The European Commission has accused the UK of failing to prevent undervaluation fraud on imports from China, and is demanding €2.7bn in customs duties it says the country owes.
The EU’s fraud office, Olaf, says it has warned the UK on a number of occasions – the earliest some 11 years ago, and most recently in 2017 – about widespread undervaluation fraud on imports from China to the UK, particularly on products such as shoes and textiles.
Undervaluation fraud is a process in which importers can evade the appropriate customs duties, tariffs and taxes on products by intentionally undervaluing the goods they are importing using falsified invoices. An investigation by Olaf concluded that this practice is widespread in the UK.
The investigation showed that organised crime groups had carried out systematic undervaluation fraud on imports from China to the UK. The report also alleges that these products were intended for sale on the black market in other parts of the EU.
Does the UK really owe €2.7bn?
The UK’s tax authority, HM Revenue and Customs (HMRC), has rejected the claim that it owes €2.7bn in customs duties lost from undervaluation fraud, saying that the figure was a significant over-estimate.
An HMRC spokesperson said that the European Commission’s methodology for calculating import values was unsuitable for the situation, as its figures are based on EU average prices. Therefore, the generation of an estimate had failed to take into account what HMRC called a “substantial growth in the low-value end of the UK clothing market”.
The government also denied the claim that it had not taken sufficient efforts to combat undervaluation fraud on imports from China and around the world. The HMRC spokesperson insisted: “We take customs fraud very seriously, and we continue to evolve our response as new threats emerge… HMRC has a very strong track record for tackling evasion and rule-breaking of all kinds, securing a record £28.9bn last year that would otherwise have gone unpaid.”
The spokesperson concluded that the government would review the formal notice it has received from the commission and will respond in due course.