiple EU countries in cases where more than one country is involved. Nonetheless, the key requirement remains unchanged: the authorisation must still clearly designate the Customs Office or Offices competent for placing goods under outward processing.

On the question of whether Article 86(6) of the Union Customs Code can be applied by analogy to the situation in the main proceedings, the ECJ clarified that this article aims to remedy specific failures occurring within the context of importing or exporting goods under customs procedures. In contrast, in the present case, the customs debt did not arise because of an error within such a procedure.

Courts Final Decision

The ECJ concluded that the same principles and key requirements apply under both the Community Customs Code and Union Customs Code. Therefore, where a company exports Union goods for processing in a third country, such as Switzerland, under an outward processing authorisation issued by one EU country, in the present case Germany, it is not permissible to use a Customs Office in another EU country, like the Netherlands, that is neither listed in that authorisation nor has given prior agreement to it. 

Essentially, the ECJ underlined that both regulations state that if the required conditions are not met, the company cannot benefit from partial relief from import duties upon re-importation of the processed goods.

Furthermore, the ECJ found that, considering its reasoning in the first question, there was no need to answer the second question separately. Regarding the third question, the ECJ ruled that Article 86(6) of the Union Customs Code cannot be applied by analogy to the present case, since that provision is intended to correct certain irregularities within properly established customs procedures. Thus, the present situation falls outside the scope of this article.

Conclusion

Based on the ruling, one thing is clear: access to customs benefits is not a matter of financial outcomes, but of procedural compliance. In other words, strict compliance with the customs authorization is essential, and taking any shortcuts in customs compliance carries consequences that no subsequent correction can fully undo.

Source: Case T‑589/24 - A-GmbH v Principal Customs Office, Germany, The Community Customs Code, Commission Regulation (EEC) No 2454/93 of 2 July 1993, The Union Customs Code, Commission Delegated Regulation (EU) 2015/2446 of 28 July 2015, Commission Implementing Regulation (EU) 2015/2447 of 24 November 2015