Risk Management Definition (Indirect Tax)

Risk
(5) 'Risk' means the likelihood of an event that may occur, with regard to the entry, exit, transit, transfer or end-use of goods moved between the customs territory of the Community and countries or territories outside that territory and to the presence of goods which do not have Community status, which would have any of the following results:
(a) it would prevent the correct application of Community or national measures;
(b) it would compromise the financial interests of the Community and its Member States;
(c) it would pose a threat to the security and safety of the Community and its citizens, to human, animal or plant health, to the environment or to consumers.

4.5 Explanatory Introduction
The Explanatory Introduction to the modernized Customs Code mentions the following with regard to at that time the proposed Article 4(25):
“The definitions in (25) and (26) reflect the status of the proposals on security-related changes to the Customs Code (COM(2003) 452 final, 24.07.2003).”
COM(2003) 452 proposes:
2. In Article 4 the following subparagraphs shall be added:
“(25) ‘Risk’ means: the likelihood of an event that may occur in the international movement and trade of goods threatening the Community’s security and safety, posing a risk to public health, environment and consumers, including prevention of the correct application of Community or national measures concerning the goods entering into or exiting from the Community.
(26) ‘Risk management’ means: the systematic identification and implementation of all measures necessary for limiting exposure of risks. This includes activities such as collecting data and information, analysing and assessing risk, prescribing and taking action and regular monitoring and review of the process and its outcomes, based on international, Community and national sources and strategies.”

See also Article 20 on customs controls.
Whereas:
(6) The use of Information and Communication Technology (hereinafter referred to as 'IT') is a key element in ensuring trade facilitation and, at the same time, the effectiveness of customs controls, thus reducing costs for business and risk for society. It is therefore necessary to establish the legal principle that all customs and trade transactions are to be handled electronically and that IT systems for customs operations offer, in each Member State, the same facilities to economic operators.
(12) The streamlining of customs procedures within an electronic environment requires the sharing of responsibilities between the customs authorities of different Member States. It is necessary to ensure an appropriate level of effective, dissuasive and proportionate sanctions throughout the Internal Market in order to discourage any serious infringements of the customs rules and thus reduce the risk of fraud, of threats to safety and security, and to protect the financial interests of the Community. This can only be achieved through a common Community framework, which allocates jurisdiction for the imposition of penalties and delimits those penalties, in full respect of the Charter of Fundamental Rights.
(14) In order to minimize the occurrence of risk to the Community, its citizens and its trading partners, the harmonized application of customs controls by the Member States should be based upon a common risk management framework and an electronic system for its implementation. The establishment of a risk management framework common to all Member States should not prevent them from controlling goods by random checks.
(22) In order to safeguard the financial interests of the Community and of the Member States and to curb fraudulent practices, arrangements involving graduated measures for the application of a comprehensive guarantee are advisable. Where there is an increased risk of fraud it should be possible to prohibit temporarily the application of the comprehensive guarantee, taking account of the particular situation of the economic operators.
(25) It is appropriate, where an economic operator has provided, in advance, the information necessary for risk-based controls on the admissibility of the goods, to ensure that quick release of goods is then the rule. Fiscal and trade policy controls should primarily be performed by the customs office responsible for the premises of the economic operator.
(25) It is appropriate, where an economic operator has provided, in advance, the information necessary for risk-based controls on the admissibility of the goods, to ensure that quick release of goods is then the rule. Fiscal and trade policy controls should primarily be performed by the customs office responsible for the premises of the economic operator.

Article 4
Definitions
For the purposes of the Code, the following definitions shall apply:
(13) 'Risk management' means the systematic identification of risk and the implementation of all measures necessary for limiting exposure to risk.

Article 5
Exchange of data
2. Save where otherwise specifically provided, the Commission shall, in accordance with the procedure referred to in Article 196(2), adopt measures laying down the following:
(a) the rules defining and governing the messages to be exchanged between customs offices, as required for the application of the customs legislation;
(b) a common data set and format of the data messages to be exchanged under the customs legislation.
The data referred to in point (b) of the first subparagraph shall contain the particulars necessary for risk analysis and the proper application of customs controls, using, where appropriate, international standards and commercial practices.

Article 7
Exchange of additional information between customs authorities and economic operators
1. Customs authorities and economic operators may exchange any information not specifically required under the customs legislation, for the purpose of mutual co-operation in the identification and counteraction of risk. That exchange may take place under a written agreement and may include access to the computer systems of economic operators by the customs authorities.

Article 27
Customs controls
2. Customs controls, other than random checks, shall be based on risk analysis using electronic data processing techniques, with the purpose of identifying and evaluating the risks and developing the necessary measures to counter the risks, on the basis of criteria developed at national, Community and, where available, international level.
Member States, in co-operation with the Commission, shall develop, maintain and employ an electronic system for the implementation of risk management, by 30 June 2009 at the latest.
3. The Commission shall, in accordance with the procedure referred to in Article 196(2), adopt measures laying down the following:
(a) rules for a common risk management framework;
(b) rules for establishing common criteria and priority control areas;
(c) rules governing the exchange of risk information and analysis between customs administrations.

Article 28
Co-operation between authorities
2. In the framework of the controls referred to in this Section, customs and other competent authorities may, where necessary for the purposes of minimising risk, exchange data received, in the context of the entry, exit, transit, transfer and end-use of goods moved between the customs territory of the Community and other territories, and the presence of non-Community goods, with each other, with the customs authorities of other Member States and with the Commission.

Article 32
Fees and costs
2. The Commission shall, in accordance with the procedure referred to in Article 196(2), adopt measures for the implementation of the second subparagraph of paragraph 1 and, in particular, the following:
(d) exceptional control measures, where these are necessary due to the nature of the goods or to potential risk.

Article 68
Additional provisions relating to the use of guarantees
2. The guarantee waiver authorized in accordance with Article 67(2) shall not apply to goods which are considered to present increased risks.

Article 93
Obligation to lodge an import summary declaration
1. Goods brought into the customs territory of the Community shall be covered by an import summary declaration, with the exception of goods carried on means of transport only passing through the territorial waters or the airspace of the customs territory of the Community without a stop within that territory.
The Commission shall, in accordance with the procedure referred to in Article 196(2), adopt measures laying down a common data set and format for the import summary declaration, containing the particulars necessary for risk analysis and the proper application of customs controls, primarily for security and safety purposes, using, where appropriate, international standards and commercial practices.
3. The Commission shall, in accordance with the procedure referred to in Article 196(2), adopt measures concerning the following:
(d) the determination of the competent customs office at which the import summary declaration shall be lodged or made available and where risk analysis and risk-based entry controls are to be carried out.

Article 94
Lodgement and responsible person
1. The import summary declaration shall be lodged using an electronic data processing technique. Commercial, port or transport information may be used provided it contains the necessary particulars for an import summary declaration.
Customs authorities may, in exceptional circumstances, accept paper-based import summary declarations, provided that they apply the same level of risk management as that applied to import summary declarations made using an electronic data processing technique and that the requirements for the exchange of such data with other customs offices can be met.
4. Where appropriate, the customs authorities shall inform the person who lodged the import summary declaration of consignments which may pose particular security or safety risks.

Article 111
Competent customs offices
2. The Commission shall, in accordance with the procedure referred to in Article 196(2), adopt measures for the establishment of the following competent customs offices:
(a) the customs office at which a customs declaration shall be lodged or made available;
(b) the customs office where risk analysis and risk-based import or export controls are to be carried out.

Article 186
Measures establishing certain details
The Commission shall, in accordance with the procedure referred to in Article 196(2), adopt measures concerning the following:
(e) the determination of the competent customs office at which the pre-departure declaration shall be lodged or made available and where risk analysis and risk-based export and exit controls are to be carried out.

Article 190
Exit summary declaration
1. Where non-Community goods are destined to leave the customs territory of the Community and a re-export notification is not required, an exit summary declaration shall be lodged at the competent customs office, in accordance with Article 185.
The Commission shall, in accordance with the procedure referred to in Article 196(2), adopt measures laying down a common data set and format for the exit summary declaration, containing the particulars necessary for risk analysis and the proper application of customs controls, primarily for security and safety purposes, using, where appropriate, international standards and commercial practices.
2. The exit summary declaration shall be made using an electronic data processing technique. Commercial, port or transport information may be used, provided that it contains the necessary particulars for an exit summary declaration.
In exceptional circumstances, customs authorities may accept paper-based exit summary declarations, provided that they apply the same level of risk management as that applied to exit summary declarations made using an electronic data processing technique and that the requirements for the exchange of such data with other customs offices can be met.
Risk management
(13) 'Risk management' means the systematic identification of risk and the implementation of all measures necessary for limiting exposure to risk.

Old text (26) ‘Risk management’ means the systematic identification of risk and implementation of all measures necessary for limiting exposure to risk. This includes activities such as collecting data and information, analysing and assessing risk, prescribing and taking action, and regular monitoring and review of the process and its outcomes, based on international, Community and national sources and strategies.
Commentary Article 4(26)
4.26 Explanatory Introduction
The Explanatory Introduction to the modernized Customs Code mentions the following with regard to Article 4(26):
“The definitions in (25) and (26) reflect the status of the proposals on security-related changes to the Customs Code (COM(2003) 452 final, 24.07.2003).”

See under 4.25 above.
The AmCham EU has the following specific comment: AmCham EU considers that a single system for risk management should be set-up at an EU level. Central management of criteria by the Commission is essential to ensure equity of treatment for business across the EU. In the light of the fact that the sources and strategies for risk analysis will probably be based on international, Community and national criteria, requires a high level of central management.
Whereas:
(14) In order to minimize the occurrence of risk to the Community, its citizens and its trading partners, the harmonized application of customs controls by the Member States should be based upon a common risk management framework and an electronic system for its implementation. The establishment of a risk management framework common to all Member States should not prevent them from controlling goods by random checks.

Article 27
Customs controls
2. Customs controls, other than random checks, shall be based on risk analysis using electronic data processing techniques, with the purpose of identifying and evaluating the risks and developing the necessary measures to counter the risks, on the basis of criteria developed at national, Community and, where available, international level.
Member States, in co-operation with the Commission, shall develop, maintain and employ an electronic system for the implementation of risk management, by 30 June 2009 at the latest.
3. The Commission shall, in accordance with the procedure referred to in Article 196(2), adopt measures laying down the following:
(a) rules for a common risk management framework;
(b) rules for establishing common criteria and priority control areas;
(c) rules governing the exchange of risk information and analysis between customs administrations.

Article 94
Lodgement and responsible person
1. The import summary declaration shall be lodged using an electronic data processing technique. Commercial, port or transport information may be used provided it contains the necessary particulars for an import summary declaration.
Customs authorities may, in exceptional circumstances, accept paper-based import summary declarations, provided that they apply the same level of risk management as that applied to import summary declarations made using an electronic data processing technique and that the requirements for the exchange of such data with other customs offices can be met.

Article 190
Exit summary declaration
2. The exit summary declaration shall be made using an electronic data processing technique. Commercial, port or transport information may be used, provided that it contains the necessary particulars for an exit summary declaration.
In exceptional circumstances, customs authorities may accept paper-based exit summary declarations, provided that they apply the same level of risk management as that applied to exit summary declarations made using an electronic data processing technique and that the requirements for the exchange of such data with other customs offices can be met.

In Case C-383/98 (The Polo/Lauren Company) the ECJ held that Article 1 of Regulation No. 3295/94 laying down measures to prohibit the release for free circulation, export, re-export or entry for a suspensive procedure of counterfeit and pirated goods must be interpreted as being applicable where goods of the type specified in that regulation, imported from a non-member country, are, in the course of their transit to another non-member country, temporarily detained in a Member State by the customs authorities of that State on the basis of that regulation and at the request of the company which holds rights in respect of those goods which it claims have been infringed and whose registered office is in a non-member country. According to Article 1(1)(a) of that regulation, the latter applies where counterfeit or pirated goods are found when checks are made on goods placed under a suspensive procedure within the meaning of Article 84(1)(a) of Regulation No. 2913/92 establishing the Community Customs Code. Under this latter provision, the term suspensive procedure designates, inter alia, external transit, that is to say, a customs procedure allowing the movement of non-Community goods from one point to another within the customs territory of the Community without those goods being subject to import duties or other charges under the Community Customs Code. The regulation is thus expressly designed to apply to goods passing through Community territory from a non-member country destined for another non-member country. It does not matter in this regard whether the holder of the right or those entitled under him have their registered office in a Member State or outside the Community. Since the ECJ has ruled that measures at border crossing points intended to enforce intellectual property rights could be adopted autonomously by the Community institutions on the basis of Article 113 of the EC Treaty (now, after amendment, Article 133 EC), the Community was empowered, under that Article, to introduce common rules for stopping counterfeit goods under a suspensive customs procedure such as the external transit procedure. It was thus empowered to adopt Regulation No. 3295/94 laying down measures to prohibit the release for free circulation, export, re-export or entry for a suspensive procedure of counterfeit and pirated goods. The external transit of non-Community goods, moreover, is not devoid of effect on the internal market. It is, in fact, based on a legal fiction. Goods placed under this procedure are subject neither to the corresponding import duties nor to the other measures of commercial policy; it is as if they had not entered Community territory. In reality, they are imported from a non-member country and pass through one or more Member States before being exported to another non-member country. This operation is all the more liable to have a direct effect on the internal market as there is a risk that counterfeit goods placed under the external transit procedure may be fraudulently brought on to the Community market.

"A critical point in managing the risk however is the human side of tax risk management. In many aspects, tax departments may look like an extension of a finance or a legal department. At some point, the role resembles that of a commercial department as well. Tax risk management is not only about risk measurement, but also about bringing a position home, preferably at less cost than originally accounted for.

Good tactical management starts with understanding what your organization as well as the other party are trying to achieve. In that respect, it also is important to establish what you and the other party can trade. In some countries and in respect of some taxes, tax authorities do not have room to negotiate. In some countries, there is a direct link between the compensation of the tax auditor and additional tax revenue raised by him.

Your own positioning may depend on the question of whether you have a continuous relationship with the tax authorities or this is a one-off problem in a country where there is no further presence. As will be clear it is also useful to be careful in choosing who will be the contact person with authorities during audits. A good relationship between auditor and a company may help to create an atmosphere in which trust exists, which would help in coming to an acceptable outcome.

The importance of good tax managers/traders in this area is hard to underestimate as the staff may quite often be dealing with millions in funds for their employer. Their individual contribution may influence the profitability of a company substantially."

How many multinationals have implemented "good tactical management"?