SWISS CHRONOMETRE WATCH CASE: SPONTANEOUS EXCHANGE OF INFORMATION FOR THE CORRECT APPLICATION OF SWISS CUSTOMS AND SWISS VALUE ADDED TAX LEGISLATION
13 September 2018
Federal Customs Administration, District Directorate III, issues notification of penalty by application of simplified criminal prosecution procedure (23 August 2018)
Dr Marcel R. Jung successfully represented a Swiss defendant in a fiscal criminal prosecution in a case where the defendant imported a Swiss watch without Swiss VAT declaration at the Swiss Customs Office.
The defendant bought a Swiss watch in France. The French VAT rate is 20%. The defendant gave evidence of his Swiss residence. Therefore, the French seller was entitled to sell without French VAT. When entering Switzerland, the defendant did not declare the Swiss watch at the Swiss Customs Office.
After some time, the Federal Customs Administration received from the French Customs Administration the French export document in order to verify whether the Swiss watch was properly declared at the Swiss Customs Office. The information was spontaneously exchanged in accordance with the Protocol on Mutual Administrative Assistance in Customs Matters from 9 June 1997 concluded between the European Community and Switzerland that was added to the Agreement from 22 July 1972 between the European Economic Community and the Switzerland (OJ No L 169/77 27.6.1997 = SR 0.632.401.02). Article 4 of this twenty-year old Protocol provides for spontaneous exchange of information for the correct application of customs legislation:
«The Contracting Parties shall provide each other, at their own initiative and in accordance with their laws, rules and other legal instruments, with assistance if they consider that to be necessary for the correct application of customs legislation, particularly when they obtain information pertaining to:
- operations which are, or appear to them to be, in breach of such legislation and which may be of interest to the other Contracting Party,
- new means or methods employed in carrying out such operations,
- goods known to be subject to breaches of customs legislation,
- natural or legal persons with regard to whom there are reasonable grounds for believing that they are, or have been, in breach of customs legislation,
- means of transport for which there are reasonable grounds for believing that they have been, are or may be, used in operations in breach of customs legislation.»
In the following, the Federal Customs Administration informed the defendant about the exchange of information. The Swiss customs legislation is applicable to the Swiss import VAT legislation in so far as the Swiss import VAT legislation does not provide different rules. On grounds of both the Federal Act on Customs and the Federal Act on VAT, the Federal Customs Administration asked the defendant to complete a questionnaire in order to verify the lawfulness of the importation into Switzerland. The defendant was informed that the provided information may be used in a fiscal criminal prosecution.
The evasion of Swiss import VAT is punishable with a fine of up to CHF 800,000 in case imported goods are not declared at the Swiss Customs Office intentionally or negligently.
The defendant cooperated with the Federal Customs Administration, waived any procedural rights, admitted to having made a mistake, showed remorse and promised to pay the Swiss import VAT. As a consequence, the Federal Customs Administration applied the simplified criminal prosecution procedure that is stipulated in the Federal Administrative Penal Act (Article 65 of the VStrR). The simplified procedure is, however, applicable only to a fine of CHF 2,000 at maximum. Further, the application of the simplified procedure is at the sole discretion of the commissioner in charge. The defendant has no right to its application.
In the following, the Federal Customs Administration issued a notification of penalty that the defendant had to sign. The defendant had to pay the Swiss import VAT at the applicable rate of 8% and a fine of CHF 2,000. The notification of penalty was issued on grounds of both Swiss customs legislation and Swiss import VAT legislation.
The simplified procedure provides for an additional particular benefit: The procedure is free of fees. The defendant had to pay to the Federal Customs Administration the Swiss import VAT and the fine, but no procedural fees.
One may assume that Article 4 of the twenty-year old Protocol might become more popular these days, in particular for the correct application of Swiss VAT legislation.
The simplified procedure is becoming increasingly popular. One may conclude that the Federal Parliament should consider increasing the threshold significantly above CHF 2,000 in order to extend its scope similar to Articles 358 et seq. of the Federal Penal Law Act that provides for a simplified procedure in general criminal prosecutions.
In the Swiss watch case, the expected fine was not significant as the defendant bought a Swiss watch with one complication only (chronomètre). Therefore, the commissioner in charge had the option to apply the simplified procedure. If the defendant, however, had bought a tourbillon, application of the simplified procedure would not have been eligible.