EMCS

A challenge for companies and tax authorities?

Kerstin TopankaEuropese Fiscale StudiesPostmaster Douane2009/2010

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Contents

1 Introduction ........................................................................................................... 31.1 Preamble .......................................................................................................... 31.2 Question ........................................................................................................... 4

2 General overview .................................................................................................. 52.1 Definition excise goods..................................................................................... 52.2 Importance excise duties in the EU .................................................................. 5

3 Current legislation until 1 April 2010................................................................... 63.1 Introduction....................................................................................................... 63.2 Definition excise goods..................................................................................... 63.3 Current process for excise movements ............................................................ 7

3.3.1 Definitions .................................................................................................. 73.3.2 Accompanying Administrative Document................................................... 8

3.4 Summary ........................................................................................................ 104 New legislation from 1 April 2010...................................................................... 11

4.1 Background .................................................................................................... 114.2 New process for excise movements............................................................... 12

4.2.1 Introduction .............................................................................................. 124.2.2 New definitions......................................................................................... 134.2.3 Electronic Administrative Document ........................................................ 144.2.4 The different phases to introduce the e-AD ............................................. 164.2.5 Implementation process in the different MS............................................. 174.2.6 Link to Electronic Customs ...................................................................... 18

4.3 Impact EMCS for the business and tax authorities in the MS......................... 194.3.1 Timeline for implementation ..................................................................... 194.3.2 Information Technology ........................................................................... 204.3.3 Administration .......................................................................................... 214.3.4 Logistic..................................................................................................... 224.3.5 Finance.................................................................................................... 22

4.4 Summary ........................................................................................................ 235 Rollout EMCS within one organisation ............................................................. 25

5.1 General overview............................................................................................ 255.2 Project overview ............................................................................................. 26

6 Conclusion .......................................................................................................... 32

Abbreviations

Bibliography

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1 Introduction

1.1 Preamble

On 16th December 2008 the Council of the European Union (EU) adopted a new

Directive 2008/118/EC concerning the general arrangements for excise duty and

repealing Council Directive 92/12/EEC of 25th February 1992 effective

from 1st January 1993.

With the Decision No 1152/2003/EC of the European Parliament and of the Council

of 16th June 2003, on computerising of the movement and surveillance of excisable

products the new Directive, was required to be implemented.

The Directive 2008/118/EC provides a legal framework to introduce the

computerised system for monitoring the movement of excisable goods under excise

duty suspension arrangement.

All Member States (MS) shall implement the Excise Movement Control System

(EMCS). With the introduction of EMCS from 1st April 2010 onwards the transit of the

excise goods, on which no duty has yet been paid, will be accompanied by the

electronic Administrative Document (e-AD). The paper Administrative Accompanying

Document (AAD) ceases to exist on the 31st December 2010.

László Kovács, European Commissioner for Taxation and Customs sees the

implementation of the new Directive as “a coordinated EU fight against tax fraud. MS

cannot be effective if they act alone in this area. The measures adopted today are

part of a whole package designed to improve cooperation and the effective

exchange of information between national administrations in the fight against tax

fraud. Tax fraud deprives necessary resources from MS, which are needed to

implement their national social, environmental or economic policies. Today this

problem is more acute than ever, as governments face the effects of the global

financial crisis.” 1

1

See Press notice Europe Rapid Midday Express, European Commission Taxation and Customs Union, 16th December 2008 László Kovács was European Commissioner for Taxation and Customs from 2004 to 2009.

4

1.2 Question

Starting point of my essay is to reflect the current and new legislation for the

movement of excise goods under excise duty suspension arrangement and to look

into the intentions of the European Commission for the new legislation.

I am going to write about the content of the new Directive, the plans and the process

for the introduction of EMCS.

Further I would like to outline which impact the new computerised system has for the

companies and tax authorities which are dealing with movements of excise goods

under excise duty suspension arrangement.

Finally I am going to make my conclusion and want to follow the question if EMCS

with the facts which are known today really, can improve the monitoring of the

movements of excise goods under suspension of excise duty and the fight against

fiscal fraud in the area of excise duties, or is EMCS blocking the functioning of the

internal market and the free movement of goods within the EU?

The last part of my essay is about a rollout of EMCS in one organisation. I am going

to describe the process in a multinational entity with business in the petrochemical

industry from the moment that the law was published until the introduction of

the e-AD in 1st April 2010.

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2 General overview

2.1 Definition excise goods

Excise duties are taxes which are paid for the consumption or the use of certain

goods. Due to economic expediency and convenience are excise duties levied at the

producer or trader. The end user pays the price including these taxes. Thus excise

duties belong to the indirect taxes.2

In contrast to Value Added Tax (VAT), they are mainly specific taxes, i.e. expressed

as a monetary amount per quantity of the product.3

2.2 Importance excise duties in the EU

The excise duties are an important pillar of the tax revenues of each MS in the EU.

Every MS gets the income of the excise duties in their national budget like the

income from VAT.

When the figures are checked for Germany the federal government accounts show a

value of about 63.5 billion € in 2008. This is about 13% of the total German tax

revenue.4

The United Kingdom (UK) tax and customs authorities announced in their

Departmental Report 2008 for 2007-08 41.2 billion ₤ revenue for oils, alcohol and

tobacco taxes.5

The Netherlands calculate in their Prinsjesdag report 2009 income of 10.7 billion €

from excise goods like alcohol, mineral oil and tobacco for 2010.6

2

See web page www.zoll.de, definition Verbrauchsteuern I will keep the terminology of the native language when I quote text from original Dutch/German, as no translation is available.3

See web page http://ec.europa.eu/taxation_customs/taxation/excise_duties/gen_overview/index_en.htm4

See web page www.zoll.de; these are including the German national excise duties for coffee 2008 1 billion € and 0.01 billion € for alcopops.5

See Departmental Report 2008, Her Majesty's Revenue & Customs, UK, July 20086

See web page www.prinsjesdag2009.nl, 15 september 2009

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3 Current legislation until 1 April 2010

3.1 Introduction

In 1992 the Council adopted Directive 92/12/EEC. The objective is mentioned in the

introduction as follows: the establishment and functioning of the internal market that

require the free movement of goods including those subject to excise duties.7

Before this Directive came effective on 1st January 1993 the borders between the

several EU MS still existed and the controls of excise goods took place at the border

of each MS.8 But with the introduction of the internal market the excise duties are

levied in the MS, where the excise goods will be consumed, a new legislation and

new rules were required.

3.2 Definition excise goods

The Directive defines following European excise goods in Article 3:

- mineral oils,

- alcohol and alcoholic beverages,

- manufactured tobacco.

The EU law for excise goods is harmonised for these three excise goods categories

but the tariffs are not uniformed. Every country implements their own tariffs. The EU

law only knows a minimum and maximum tariff for alcohol and tobacco products.

Several MS still have additional excise duties, for example coffee and alcopops in

Germany and alcohol free drinks in the Netherlands.

7

See Council Directive 92/12/EEC of 25th February 19928

See web page http://ec.europa.eu/taxation_customs/taxation/excise_duties/gen_overview/index_en.htm

7

3.3 Current process for excise movements

3.3.1 Definitions

The Council Directive 92/12/EEC starts with general comments before it comes to

definitions.

When an excise good is released for consumption, the excise duties will be charged,

always in the MS of destination. When a private person buys excise goods for his

own use the excise duty is charged in the MS where the products are purchased, in

the MS of dispatch.

The competent tax authorities of each MS gives authorization for producers and

storage locations to be an authorized warehousekeeper to make sure that the excise

duties are fully paid on time and to the correct value.9 The competent tax authorities

require that audit checks are possible at a later stage. These checks of the

movements of excise goods from one MS to another should not affect the free

movement within the European Community.

With the Directive a procedure for the movement of excise goods under duty-

suspension arrangement is established. For the purpose of the chargeability of the

duties the national tax authorities need to know how the movements flow; for all

movements an AAD needs to be issued.

When excise goods are imported into the EU then it is necessary to put them under

the same regime excise duties being suspended like excise goods produced in the

EU.

In the event of an offence or irregularity the excise duties should be collected in the

MS where this event is reported or transpired or in the MS of departure.

In the Directive 92/12/EEC some definitions are developed in Article 4.

The competent authorities of one MS authorise a natural or legal person as an

authorized warehousekeeper to produce, process, hold, receive and dispatch excise

9

The spelling of certain definitions are different between Council Directive 92/12/EEC and Council Directive 2008/118/EC. Examples are authorized warehousekeeper and duty-suspension arrangement in Directive 92/12/EEC and authorised warehousekeeper and duty suspension arrangement in Directive 2008/118/EC. In the chapter about the current legislation I use the terminology of Council Directive 92/12/EEC.

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goods in the course of excise duties being suspended under tax-warehousing

arrangements.

A tax warehouse is a place where excise goods are produced, processed, held,

received or dispatched under duty-suspension arrangement.

A registered trader is a natural or legal person without authorized warehousekeeper

status. The tax authorities of the MS give permission to receive excise goods under

duty-suspension arrangement. It is illegal that the registered trader retains or

dispatches excise goods.

A non-registered trader is a natural or legal person without authorized

warehousekeeper status. Occasionally he receives excise goods under the duty-

suspension arrangement. The non-registered trader must guarantee the payment of

the excise duties to the tax authorities of the MS of destination before dispatch of the

excise goods.

According to these definitions the result is that excise goods movements under

suspension of excise duty are monitored between tax warehouse(s) and registered

traders. This also includes from time to time the movements of excise duty being

suspended between tax warehouse and non-registered trader and when excise

goods are imported into the EU or they are exported out of the European Community.

Later on in the Directive all the requirements are mentioned for the certain operators

in the excise good business.

From the authorized warehousekeeper national tax authorities require a guarantee

which covers production, processing and holding of excise goods. Further

requirements are that an authorized warehousekeeper complies with national

requirements of the MS where the warehouse is situated, keeps accounts of stock

and product movements, produces products when required and consents to all

monitoring and stock checks or audits.

3.3.2 Accompanying Administrative Document

According to Article 15 the movement must take place of excise goods under duty-

suspension arrangement between tax warehouses within the EU.

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The consignor shall issue an AAD with four parts. Copy No 2, 3, 4 will accompany

the excise movement under duty-suspension arrangement.

- No 1: The consignor must retain this copy on his records.

- No 2: The consignee must retain this copy on his records.

- No 3: This copy needs to be returned to the consignor for discharge and

must be signed and stamped by the tax authorities of the MS of destination.

- No 4: This copy is for the competent tax authorities of the MS of destination.

The tax authorities of the MS of dispatch can request that the copy No.3 of the AAD

must signed by the national tax authorities of destination.

The Directive also states what details, the returned copy to the consignor, must

contain. This includes that a copy shall be returned at latest 15 days following the

month in which the goods were received.10

In the case the 3rd copy is lost the tax authorities can send a request for payment for

the full excise duties.

In several MS the alternative proof is, when the 3rd exemplar of the AAD got lost, in

the National Law adopted.

In the Netherlands it is possible to provide the customs authorities with an alternative

proof. The Dutch jurisprudence has confirmed in several cases that the taxpayer has

the chance to prove, through similar documents, that the excise goods movement

under duty-suspension arrangements is completed or the excise goods are

exported.11

German customs authorities can accept, exceptional for the lost 3rd copy of the AAD

for the movement of excise goods under suspension of excise duty, a duplicate of

the AAD or also a combination of alternative documents like

- CMR or CIM

- Shipping bill

- Bill of Lading

- Consignment note

10

See Commission Regulation (EEC) No 2719/92 of 11th September 199211

See cases: AV0398, Hoge Raad, 39180, 27 januari 2006 and AT8954, Hoge Raad, 40716, 1 december 2006

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- Delivery note

- Discharge report or

- Receipt of payment

when they show the main details of the AAD and can convince the main customs

office that the excise goods are received.12

3.4 Summary

The current process shows that the monitoring of the documents for each movement

of excise goods is the responsibility and honesty of the companies themselves. The

companies need to follow-up and monitor the return of the AAD copies within a

certain period of time.

In case of an audit the national tax authorities check the administration in a company,

especially the completeness of the documentation, for all excise movements within

and outside EU. Companies must provide the completed and signed 3rd exemplar of

the AAD. At this moment the national tax authorities only receives the information

that the excise good movement has transpired or through random checks.

Currently the administrative part, controlled by the tax authorities, is only checked

afterwards by an audit.

National tax authorities require more information during or upfront the excise

movement for monitoring and to avoid tax fraud.

This was the intention to adopt Decision No 1152/2003/EC and to step over to a

computerised system.

12

See Presentation Verbrauchsteuerrecht, Rechtswissenschaftliche Fakultät, Westfälische Wilhelms-Universität Münster, RegDir M. Bongartz, Sommersemester 2009

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4 New legislation from 1 April 2010

4.1 Background

With the Decision No 1152/2003/EC the European Parliament and Council decided on

16th June 2003 to computerise the movements and surveillance of excisable

products.13

The initiation of this decision was the report to the Directors General for Customs and

Indirect Taxation from the High Level Group on fraud in tobacco and alcohol sectors in

1998. The report explains when and where fraud and irregularities with tobacco and

alcohol products occurred. The group identified different types of fraud and list them in

the report as follows:

- smuggled from third countries without being declared

- imported from third countries but described incorrectly

- legitimate dispatches out of the EU but smuggled back

- abuse of the transit system

- abuse of the system of movement of excise goods under duty suspension

arrangement or export

- abuse of the system of movement when excise duties have been paid

- bootlegging of excise goods purchased in a low taxed MS.14

The High Level Group came to the conclusion that tobacco fraud happened more

frequently on import or export transactions. Against fraud with alcohol products was

more noticeable on intra-community movements.

Furthermore the budgetary impact of the lost of excise duties is specified.15 In the

Report of the Commission to the Council precise figures are mentioned. The

estimations are that the MS lost revenue as a result of fraud in 1996 to the value of 4.8

billion ECU in total. Broken down it was 3.3 billion for the tobacco sector and 1.5 billion 13

See Decision No 1152/2003/EC of 16th June 200314

See Report to Directors General for Customs and Indirect Taxation from the High Level Group on fraud in tobacco and alcohol sectors in 199815

See ditto

12

for the alcohol sector.16

Second part of the report it outlined the weaknesses in the current system which were

analysed:

- failure to ensure that existing rules and obligations are fully complied with and

trader reluctance to accept responsibilities incumbent on them under duty

suspension facilities

- insufficient and inadequate co-operation between the tax authorities

administration of different MS

- insufficient contact and co-ordination with administrations of third countries

- inadequate monitoring of criminal organisations

- inadequate resource levels and poor resource allocation

- insufficient use of modern risk analysis, intelligence procedures or information

technology tools

The High Level Group gives two main recommendations. The first one is to introduce a

computerised system to control and monitor movements of excise goods. The second

recommendation is to support the implementation of the New Computerised Transit

System (NCTS). It was advised to introduce urgently a prior notification system, an

Early Warning System of Excises.

4.2 New process for excise movements

4.2.1 Introduction

It took 6 years to adopt the new horizontal Directive. The Council passed the Council

Directive 2008/118/EC on 15th January 2009. The Commission Regulation (EC) No

684/2009 which implements this Directive was adopted by the European

Commission on 24th July 2009.17

The aim of the new computerised system is to allow the MS to obtain real-time

information on excise goods movements and to carry out the requisite checks. This

16

See Report to Directors General for Customs and Indirect Taxation from the High Level Group on fraud in tobacco and alcohol sectors in 199817

See web page http://ec.europa.eu/taxation_customs/taxation/excise_duties/gen_overview/index_en.htm

13

includes checks during movement of products.18

The new Directive 2008/118/EC repeals Directive 92/12/EEC effective from 1st April

2010. The Council allows the MS a transitional period to introduce the e-AD. The

paper AAD ceases to exist on the 31st December 2010.

Some of the definitions are substantiated in the new Directive and jurisprudence is

adapted and changes from other Directives between 1992 until now are included.

Directive 2008/118/EC specifies more the excise goods mentioning previous

Directives related to EU excise goods:

- energy products and electricity covered by Council Directive 2003/96/EC

- alcohol and alcohol beverages covered by Council Directives 92/83/EEC and

92/84/EEC

- manufactured tobacco covered by Council Directives 95/59/EC, 92/79/EEC and

92/80/EEC.

4.2.2 New definitions

Compared to the Directive 92/12/EEC, new definitions are introduced in the Council

Directive 2008/118/EC, the registered consignee and the registered consignor.

The registered consignee gets the authorization, from the competent tax authorities

of the MS of destination, to receive excisable goods under duty suspension

arrangement from another MS. The registered consignor is authorised to dispatch

excise goods under duty suspension arrangement.

From 1st April 2010 the registered consignor is only authorised to import excise

goods from countries outside the EU into the EU under suspension of excise duty

according to Article 17 b.19

Companies or businesses, like freight forwarders, need to apply for authorisation in

the MS where the import of excise goods will take place.

This new rule simplifies the imports of excise goods for all involved economic

operators. This means a tax warehouse is no longer a condition anymore.

18

See Decision No 1152/2003/EC of 16th June 200319

The new horizontal Directive refers to Article 79 in Commission Regulation (EEC) No 2913/92 of 12th October 1992 establishing the Community Customs Code.

14

Article 19.3 describes the temporally registered consignee who occasionally gets

excise goods. The competent tax authorities can authorise for limited, time or a limit

of transactions, at least for one movement of excise goods.

The new Directive gives MS the possibility to define a direct delivery due to Article 17.

The excise goods will be delivered directly to a place of an authorised

warehousekeeper or registered consignee within the MS of destination.

4.2.3 Electronic Administrative Document

From 1st April 2010 the movement of excise goods under duty suspension

arrangement takes place with an e-AD which is processed in the computerised

system in accordance with Article 21 Council Directive 2008/118/EC. The consignor

submits a draft of the e-AD to EMCS.

The tax authorities of the MS of dispatch carry out verification for this movement.

When the data is valid the e-AD gets a unique administrative reference code (ARC)

assigned and the consignor receives this information back. The consignor provides

the carrier with a printed version of e-AD or with another commercial document with

the ARC for the excise goods movement. During the movement of the excisable

goods the carrier can show the e-AD with the ARC upon request to the tax

authorities.

After receipt of the excise goods at the destination the consignee sends a report of

receipt to EMCS. The tax authorities of the MS of destination carry out an electronic

verification in the report on receipt. The acknowledgement of receipt has the same

legal value as the signed and returned 3rd copy of the paper AAD.20

According to Article 20 the movement of excise goods under duty suspension

arrangement commences when the goods leave the tax warehouse of dispatch or

the excise goods are imported into the EU.

The movement ceases when the excise goods have arrived in the tax warehouse of

destination or the excise goods are exported outside the EU.

20

See EMCS information, Functional Excise System Specifications, Taxation and Customs Union Directorate General, 15th September 2006

15

The tax authorities of the MS of export give the customs office of exit the

confirmation of exit via the Export Control System (ECS). This message is

transferred to EMCS after the excise movement has been completed.

Graphic: EMCS in Practice 21

Article 22 and 23 of Council Directive describe exceptions from this procedure for the

movement of energy products. If the consignee, is not known at the moment of

dispatch then the tax authorities of the MS of dispatch can allow the consignor to

complete a draft e-AD without a consignee, when the transport is by sea or inland

waterways.

Besides that the tax authorities of the MS of dispatch can allow splitting movements

of energy products under suspension of excise duty but within the following rules:

- the total quantity of these splits does not change

21

See web page http://ec.europa.eu/taxation_customs/taxation/excise_duties/circulation_control/emcs_practice/index_en.htm

16

- this procedure is allowed in the MS where split takes place and

- the tax authorities are informed about the place of the shipment splitting.

The Council Directive describes also the rules when EMCS is not available. In

general when the computerised system is not working the fallback system is the

paper AAD. The same is applicable during the transitional period from 1st April 2010

until 31st December 2010, when the sending or receiving of the e-AD, is not

implemented in one of the MS the paper AAD will still be valid.

4.2.4 The different phases to introduce the e-AD

With the Master Plan the EMCS computerisation project was carried out and in it are

mentioned the requirements of the computerised system for the MS and the EU

database.22

EMCS will be introduced within the phases 0 until 3. Phase 0 is the preparation of

the introduction of the system in all MS. In this phase from 2002 until now general

specifications like System for Exchange of Excise Data (SEED) are developed. It is

an Excise Authorisation Verification. Companies can check whether the mentioned

tax warehouse number is registered and valid. SEED is already working since

October 2006.

In phase 1 from 2002 until now the computerisation project is prepared and EMCS

systems specifications are defined.

In phase 2 from 2006-2010 EMCS is developed and the several phases are

implemented. The e-AD can be received on the national excise applications of

EMCS. All MS must be in this phase from 1st April 2010.23

The next step will be that the e-AD could be sent, changed or cancelled. All MS can

be in this phase from 1st April 2010 and must comply as from 1st January 2011.

In phase 2 additional functions shall be available, like Early Warning System of

Excises and Movement Verification System, and will be integrated into EMCS as

22

See Master Plan EMCS computerisation project, Taxation and Customs Union DG, 16th January 200723

See Council Directive 2008/118/EC of 16th December 2008

17

from 1st January 2012. All MS must have developed these additional functions for

their national excise applications at this time.

From phase 1 the MS must ensure a web portal where the companies can send the

e-AD. Most of the MS will provide a business-to-business (B2B) connection to the

national excise application.

The European Commission Taxation and Customs Union estimates that about

- 100,000 economic operators will be connected with EMCS

- 4, 000,000 intra-community excise goods movements and

- 5, 350,000 national excise goods movements will be handled per year in EMCS.24

4.2.5 Implementation process in the different MS

The Directive specifies in Article 48 that all MS shall adopt and publish their

implementation of this Directive in national law, regulations or provisions before

1st January 2010.

When the national web pages of the several MS are looked up, there is very little

published until today. Most of the MS will come with their implementation as National

Law at the latest moment before year end 2009 and with new information

beginning 2010.

For instance in the Netherlands the implementation of the new Directive was

published on 17th November 2009 as legislative proposal with almost the same

content as the Council Directive 2008/118/EC.25

Article 30 and 31 of the Council Directive allow simplified procedures for frequent

and regular movements of excise goods under duty suspension arrangement only on

the territory of one MS. When two or more MS are involved a bilateral arrangement

needs to be agreed upon.

However Belgium, the Netherlands and Luxembourg already announced that they

want to keep simplified procedures between their countries in accordance with

Council Directive 92/12/EEC and they are negotiating.26

24

See EMCS News No 1, European Commission Taxation and Customs Union, October 200625

See Wijzing van de Wet op de accijns in verband met richtlijn 2008/118/EC van de Raad van 16 december 2008, Ministerie voor Financiën, Nederlande, 17 november 2009

18

Germany uses the implementation of new Directive 2008/118/EC into National Law

specifically for the national excise of coffee and alcopops, and to harmonise the

excise numbers for the different excise goods for one company tax number.27

The provisions are adjusted to the Community excise goods but do not introduce

EMCS for the movements of coffee and to retain the paper AAD.28

4.2.6 Link to Electronic Customs

With the introduction of EMCS the EU tax authorities are going to connect two

electronic systems for tax control and to fight against tax fraud.

When an excise good movement under the duty suspension arrangement goes

outside the EU, in accordance with Article 25 Council Directive 118/2008/EC,

confirmation of exit via ECS is required.

The Decision No 70/2008/EC is related to the development in the direction electronic

customs within the European Customs Union.29

The European Parliament and the Council outlined in the Decision that target for a

paperless environment for customs and trade is:

- to increase the efficiency of the organisation of customs controls,

- to ensure the seamless flow of data in order to make

customs clearance more efficient,

- reduce administrative burdens,

- help to combat fraud, organised crime and terrorism,

- serve fiscal interests,

- protect intellectual property and cultural heritage,

- increase the safety of goods and the security of international trade and

- enhance health and environmental protection.

26

See Presentation EMCS project, Federale Overheidsdienst Financiën België, oktober/november 200927

See web page www.zoll.de, Info-Schreiben der Hauptzollämter zur Einführung von EMCS, November 200928

See Entwurf eines Vierten Gesetzes zur Änderung von Verbrauchsteuergesetzen, Bundesministerium der Finanzen, Deutschland, 11. Februar 200929

See Presentation Electronic Customs, Postmaster Douane, Europese Fiscale Studies, Johan Stoopen, 12 november 2009

19

For that purpose, the provision of information and communication technologies (ICT)

for customs purposes is of crucial interest.30

Following the latest news about EMCS and the link to ECS it is not clear when both

systems will be linked. At the moment the link is anticipated to be available

during 2010.

A link to the Import Control System (ICS) is not considered essential but would more

than enhance the relationship between EMCS and electronic customs applications.31

4.3 Impact EMCS for the business and tax authorities in the MS

4.3.1 Timeline for implementation

At the first stage it was planned to introduce EMCS in April 2009. The Decision No

1152/2003/EC gave 6 years for the implementation of EMCS. The starting point of

Council Directive 2008/118/EC will be 1st April 2010.

When the web sites or announcements of the national tax authorities of the MS are

checked, the progress of the implementation of EMCS in the several MS may differ.

Problems can be foreseen when there is no adequate timeframe proposed for all MS

for the different steps of introduction. Every MS handles this in a different way.

Belgium declares that e-Ad’s can be received and sent from 1st April 2010.32 In

contrast the Netherlands are only ready to receive e-AD from 1st April 2010 and can

only sent as of from 1st January 2011.33 Germany announces that receiving e-Ad as

from 1st April 2010 will be implemented. Companies can already voluntarily send the

e-AD but have to do it for the entire process, from the 1st January 2011 they are

obligated to.34 UK applies the same procedure.35

The European Commission published in September 2009 in his Monthly Central

30

See Decision No 70/2008/EC of 15th January 2008, introduction paragraph 231

See web page www.douane.nl; the introduction of ICS is planned in 2012.32

See Presentation EMCS project, Federale Overheidsdienst Financiën België, oktober/november 200933

See Nota naar aanleiding van het verslag wijzing Wet op de accijns, Ministerie voor Financiën, Nederlande, 17 november 200934

See web page www.zoll.de, Info-Schreiben der Hauptzollämter zur Einführung von EMCS, November 200935

See web page www.hmrc.co.uk see EMCS

20

Project Planning that 19 MS will be ready to receive and send e-Ad’s and 6 MS are

only ready to receive e-Ad’s from 1st April 2010. Denmark and Poland already

announced that they will not be ready to receive e-AD from 1st April 2010 and they

are going to implement EMCS from 1st January 2011 in one step.36

The different time frames for the introduction of EMCS in the different MS have

European multinationals to consider. It will be a challenge for them dealing with this

because the time frame is quite short for preparing the implementation in the

companies. It could be that mainly in the transitional period, from paper AAD to e-AD,

the increased administrative burden will be above the average due to two flows

which are needed to be maintained.

4.3.2 Information Technology

Every MS can decide how they want to implement EMCS on national levels. Some of

the MS develop themselves a national EMCS web based portal. Other MS put the

development of the national excise applications in the hand of external software

developers. That all MS are aligned when they exchange data with EMCS electronic

messages are defined in the Commission Regulation (EC) No 684/2009.37

For instance Swedish tax authorities are resigned to introduce EMCS for national

movements of excise goods and they retain the paper AAD for these ones.38

Also the companies have to make a decision how they want to approach EMCS. It

makes a difference if the company is small or large and whether the company, has

only a business in one MS in the European Community, or it is a multinational with

production or tax warehouses in different MS. They will consider different scenarios

and different requirements. Businesses need to make a decision to what is the most

effective and efficient software solution.

A smaller company with a small amount of e-ADs will use the access to EMCS via a

national web portal of the competent tax authorities. They request for a reliable and

secure web access. 36

See Working Paper CED 698 TAXUD/2009, European Commission Taxation and Customs Union, 16th December 200937

See Annex I of the Commission Regulation (EC) No 684/2009 of 24th July 2009, Annex II defines all codes for EMCS.38

See European & Customs Trade Communiqué, Edition 37, August/September/October 2009, Price Waterhouse Coopers

21

Larger companies or multinationals need an overview where and how many e-AD

will be handled in the different countries. The final decision depends on this

assessment and can vary from MS to MS. For huge amounts of e-AD it will be

handier to have separate own web access as a company to EMCS. Such a software

application has also the advantage that it could be linked with the company’s

inventory management of the excise goods.

Some MS will certify software which can provide the businesses the access to

EMCS. If companies develop their own web interfaces to the national excise

application then they have to ask the competent tax authorities for approval to use

this software. It is also expected that Enterprise Resource Planning (ERP) systems

like SAP will provide an integrated solution. It will link the ERP system directly with

EMCS. SAP has not announced yet for which countries such an application will be

available.

4.3.3 Administration

The 1st April 2010 has a huge impact for the administrations in the companies and in

the national tax authorities. From this date the processes are changed. The

companies must to be able to receive the e-AD, to process and to send the e-AD at

a later stage.

National tax authorities must be able to process and verify the e-AD.

The responsible group or person for the excise movement administration within a

company needs to decide, with the responsible Information Technologies (IT)

department, how to approach EMCS. They need to take into consideration that the

time frame for the introduction of the e-AD could be different from MS to MS.

The target of the responsible person for excise movements in a company is that they

are compliant with the new rules and use the correct reporting tools.

Before starting EMCS the new software needs to be implemented where applicable.

People who are dealing with excise movements under duty suspension arrangement

- in the companies

- at load locations

22

- tax warehouses and

- at tax authorities

need to get training how to use EMCS.

Customs officers need to get training, not only for the use the verification for the

movements, but also how to handle this new tool for risk control.

4.3.4 Logistic

The e-AD will influence the logistic process and certain rules will be applicable. An e-

AD can only be cancelled before the excise movement has started. During the

movement the e-AD with the ARC needs to go with the shipment.

For energy products Council Directive 2008/118/EC allows splitting of an excise

movement. Due to Article 10 Commission Regulation (EC) No 684/2009 will apply

this rule in EMCS only from the 1st January 2012.

Flexibility is not guaranteed for all scenarios which happen in the day to day

business of excise goods movements. In these areas EMCS will constrain the free

movements of excise goods within the EU but has disadvantages against the paper

AAD. Therefore the paper AAD is still needed. On the other hand the intention of

EMCS is the fight against tax fraud by eliminating the possibilities, which the paper

documentation gives, room for fiscal fraud, for instance by changing or manipulation.

4.3.5 Finance

It depends on which approach for EMCS companies will choose or how complex

their businesses are with excise goods movements under duty suspension

arrangement in the EU. They will need a budget to implement software to be linked

with EMCS or that they can adjust their ERP system. When a company goes for

using the web portal of the competent tax authorities there are no costs involved.

When a company decides to implement a software application the costs could be

more then thousand of Euros.

But the introduction costs include also money for the national tax authorities and has

impact on the budget of the MS in the coming years.

23

In the report for the implementation of the Council Directive 2008/118/EC into the

Dutch law for excise goods it is mentioned that the costs for the introduction of the

national excise application in the Netherlands are estimated as follows:

- in 2008 6.3 million €

- in 2009 8 million €

- in 2010 4.3 million € and

- in 2011 and 2012 each with 2 million € per year.39

The German Federal Ministry of Finance calculated 25 million € for the development

and implementation of the national computer system for EMCS.

In the draft of the implementation of the Council Directive 118/2008/EC into national

German law, is mentioned that they estimate that by trend costs for EMCS, will

decrease and it has no influence on the expected prices and the price level of excise

goods.40

4.4 Summary

The new Directive does not give an innovative change of the process movement of

excise goods under duty suspension arrangement. In general the paper AAD will be

replaced by the e-AD and in case of a failure within the introduction period of EMCS

the paper AAD will be the back up.

EMCS will change the role of the competent tax authorities. In the process of the

paper AAD the national tax authorities can only play a role during a tax audit. At this

time they check if the 3rd exemplar of the AAD is returned to the consignor.

From the 1st April 2010 onwards, with the introduction of EMCS, the competent tax

authorities of the MS will get an active role during the excise movement process

under suspension of excise duty. Both tax authorities in the MS of dispatch and

destination will validate the announced excise movement and approve it.

39

See Nota naar aanleiding van het verslag wijzing Wet op de accijns, Ministerie voor Financiën, Nederlande, 17 november 200940

See Entwurf eines Vierten Gesetzes zur Änderung von Verbrauchsteuergesetzen, Bundesministerium der Finanzen, Deutschland, 11. Februar 2009

24

Both authorities are able to make risk analysis on real-time data and will be able to

monitor the movements where necessary more speedily and efficiently. The tax

authorities can also focus on risk control and can address target-oriented controls.

Another aspect is that through the introduction of EMCS the EU tax authorities

connect different Electronic Customs systems, EMCS with ECS, for tax control and

the fight against fiscal fraud.

Problems can be foreseen that the risk control system for the tax authorities will be

linked later to EMCS. When this happens it will really be the milestone to ensure

compliance and fight against tax fraud.

25

5 Rollout EMCS within one organisation

5.1 General overview

In the following chapter I want to describe the rollout of EMCS in one company and

using the example of a multinational. With this overview I want to show how the

process takes places, from the published change of the new law, until the

introduction and adaption of the new legal requirements in one company.

I am leading a project which has the target that my company is ready for the change

from paper AAD to e-AD.

My company, LyondellBasell Industries (LBI), is one of the leading producers of fuels,

petrochemicals and polymers in the world. LBI is a market leader in the production of

Propylene Oxide in the world and a significant producer of fuels and refined products,

including bio fuels.41

Main production plants of the company are located in the United States, Europe and

Middle East.

The European chemical plants are situated

- in the Netherlands: in Rotterdam-Botlek and Maasvlakte

- in France in Fos-sur-Mer.

The European refinery is situated in France in Berre.

The European polymer plants are located

- in the Netherlands: in Moerdijk

- in Germany: in Münchsmünster, Frankfurt/Main and Wesseling

- in Italy: in Ferrara, Brindisi and Terni

- in UK: in Milton Keynes and Carrington

- in Spain: in Tarragona.

The company’s objectives for the next year will be more streamline business

processes of both previous companies. One milestone will be the integration of the

41

See web page www.lyondellbasell.com

26

two SAP systems from Lyondell and Basell into one common global system as from

1st July 2010.

The SAP project is currently planned but is presently in the development phase. To

develop this scope, the project team members are meeting with end users, subject

matter experts and IT business leads to understand business process requirements

and to identify functional gaps and best practices.

During this process the new legal requirements, concerning EMCS and Electronic

Customs, are mapped as functional gaps. At the moment every LBI entity in Europe

is working with an external software application to be linked with ECS. IT Business

Solutions proposed to the project team following business case: all external software

applications for ECS in every MS should be terminated and it is suggested to

implement the SAP Global Trade System (GTS) for the required Electronic Customs

systems. For the EMCS implementation from 1st April 2010, IT Business Solutions is

currently checking which application within SAP can offer the best solution and how

it will match the LBI requirements concerning excise goods movements within the

EU.

5.2 Project overview

LBI uses the IT Enterprise Stage Gate Process as Project Management Framework.

It is a process to achieve alignment among stakeholders regarding the problem,

solutions and implementation in an IT project. Stakeholder is a person who is

positively or negatively impacted by the change, initiative or project. The Stage Gate

Process ensures that the right thing, at the right time, is done and looks up-on the

strategic and tactical perspective.

The Leadership will make a Go or No Go decision at every step. The following

stages can be taken in an IT project.

- Stage 1; the opportunity is framed.

What is the problem we are trying to solve?

What are the benefits which we will realise with this project?

- Stage 2; the solution is selected.

27

Do we understand the requirements?

Have we analysed the alternatives and chosen the best solution?

- Stage 3; the solution is designed.

How will we implement the solution?

- Stage 4; the solution is implemented.

Does the solution completely meet the requirements?

Is the organisation prepared to act upon the solution?

- Stage 5; the solution is implemented.

How will we continue to realise the desired results?

For the roll-out of EMCS in the European entities of LBI the following steps have

already been taken and considered.

The flows and procedures of excise goods for the plants in Europe are under

assessment. The requirements of national law in the several countries in the

European Community are mapped.

Basis for the decision is the mapping of all excise goods flows within LBI Europe and

the national legal requirements in the MS where plants are located.

LBI is involved in excise goods movements under duty suspension arrangements

when raw materials are purchased for the production.

Benzene, Butane and Propane go in production process of chemicals and polymers.

These are excise goods of the category energy products according the Council

Directive 2003/96/EC.42

When these raw materials are received or dispatched for, or out of the production,

the company is obligated in accordance with the legislation doing the administration

of AAD’s. This includes checking the shipment, requesting the signature for the

received AAD with the Dutch customs authorities and sending it back to the

consignor or alternatively issuing an AAD.

During the production process for chemicals in the Netherlands a by-product is

Propane and Pentane. These excise goods are sold with excise duty being

suspended and an AAD needs to be issued. 42

See Council Directive 2008/118/EC refers to Council Directive 2003/96/EC in Article 1

28

Due to the Dutch law of excise goods it is possible to use the simplified procedures

and issue the AAD only once in the month after month end close. The Dutch law

allows these procedures when the movements are on regular basis.

On stage 2 the following items are on the agenda; checking if B2B software is

needed in the several countries of production plants of LBI.

The decisions how the several countries will work with EMCS need to be followed-up

by the MS where production plants are situated.

The decision will be made between using the web portal of the national tax

authorities or B2B connection to EMCS directly.

The roll out of the new system EMCS requires the implementation of new work

processes for the involved people in the company and related third parties.

After implementing EMCS the system needs to be maintained due to changes in the

production process of LBI or changes in the legislation.

At the moment we are carrying out an assessment of the product flows to identify

where excise goods go in the production process and where excise goods come out.

Target is to get all details about the excise goods movements within the European

plants of LBI. The review goes further into the details of the number of AAD’s

received and sent per month and how they are processed.

To get all excise good flows and processes mapped the following questionnaire has

been developed and sent to every plant in every countries financial administration.

29

QuestionnairePlant …in country…:

Type of excise goods flows:

□ domestic □ intra-community □ import □ export

Nature of movements:

□ arrival □ dispatch

Means of transport:

□ truck □ ship □ pipeline □ other

Number of AAD per month

arrival:

□ 1-5 □ 5-10 □ 10-20 □ 50 □ 100

dispatch

□ 1-5 □ 5-10 □ 10-20 □ 50 □ 100

Administration of excise goods today

□ manual □ ERP □ outsourced

Name of the goods with Common Customs Tariff43

43

See Commission Regulation (EC) No 948/2009 of 30th September 2009 amending the Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff

30

As an example of a completed questionnaire is one mentioned from the Dutch

chemical plants in Rotterdam-Botlek and Maasvlakte.

QuestionnaireDutch chemical plants: Rotterdam-Botlek, Maasvlakte

Type of excise goods flows:

x domestic □ intra-community □ import □ export

Nature of movements:

x arrival x dispatch

Means of transport:

x truck x ship x pipeline □ other

Number of AAD per month

arrival:

□ 1-5 □ 5-10 x 10-20 □ 50 □ 100

dispatch

x 1-5 □ 5-10 □ 10-20 □ 50 □ 100

Administration of excise goods today

x manual □ ERP □ outsourced

Name of the goods with Common Customs Tariff44

Butane 27111390

Propane 27111294

Pentane 27111294

Benzene 29022000

44

See Commission Regulation (EC) No 948/2009 of 30th September 2009 amending the Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff

31

As a result from this assessment the Customs group and the IT Business Solution

came to the agreement not to look for an external software solution for LBI in the

Netherlands. Following points taken into account resulted in this decision.

The AAD administration belongs to the business process of the raw materials

purchase. The Raw Material Coordinators are responsible for certain products and

are decentralised at every plant within Europe. With the introduction of EMCS the

requirements of the process itself have not been changed. The Raw Material

Coordinators only issue an e-AD instead of a paper AAD. The number of received

and issued AAD’s in the several EU countries of LBI production does not justify the

need to choose an external software solution. E-AD’s can be easily handled via web

access of the competent tax authorities. Especially in the transitional period, from

paper AAD to e-AD from April to December 2010, the Management has decided to

retain the current process of the paper AAD.

Another reason is that the company has sets the priority for IT Business Solutions on

the SAP integration in Europe on 1st July 2010.

IT Business Solutions retain the right to change the decision by end 2010 and will

check external software applications once more.

32

6 Conclusion

The question was to describe the EMCS which will be implemented from 1st April

2010 and to show what impacts this computerised system has for companies and tax

authorities and finally to review that the EMCS is not impeded by the free

movements of goods within the EU.

The new Directive focuses on the monitoring of excise goods. The process itself has

not changed. The MS have chosen not to take any risk. The wish is to develop an

EU wide computerised monitoring system but not to choose for one centralised data

system. Every MS has the freedom to work out his own national excise application

and to do it using a different approach. Few of the MS have chosen to develop the

national excise application with their own internal resources while others have

engaged external software developers. EMCS is a complex conglomerate of different

software solutions which are linked with the central European database. That makes

the working process for data transfer and the clearing of the data more complicated.

Another disadvantage is if users in the companies, who do the administration for

different countries they need to be aware of different software applications.

It can happen that the system in total works inefficiently due to technical difficulties.

At the moment these difficulties were noticed with the ECS which was introduced in

2008. The confirmation of exit message does not reach the European central

database and the export declaration does not get the confirmation of exit back from

the office of exit. Currently 20% of the export declarations in the Netherlands are

without confirmation of exit.45

This means that about 20% manual workarounds are needed to be actioned and

paper documentation to be maintained with alternative documents, like CMR’s or

import declarations, to prove the export and the 0% VAT rate on the invoices. The

target of this Electronic Customs system is not really designed to reduce the

45

See web page www.douane.nl

33

administrative burden as long as the system is not 100% reliable. The software

developers are still working on it to get the system in a more steady state.

The working group Taxation and Customs did not consider other possibilities to

reduce tax fraud. According to the Press Releases in 2004 and 2008 the main

reason is the different tariffs of the EU excise goods in the different countries. Until

now the MS could only agree with minimum and maximum tariffs. Within the next

years the MS could agree that tariffs for alcohol and tobacco will cover a smaller

range.46

In 2004 the European Commission declared in his debate that the wide range of

divergences in rates of excise duty and VAT between the MS, together with the

frequently high tax burden on the products relative to their underlying value,

constitutes an opportunity for legitimate cross-border shopping but also an incentive

for fraudulent transactions and smuggling.

A none uniformed tariff for EU excise goods will always give room for fiscal fraud and

will continue to do so in the future. The distortion of competition for excise goods can

not be erased by a European monitoring and controlling system. EMCS can deter

the possibilities for fiscal fraud.

The introduction of EMCS could be especially, in the beginning, be a stumbling block

due to more administration and less available scenarios in EMCS and the fact that

EMCS will be linked later to Electronic Customs like ECS.

46

See IP/04/669 Alcohol taxation, European Commission Taxation and Customs Union, 26th May 2004 and IP/08/1149 Tobacco products, European Commission Taxation and Customs Union, 16th July 2008

34

AbbreviationsAAD Administrative Accompanying Document

ARC Administrative reference code

CIM Convention relative aux transports internationaux ferroviaires,

in English: Convention concerning International Carriage by Rail

CMR Convention relative au contrat de transport international de

marchandises par route

in English: Convention on the Contract for the International Carriage

of Goods by Road

E-AD Electronic Administrative Document

ECS Export Control System

EMCS Excise Movement Control System

ERP Enterprise Resource Planning

EU European Union

IT Information Technologies

LBI LyondellBasell Industries

MS Member State(s)

NCTS New Computerised Transit System

SAP GTS SAP Global Trade System

SEED System for the Exchange of Excise Data

UK United Kingdom

VAT Value Added Tax

35

Bibliography- Council Directive 92/12/EEC of 25th February 1992

- Commission Regulation (EEC) No 2719/92 of 11th September 1992

- Decision No 1152/2003/EC of 16th June 2003

- Council Directive 2008/118/EC of 16th December 2008

- Commission Regulation (EC) No 684/2009 of 24th July 2009

- Decision No 70/2008/EC of 15th January 2008

- Commission Regulation (EEC) No 2913/92 of 12th October 1992

- Council Directive 2003/96/EC of 27th October 2003

- Commission Regulation (EC) No 948/2009 of 30th September 2009

- Press notice Europe Rapid Midday Express, European Commission

Taxation and Customs Union, 16th December 2008

- Departmental Report 2008, Her Majesty's Revenue & Customs, UK, July 2008

- Report to Directors General for Customs and Indirect Taxation from High Level

Group on fraud in the tobacco and alcohol sectors, 19th May 1998

- Master Plan EMCS computerisation project, Taxation and Customs Union DG,

16th January 2007

- EMCS News No 1, European Commission Taxation and Customs Union,

October 2006

- Nota naar aanleiding van het verslag wijzing Wet op de accijns,

Ministerie voor Financiën, Nederlande, 17 november 2009

- Wijzing van de Wet op de accijns in verband met richtlijn 2008/118/EC van de

Raad van 16 december 2008, Ministerie voor Financiën, Nederlande,

17 november 2009

- Entwurf eines Vierten Gesetzes zur Änderung von Verbrauchsteuergesetzen

Bundesministerium der Finanzen, Deutschland,11. Februar 2009

- Presentation EMCS project, Federale Overheidsdienst Financiën België,

oktober/ november 2009

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Customs Union, 16th December 2009

36

- European Customs & Trade Communiqué, Price Waterhouse Coopers, Edition 37,

August/September/October 2009

- Presentation Electronic Customs, Johan Stoopen, Postmaster Douane, Europese

Fiscale Studies, Erasmus Universiteit Rotterdam, 12 november 2009

- Info-Schreiben der Hauptzollämter zur Einführung von EMCS, November 2009

- EMCS information, Functional Excise System Specifications, Taxation and

Customs Union Directorate General, 15th September 2006

- IP/04/669 Alcohol taxation, European Commission Taxation and Customs Union,

26th May 2004

- IP/08/1149 Tobacco products, European Commission Taxation and Customs Union,

16th July 2008

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Westfälische Wilhelms-Universität Münster, RegDir M. Bongartz,

Sommersemester 2009

Cases- AV0398, Hoge Raad, 39180, 27 januari 2006

- AT8954, Hoge Raad, 40716, 1 december 2006

Web pages- web page of the European Commission Taxation and Customs Union

http://ec.europa.eu/taxation_customs/taxation/excise_duties/gen_overview/index_e

n.htm

- web pages of several MS of the EU:

- Germany: http://www.zoll.de/b0_zoll_und_steuern/b0_verbrauchsteuern/index.html

- Netherlands: http://www.douane.nl/zakelijk/emcs/

- Belgium: http://fiscus.fgov.be/interfdanl/nl/index.htm

- UK: http://www.hmrc.gov.uk/index.htm

- web page www.prinsjesdag2009.nl

- web page www.lyondellbasell.com