E-commerce: “It all begins with a correct declaration”
Customs makes great effort to perfect its controls on internet purchases and keep disruption of trade to a minimum. Conversely, an effort is equally expected from online entrepreneurs and logistics service providers, according to specialist Han Bosch. “The authorities and business community greatly depend on each other in this matter.”
The definition of e-commerce has involved quite some debate, Bosch begins. And he should know: on behalf of Dutch Customs, he regularly consults on this dynamic subject at a high level, for example, with the European Union and the World Customs Organisation. “The question is always: are we simply to understand just the movements of goods from business-to-consumer, or also that from business-to-business, and perhaps also that from consumer-to-consumer? Within our organisation, we see that approximately two thirds of all e-commerce shipments have a value of less than 150 euros, and that they are mostly destined for private consumers. This market has grown explosively in the recent past. B-to-B trade via the worldwide web has existed for longer, but private individuals going online to order products en masse is a phenomenon of recent years. This trend has resulted in enormous volumes – both in quantities of packages and in the number declaration lines. And our controls focus primarily on this. But B-to-B and C-to-C shipments also have the attention of Customs. However, other rules may apply to them.”
Declarants of all kinds of plumage
One of the characteristics of e-commerce is that only the seller and the buyer know the nature, price and delivery time of the goods in question. Between the two actors at both ends of the chain, there may be as many as ten commercial parties, who each do their own ‘thing’. “Think of the webshop, the transporter in the country of origin, the forwarding agent, the transatlantic shipper – and so on…,” says Bosch. “We as a customs administration are right at the end of the process, just before the so-called last mile and ultimately the recipient of the goods. However, this private individual does not communicate with us, as neither does the first link in the chain – the so-called non-EU supplier. We only get information from the penultimate player in the game, which has been hired in to submit the declaration. In practice, we see various logistical models. For example, there are companies that offer integrated services: who pick the package up, ship it with their own aircraft and deliver it to the consumer’s front door. So they have a good overall picture of the total shipping process. What you also often see is that a choice is made to leave the import declaration and the last part of the transport to the cheapest service provider. Every cent saved counts – although it’s peanuts for each package, it soon adds up to serious money. Then all kinds of companies pop up in the picture, which all claim to be compliant, but which cannot always realise this claim.”
Of course, there are forwarding agents and logistical service providers which put a lot of effort into ensuring that the declarations are drafted properly, Bosch knows. “They seek contact with the links at the beginning of the chain to ensure that they have correct and complete information for filling in the declarations. However, other parties just press the Enter button and blindly forward the data that they have received their forwarding party in the chain. They have no choice, I sometimes hear. Their client just says: This is the information set that you must use; take it or leave it.”
And then there is another complication associated with the business model of some larger online sales platforms: “They do not offer just one’s own products, but also provide a stage to sometimes tens of thousands of individual companies, of which they are not or scarcely familiar with their product range. Such a scale presents an enormous challenge. For as far as their information position is concerned, these giants are therefore fully dependant on what they are told by the many suppliers who are linked to their portal and network.”
Fiscal and security aspects
In such circumstances, there lurks a risk that declarations will be submitted that do not (fully) correspond with the goods actually shipped, with all its consequences. The shipments may contain forbidden items or items requiring a permit, which may be associated with risks in the areas of safety, health, economy or the environment. It may concern the ordered product itself, or illegal additional packaging. Bosch: “You name it, we come across anything and everything in customs package controls: weapons and munitions, counterfeit goods, protected fauna and flora, illegal medicines, narcotics… Actually everything we find in other forms of shipping – from sea freight to passenger baggage. Often, it is due to customer ignorance. For as far as that is concerned, we do our best to make consumers more aware of their behaviour. It is important that people know what they can and cannot order, and that they realise that their purchase has consequences, because our Customs performs customs controls and takes appropriate action where necessary. But equally the responsibility lies for a part by the parties who deliver the products and submit the declarations – or have the declarations submitted for them.”
And then there are also the tax risks associated with e-commerce: the loss of tax revenue by the treasury. No VAT is levied over internet purchases with a value of maximum 22 Euros, which therefore gives online shops a competitive advantage in respect of physical shops in the EU. Since they pay VAT over the product sold irrespective of its value. Apparently many goods are intentionally declared under the exemption threshold, while the true selling price lies above this limit. State finances suffer when these practices go unnoticed. If Customs identifies deliberate intent, the declarant or the consumer generally pays.** “Within the current system, private individuals are totally at the mercy of the party that does the import declaration,” explains Bosch. “If this party declares a too low customs value, this can be advantageous for the consumer, as VAT does not have to be paid. However, the moment Customs identifies this and takes action, the same consumer generally takes the fall. In this case, the consumer is confronted with a courier or postal service at his front door with an invoice to collect the VAT – plus extra handling costs. These companies generally pay the money in advance – usually via month credit – but then in many cases recover this money from the buyer. The result is an unpleasant surprise for the consumer, who thought they had made a cheap purchase.”
More efficient and effective control
All in all, Dutch Customs – like so many of its sister organisations around the world – is faced with a daunting task of filtering out exactly those packages where something is possibly amiss from a steadily growing stream of packages. And they have to do that without significantly slowing the logistical processes, since time is money in the webshop sector – with its fast delivery times. “As a service, we must ensure that our enforcement in this field is made even more efficient and effective,” says Bosch decisively. “Modern technology can help us here. We increasingly use sophisticated scanning equipment for physical controls. Detection will also be supported by artificial intelligence – software that identifies irregularities in scanning images based on intelligent algorithms. And we will switch to self-learning profiles, which learn to become increasingly precise and therefore increasingly more exact at identifying suspect packages. For its development, we are recruiting university-educated data specialists. This will make our controls consistently effective. Currently, customs officers sometimes go and perform a custom control, triggered by a report that a risk has been identified, and it turns out that nothing is amiss. Deploying your most expensive resource – manpower – without a significant result is, of course, not so efficient. And the business community is unnecessarily disrupted by this. For this reason, we hope to drastically reduce the number of false positives with our approach.”
Customs is investing heavily in optimising its methods and technology, but something should also be expected from the market, says Bosch. “We truly depend on each other, when it comes to reliable controls and fast logistics. And still it all begins with a correct declaration. If we have doubts about this declaration – for example, doubts about the declared customs value – then this of course results in lost time. I would therefore tell e-commerce entrepreneurs to cooperate, be transparent and share information. It is in the best interest of all of us.”
* This VAT exemption is subject to strict conditions. To start with, the product must have been sold already at the moment it crosses the border. In addition, the package must be labelled, and it must be in direct transit to the buyer. The latter means, for example, that interim storage en route is prohibited. Finally, various excisable goods are barred from the exemption scheme.
** There are also declarants who find the e-commerce market too risky, and do not therefore participate in it.