Shall be included in the customs value of imported goods the royalty paid by the importer to the licensors? Judgment of TEAC of February 18th, 2016.
The Community Customs Code (CCC) establishes in its article 29 that the customs value of imported goods is their transaction value, understanding this as the price actually paid or payable for the goods when sold for export. However, we must not limit the customs value only to this definition, but it should be added to it some concepts set forth in article 32 of the CCC, such as, among others, royalties and licence fees related to the goods and that buyer is obliged to pay as a condition of the sale of such goods.
However, this is not always the case, since in the event that such payments do not constitute a condition of the sale for export with destination to the Community, these royalties are not added to the customs value of the goods. Therefore, and summarized, under Regulation 2454/93 laying down the implementation provisions of the Community Customs Code, in order for the amount of the royalty to be added to the customs value is required:
– This amount is not included in the price actually paid or payable.
– Royalty is related to the merchandise that is valued.
– Such payment constitutes a condition of sale of the goods.
In addition, with regard to the third condition, the Committee of the Customs Code states that “in general, when royalties are paid to a part that exerts direct control over the production and sale of goods, or indirect control on the manufacturer, it can be considered that this payment is a condition of the sale”.
And precisely on this condition is the case concerning a company that imported products in Spain, where the tax authorities settled the customs duties and the import VAT resulting to increase the taxable base by adding to the customs value the amount of royalties paid by the importer to the licensor. The claimant understands that such amount must not be added to the customs value since it does not constitute a condition of sale of the goods.
Understands the Court that the first two conditions are met, as far as the royalty is settled subsequently to the importation by what cannot be included in the sale price and this is related to the goods that are imported and which contain the brand. Therefore what is decisive is whether the buyer is obligated to meet the royalty as a condition of sale of the goods. Claimant argues that the royalty is not a condition of sale but for later distribution of goods, being the consideration for the grant of rights for commercialization.
As already mentioned, to determine whether it occurs or not this condition it is essential to know whether the licensor exercises direct or indirect control over the manufacturer and production, so it is necessary to review the provisions agreed in the contract between the parties. In this sense, the Court stipulates some of the evidence terms that must be taken into account to see if there is such control:
– Existence of direct manufacturing contract between Licensor and vendor.
– Licensor exercises effective control, direct or indirect, on the production, with regard to methods and production centers.
– The licensor appoints or restricts to whom can sell goods the producer.
– The licensor is entitled to review the accounting records of the manufacturer / purchaser.
– The products are specific to the licensor.
– The characteristics of the products and technology used in the manufacture are stipulated by the licensor.
In this case, all these indications allow to infer control by licensor over manufacturers, in contrast to the cases to which refers the claimant, considered the Court that here there is not a mere product quality control but a control that begins with the manufacturing and continue in other phases. Some of these elements are: licensor determines the characteristics of the products, there is a direct manufacturing contract between licensor and vendor and licensor exerted effective direct control on manufacturing.
Therefore, the Court understands that in this case it should be added the amount of royalties paid to the licensor to the customs value of the goods.
Besides, the judgment does also refers to the incompatibility between customs duties and the non-resident income tax, but the Court considers that this is not the case since those taxes levy over different taxable events.
Attached is a copy, in Spanish, of the judgement of the TEAC with resource number 872/2013.