Upon importation of goods into the European Union territory, customs duties and a value added tax (VAT) are in principle due and levied by the Customs authorities. Since the amount of those duties usually depends on the value of the imported goods at the border, how such value is determined has to be considered. To such regard, EU Regulation no. 952 of 9 October 2013 (the European Customs Code) under article 70 (“Method of customs valuation based on the transaction value”) sets forth that the primary basis for the customs value of goods shall be their transaction value, that is, the price actually paid or payable for those goods when sold for export to the customs territory of the European Union, adjusted when necessary.
The price actually paid or payable will be the global payment made or to be made by the buyer to the seller or by the buyer to a third party for the benefit of the seller for the imported goods, and it shall include all payments made or to be made as a condition of sale of the imported goods.
Such “transaction value” shall apply provided that all of the following conditions are fulfilled:
(a) there are no restrictions as to the disposal or use of the goods by the buyer, other than any of the following:
(i) restrictions imposed or required by a law or by public authorities in the European Union;
(ii) limitations of the geographical area in which the goods may be resold;
(iii) restrictions which do not substantially affect the customs value of the goods;
(b) the sale price is not subject to any condition or consideration for which a value cannot be determined with respect to the goods being valued;
(c) no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made;
(d) the buyer and seller are not related or the relationship did not influence the price.
If, however, the exporter (for example, a manufacturing entity of the Group in China) is not independent vis-à-vis the importer (i.e., a European subsidiary of that same Chinese Group), the following rules shall alternatively apply for the determination of the proper value of the imported products (this, also in order to verify that the Rule of Origin percentage has been duly complied with):
(e) price of that same products as invoiced to other buyers who do not belong to the same group of companies;
(f) standard price of the same or similar kind of products as per the tariffs applicable by other companies (other than any company belonging to that Chinese Group) upon importing such products into Europe;
(g) finally, by making reference to the cost-plus principle applicable in accordance with the EU Customs practice relating to intra-group of companies’ transfer price for tax purposes.
While, therefore, the “Value” of the products for European Customs clearance purposes is, in principle, the price of such products as documented upon clearing the Customs, there are several exceptions which can apply, depending on circumstances unrelated to the relevant sale agreement, or even when there is no specific corporate or other kind of relationship as between the buyer and the seller.
In fact, recent judgments issued by the European Court of Justice (“ECJ”) have widened the concept of value of imported products for Customs and VAT purposes. We can mention here a couple recent cases:
on 9 July 2020, the ECJ published its decision in the court case named "'Curtis Balkan' EOOD” (ref.:" ECJ 9 July 2020, C-76/19 ('Curtis Balkan' EOOD), ECLI:EU:C:2020:543). The ECJ has held in that case that royalties paid by the buyer to its parent company for the supply of the know-how required for the manufacture of the finished products in the European Union, should be added to the customs value of the imported semi-finished products if certain conditions are fulfilled, like if there is a sufficient close link between the royalties and license fees, on the one side, and the imported semi-finished products, on the other side. Evidence of such link exists, according to the ECJ, if the licensed know-how is necessary for the manufacture of the imported goods.
This judgment puts into evidence that it is quite important to assess the customs valuation treatment of royalties and license fees if goods are imported into the European Union territory, and this also if the imported goods are semi-finished products and the royalties are paid for the manufacture of finished goods in the European Union territory. The real issue so becomes whether the supply of the goods would have taken place if the royalty payment of such know-how had not been made.
Another remarkable judgment for the valuation of imported technological goods relates to the BMW case (ref: ECJ 10 September 2020, BMW, C-509/19, EU:C:2020:694): the ECJ has held that the economic value of a software developed in the European Union and made available royalty-free to a manufacturer outside of the European Union’s customs territory, was subject to duty upon import of that product into Europe. The relevant duty should be levied according to the economic value of such software made available free of charge by the buyer to the seller, even if that software was designed within the European Union.
The cited recent ECJ judgments make quite clear that the customs valuation treatment of royalties and license fees - even where the imported goods concern semi-finished products and the royalties are paid for the manufacture of finished goods within the European Union territory – must be carefully evaluated and assessed.
Prof. Avv. Salvatore Vitale
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