Royalties and license fees in determining the customs value of imported goods. Judgment of the ECJ of 9 March 2017. GE Healthcare GmbH
The customs value for goods imported into the Community is defined in Article 29 of the former Community Customs Code as “the transaction value, that is, the price actually paid or payable for the goods when sold for export to the customs territory of the Community, adjusted, where necessary, in accordance with Articles 32 and 33”.
In particular, Article 32 (1) (c) provides that “royalties and licence fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable”. In addition, Article 157 (2) of the Regulation laying down certain implementing provisions summarizes the conditions for adding the royalties and license fees to the customs value in two: is related to the goods being valued and constitutes a condition of sale of those goods.
In addition, Article 160 of the Regulation also establishes a provision for the case where the fee is paid to a third party, in which case the above conditions are only considered to be fulfilled if the seller, or a person related thereof, asks the buyer to make the payment.
In relation to the main proceedings, a German entity (GE Germany) signed a license agreement with another entity of the GE group granting to the former a license for the use of the GE group trade mark for products manufactured and sold as well as for services provided by GE Germany. The fee was set at 0.95% of GE Germany’s annual turnover for the use of the GE brand and 0.05% for the use of the GE group’s trade name. Payment was to be made on December 31 of each year.
However, in the imports made by GE Germany of goods acquired from GE Group companies, the corresponding fees were not included in the calculation of the customs value. In this situation, the Customs Office made the clearance for the import duties, understanding that the company had to add the amount of the royalties paid to the customs value. In response to the appeal filed by the company, the national court refers the following questions to the ECJ:
- Can the royalties be included in the customs value when it is not possible to know either at the time of the contract or at the time of customs clearance if there will be an obligation to pay royalties?
- Can the royalties for the use of trademarks refer to imported goods even though those are also paid for services and for the use of the acronym that makes up the common root of the group name?
- Can the royalties constitute a condition for the sale of goods for export to the Community even though the payment is made to a third party related to both the seller and the buyer?
- If the royalties do relate in part to imported goods, and partly to subsequent services, should it be considered that adequate distribution, which is to be effected only on the basis of objective and quantifiable data, implies that it can only be corrected the customs value which has been determined in accordance with article 29 or is also possible where the customs value is determined in accordance with article 31?
First, the ECJ clarifies the guidelines to be taken into account to include the payment of the royalty in the customs value, in accordance with Article 157 of the Regulation, which can be summarized in three cumulative requirements: i) that the royalties are not effectively included in the price paid (this is the case in this proceedings since the company did not include them in the customs value), (ii) that they relate to the goods being valued and (iii) that the buyer is obliged to pay those fees as condition of the sale of the goods.
In this regard, the Court replies to the first and second questions that it is clear that the royalties relate to imported goods, since the company undertakes by contract to pay for the goods which it imports, so the fact that the amount is not known at the time of the contract or customs clearance is not relevant, since Article 32 of the Customs Code does not prescribe anything to this effect. In addition, Article 156 of the Regulation allows certain elements to be added to the customs value even if they cannot be quantified at the time the customs debt is incurred as far as it is calculated on the basis of appropriate and specific criteria. It is even contemplated that the declarant may submit a declaration for incomplete release for free circulation, with a provisional assessment.
As regards the question of the fact that the fee relates in part to imported goods and partly to post-importation services, the Court considers that, in this case, the fee is calculated as a percentage over the turnover generated by the sale of goods imported under the license agreement, i.e. it is related to said goods, without considering the fact that it also refers to services rendered. In this case, the adjustment to the customs value may be made in accordance with Article 32 on the basis of objective and quantifiable data.
With regard to the third question concerning the payment of the royalty to a related third party, Article 160 of the Regulation establishes that when the buyer pays a fee to a third party, the condition will only be considered fulfilled if the seller or a person related to the third party asks the buyer to make that payment, so you have to determine if this is true when the third party and the person linked to the seller are the same person. In that case, the Court confirms the provisions of the Advocate General stating that the fact that a person related to the seller is not treated as a third party does not make it possible to conclude that the payment does not constitute a condition for the sale.
Finally, with respect to the last question, the Court does not object to adjustment and allocation measures when the customs value is calculated using article 31 instead of 29, since these articles are applied in a subsidiary manner and in both cases the general provisions of the chapter are applied, which includes article 32 on royalties,. So that to take the data relating to former periods of the company may constitute a data available in the Union that can be invoked, considering that data “objective and quantifiable “.
A copy of the judgment under case number C-173/15 is attached.
Click here if you want more information about our customs taxation services or you can contact us at email@example.com