By letter-opinion dated May 23, 2016, the Federal Ministry of Finance (BMF) has precluded a criminal-law-irrelevant correction report (Section 153 AO) from meeting the requirements of a criminal-law-relevant self‑report (Section 371 AO). The opinion suggests a possibility that the tax authorities will refrain from charging a tax avoider with intentional misconduct if the subject of the investigation had employed a so‑called internal control system (ICS). The reasoning in the opinion is applicable to customs law.
In particular, if a person subject to paying customs duties, like any other taxable person, admits that he has committed customs misconduct through the filing of a customs declaration or by any other means, there is always a risk that the customs authorities will conclude, based on the admission, that the person has engaged in intentional or grossly negligent (reckless) misconduct that is criminal. Due to the practical difficulty of delimiting intentional from negligent conduct, it is not possible to reliably assess what customs authorities would rely on in making this distinction in individual cases.
At present, however, there is a perceptible tendency for the customs authorities in such cases to charge the commission of a crime. This possibility can potentially be avoided.
The BMF now has stated in its letter-opinion, regarding the application of tax procedure law: “If the taxable person has established an internal control system (ICS) which operates toward the fulfillment of his tax obligations, this may constitute evidence which negates the existence of intent or recklessness, but this does not exempt the person from an examination of his individual case”, see Note 2.6, sentence 6, Application Order to the Tax Code (AEAO) to Section 153 AO.
Even the judges of the 1st Senate of the Federal Court of Justice, who are responsible for customs criminal law, have concluded from the implementation of an effective and functioning ICS by a person charged with avoiding owed customs duty, that the person ultimately intended to do everything and in fact had done everything he could to avoid criminal misconduct.
Accordingly, it is strongly recommended to set up an ICS if one does not yet exist, or to check the functionality and completeness of an existing ICS and, if necessary, to optimize it. In the event of a criminal charge for customs avoidance, the defendant would thereby be provided with exonerating evidence that he has done everything necessary to avoid a criminal charge.
It is essential that the ICS meets the minimum requirements for an ICS recognized by the tax administration and criminal case law.