The Austrian-born actor and former governor of California (76) was stopped at the airport for nearly three hours when he arrived in Munich from Los Angeles, German newspaper Bild reported, citing customs officials.
Schwarzenegger was pulled aside by officers who searched his luggage and found the watch that the actor had allegedly not declared on his arrival customs form.
A spokesperson for the main customs office in Munich said, "We have initiated criminal tax proceedings. Since the watch was imported, it should have been registered."
35 THOUSAND EURO FINE
Schwarzenegger said he tried to explain to the authorities that the watch had been donated to the Schwarzenegger Climate Initiative and would be auctioned at an event in the Austrian ski resort of Kitzbühel on Thursday night.
According to Bild, the authorities demanded 35,000 euros from Schwarzenegger, including 4,000 euros in taxes and a 5,000 euro fine.
The actor reportedly offered to pay the fee by credit card, but German customs rules require half of the fee to be paid in cash.
Customs officials are said to have escorted Schwarzenegger to a bank to withdraw cash before he was allowed to continue his journey.