WCO Knowledge Academy 2014

CUSTOMS VALUATION : ADJUSTMENTS AND SUCCESSIVE SALES

Pablo Muñiz

Van Bael & Bellis

03 July 2014

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Introduction

What is the customs value and its adjustments

Which royalties are part of the customs value

Which sale is relevant in case of successive sales

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EU : Customs value

“The customs value of imported goods shall be 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, provided”

(Article 29 Community Customs Code - CCC - )

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EU : Adjustments: added to the customs value

Commission brokerage, except buying commissions

Buying commission: fees paid by an importer to his agent for the service of representing him in the purchase of the goods being valued

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;

Proceeds of any subsequent resale

Cost of transport and insurance to the place of introduction into the customs territory of the Community

(Article 32 CCC)

EU : Adjustments: added to the customs value

the value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable:

(i) materials, components, parts and similar items incorporated in the imported goods,

(ii) tools, dies, moulds and similar items used in the production of the imported goods,

(iii) materials consumed in the production of the imported goods,

(iv) engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than in the Community and necessary for the production of the imported goods;

(Article 32 CCC)5

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EU : Adjustments: excluded from the customs value

Charges for the transport of goods after their arrival at the place of introduction into the customs territory of the Community

Charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation of imported goods such as industrial plant, machinery or equipment;

Charges for the right to reproduce imported goods in the Community;

Buying commissions;

Import duties or other charges payable in the Community by reason of the importation or sale of the goods

(Article 33 CCC)

EU : Adjustments: excluded from the customs value

“Shown separately from the price actually paid or payable”

A buying commission included in the declared customs value and not distinguished from the sale price of the goods in the customs declaration is to be regarded as forming part of the transaction value within the meaning of Article 29 of the Code and therefore dutiable.

After the release of the imported goods, the customs authorities, presented with an application from the declarant seeking revision of his customs declaration in relation to those goods, are required, subject to the possibility of a subsequent court action, either to reject the application by a reasoned decision or to carry out the revision applied for;

Where they find, at the conclusion of that revision, that the declared customs value erroneously included a buying commission, they are required to regularise the situation by reimbursing the import duties applied to that commission.

(C-468/03 Overland Footwear) - DV1 declaration and related documentation 7

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SOLD FOR EXPORT / SUCCESSIVE SALES

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EU : Sold for export – Article 147 IPCCC

For the purposes of Article 29 of the Code, the fact that the goods which are the subject of a sale are declared for free circulation shall be regarded as adequate indication that they were sold for export to the customs territory of the Community.

In the case of successive sales before valuation, only the last sale, which led to the introduction of the goods into the customs territory of the Community, or a sale taking place in the customs territory of the Community before entry for free circulation of the goods shall constitute such indication.

Where a price is declared which relates to a sale taking place before the last salesale taking place before the last sale on the basis of which the goods were introduced into the customs territory of the Community, it must be demonstrated to the satisfaction of the customs authorities that this sale of goods took place for export to the customs territory in question.

Goods manufactured according to EU specifications or are identified (e.g., marks) as having no other use or destination.

Manufactured or produced specifically for a buyer in the EU

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First sale examples

CHINA CHINA

NETHERLANDS USA

ITALY ITALY

Manufacturing site Manufacturing site

Invoice A100

Invoice B120

Invoice A100

Invoice B120

Release for free circulation Release for free circulation

→ Customs value→ First sale→ Sale for export

goods

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Conclusions

Related companies

Discuss setting up the first sale scheme with local customs office

Document availability

Number of successive sales

Certain customs authorities are more reticent to successive sales schemes

Uncertainty about how long first sale schemes will still be allowed

Customs Union Code - Recast

“Modernised Customs Code” replaced by “Union Customs Code” (Recast)

Regulation (EU) N° 952/2013 of 9 October 2013

Implementing Provisions to the “Union Customs Code”

Implementing Act v. Delegated Act

Draft Implementing and Delegateded Act of 13 January 2014

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WCO : Future of the sale for export

Commentary 22.1: Meaning of the expression “sold for export to the country of importation” in a series of sales – April 2007

27. The Technical Committee is of the view that the underlying assumption of Article 1 is that normally the buyer would be located in the country of importation and that the price actually paid or payable would be based on the price paid by this buyer. The Technical Committee concludes that in a series of sales situations, the price actually paid or payable for the imported goods when sold for export to the country of importation is the price paid in the last sale occurring prior to the introduction of the goods into the country of importation, instead of the first (or earlier) sale. This is consistent with the purpose and overall text of the Agreement.

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EU: Future of the sale for export

Draft Implementing Provisions to the “Modernized” Customs Code

“1. For the purposes of Article 41(1) of the Code, the customs value is determined under the transaction value method if the goods have been the subject of a sale for export to the customs territory of the Community at the time of acceptance of the customs declaration for release for free circulation.

(In the case of successive sales, the transaction value is determined on the basis of the last sale in the international supply chain before the goods are introduced into the customs territory).

2. For the purposes of Article 41(1) of the Code, the customs value may also be determined under the transaction value method on the basis of a sale which takes place while the goods are placed under any of the special procedures indicated under Article 135 (a), (b) or (d) of the Code”

EU: Future of the sale for export

Draft Implementing Act to the « Union » Customs Code – Article 230-02

“For the purposes of Article 70(1) of the Code, the value of the goods shall be determined at the time of acceptance of the customs declaration on the basis of the transaction occurring immediately before the goods are declared for free circulation”

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Conclusions

The EU Commission intends to terminate the first sale rule

Member States have divergent opinions

It is therefore uncertain for how long the current first sale rule will still be applicable

The discussions on Implementing Provisions will continue at the EP

EP calls for maintenance of first sale

Delays due to the ”Union Customs Code – Recast”

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ROYALTIES AS PART OF THE CUSTOMS VALUE

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EU : royalties

Without prejudice to Article 32 (5) of the Code, when the customs value of imported goods is determined under the provisions of Article 29 of the Code, a royalty or licence fee shall be added to the price actually paid or payable only when this payment:

— is related to the goods being valued, and

— constitutes a condition of sale of those goods.

(Article 147 IPCCC)

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EU : royalties

Related to the goods being valued

Where the method of calculation of the amount of a royalty or licence fee derives from the price of the imported goods, it may be assumed in the absence of evidence to the contrary that the payment of that royalty or licence fee is related to the goods to be valued.

However, where the amount of a royalty or licence fee is calculated regardless of the price of the imported goods, the payment of that royalty or licence fee may nevertheless be related to the goods to be valued.

It must be proved by Customs

Why is the royalty paid?

WCO : royalties

Related to the goods being valued – Commentary 25.1

“The most common circumstances in which a royalty or licence fee may be considered to relate to the goods being valued is when the imported goods incorporate the intellectual property and/or are manufactured using the intellectual property covered by the licence. For example, if the imported goods incorporate the trademark for which the royalty or licence fee is paid, this would indicate that the fee relates to the imported goods.”

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EU : royalties

Condition of sale

Would the seller be prepared to sell the goods without the payment of the royalty or licence fee?

When the buyer pays royalties or licence fees to a third party, the conditions provided for in Article 157 (2) shall not be considered as met unless the seller or a person related to him requires the buyer to make that payment

Multinational group where goods are bought from one member of the group and the royalty is required to be paid to another member of the group

WCO : Royalties

Condition of sale – Commentary 25.1

Whether the buyer is unable to purchase the imported goods without paying the royalty or licence fee depends on a review of all the facts surrounding the sale The following are factors that could be taken into account in determining whether payment of the royalty or licence fee is a condition of sale :

There is a reference to the royalty or licence fee in the sales agreement or related documents

There is a reference to the sale of the goods in the royalty or licence agreement

According to the terms of the sales agreement or the royalty or licence agreement, the sales agreement can be terminated as a consequence of breaching the royalty or licence agreement because the buyer does not pay the royalty or licence fee to the licensor. This would indicate a linkage between the royalty or licence fee payment and the sale of the goods being valued

There is a term in the royalty or licence agreement that indicates if the royalties or licence fees are not paid, the manufacturer is forbidden to manufacture and sell the goods incorporating the licensor’s intellectual property to the importer

The royalty or licence agreement contains terms that permit the licensor to manage the production or sale between the manufacturer and importer (sale for export to the country of importation) that go beyond quality control

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Related / Unrelated partiesCHINA U.S.A.

NETHERLANDS

Seller Licensor

Buyer

Documentation for imported goods? Is the third party related to the seller? Sales agreement and related documents Royalty or licence agreement Can the sale be terminated if the licence fee is not paid?

• goods• sales contract

• payment licence fee• licence contract

EU Royalties

1. When the imported goods are only an ingredient or component of goods manufactured in the Community, an adjustment to the price actually paid or payable for the imported goods shall only be made when the royalty or licence fee relates to those goods.

3. If royalties or licence fees relate partly to the imported goods and partly to other ingredients or component parts added to the goods after their importation, or to post-importation activities or services, an appropriate apportionment shall be made only on the basis of objective and quantifiable data.

(Article 158 IPCCC)

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2525

CHINA U.S.A.

NETHERLANDS

Company X

• Manufacturer X• Finished products

Is the payment of royalty “related” to the imports concerned? Is the payment of royalty a “condition” of sale of the goods concerned?

Components•Company X, and•Third party

Royalty for manufacturing process

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Conclusions

Any royalty payment will be scrutinized by Customs

Customs will often conclude that the royalty should be part of the customs value

Any structuring of royalty payments between companies should take into account the customs implications

Proving in court that the royalty is not a “condition of sale” is generally difficult

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EU : future of the royalties as part of the customs value

Draft Implementing Provisions to the “Modernized” Customs Value

Royalties and licence fees are related to the imported goods where in particular, the rights transferred under the licence or royalties agreement are embodied in the goods. The method of calculation of the amount of the royalty or licence fee is not the decisive factor.

Royalties and licence fees are considered to be paid as a condition of sale for the imported goods when any of these conditions are met:

a) the seller or person related to the seller requires the buyer to make this payment;

b) the payment by the buyer is made to satisfy an obligation of the seller, in accordance with contractual obligations;

c) the goods cannot be sold to, or purchased by, the buyer without payment of the royalties or licence fees to a licensor.

EU : future of the royalties as part of the customs value

Draft Implementing Act to the Union Custom Code – Article 230-11

2. Royalties and licence fees are related to the imported goods where in particular, the rights transferred under the licence or royalties agreement are embodied in the goods. The method of calculation of the amount of the royalty or licence fee is not the decisive factor.

4. Royalties and licence fees are considered to be paid as a condition of sale for the imported goods when any of the following conditions is met:

a) the seller or person related to the seller requires the buyer to make this payment;

b) the payment by the buyer is made to satisfy an obligation of the seller, in accordance with contractual obligations;

c) the goods cannot be sold to, or purchased by the buyer without payment of the royalties or license fees to a licensor.

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EU : future of the royalties as part of the customs value

b) the payment by the buyer is made to satisfy an obligation of the seller, in accordance with (their) contractual obligations;

c) the goods cannot be sold to, or purchased by, the buyer without payment of the royalties or licence fees to a licensor.

Payment to a licensor will need to take place in most cases, even if the payment is not a condition of sale

It should refer to royalties paid as a result of a condition identified in the contract for sale of the goods being imported

Conclusion

Maximise revenue collection

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Thank you for your attention

Pablo Muñiz

Partner

VAN BAEL & BELLIS

Avenue Louise 165 1050 Brussels Belgium

Tel. + 32(0)2.647.73.50 Fax. + 32(0)2.640.64.99

pmuniz@vbb.com www.vbb.com