Experts of independent audit firm Sterngoff Audit LLC notify you of risks related to determining the customs value in the area of foreign economic activities.
Recently, foreign-owned companies increasingly have disputes with tax authorities as regards license agreements entered into with their parent companies, and this issue has now affected the operations of many large companies.
Shall all license payments be necessarily included in the customs value structure?
By virtue of sub-paragraph 7 of paragraph 1 of Article 40 of the Customs Code of the Eurasian Economic Union, in determining whether license payments shall be included in the customs value structure or not, account shall be taken of the following criteria:
Please be reminded that both criteria shall be met concurrently.
The answer to the question of whether the making of license payments constitutes a condition to selling assessed (imported) goods to be shipped to the customs territory of the Eurasian Economic Union is obvious, if both the license agreement and the foreign trade contract have been concluded, for example, between the same persons, both documents are interrelated, refer to each other and provide for the making of license payments as one of the conditions to shipping goods. However, the inclusion of such evident conditions in foreign trade contracts is rare.
Based on case law, the conclusion may be made that prior to entering into a license agreement and a foreign trade contract for supplying licensed products, it is necessary to check whether any factor designated in Decision No. 20 of the Eurasian Economic Commission as evidencing the compliance with the sale condition criterion is in existence. To do so, it is required to verify the following:
– Whether the license agreement and the foreign trade contract refer to each other.
– What rights are granted to the licensor against the making of license payments. Whether the list of such rights include the right to sell licensed products to be shipped to the territory of the Eurasian Economic Union and whether the licensor may prohibit such sale. What rights of exerting legal influence on a foreign seller are available to the licensor. What the territory of the license is.
– What the limit of licensor’s powers of exercising control over the production of licensed goods is.
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