On October 13, 2021, the Russian Ministry of Finance published Letter No. 27-01-21/82729, to which we would like to draw the attention of companies that pay royalties. The Letter provides clarifications on the inclusion of VAT on royalties withheld by a tax agent in the customs value of goods. According to the conclusions provided, VAT withheld by a tax agent is subject to inclusion in the customs value of goods as part of additional charges to the price actually paid or payable for imported goods(hereinafter PAP) in the form of royalties.
The amounts of VAT calculated, withheld and paid by the declarant as part of the performance of his duties as a tax agent do not meet the conditions provided for in sub. 3 p. 2 art. 40 of the Customs Code of the EAEU, which describes the permitted deductions from the PAP. These amounts are not part of the PAP, the taxpayer for them is the rightsholder, not the declarant, and the object of taxation is not the import of goods, but the transfer of rights to intellectual property (results of intellectual activity) on the territory of the Russian Federation (sub. 1 p. 1 art. 146 , sub. 4 p. 1 art. 148 of the Tax Code of the Russian Federation). From this, it is concluded that the indicated VAT amounts are paid in connection with the transfer, grant of patents, licenses, trademarks, copyrights or other similar rights, and not in connection with the import of goods. Since the considered amounts of VAT are not allowed deductions from the PAP, they are subject to inclusion in the customs value of goods as part of additional charges to the PAP in the form of royalties.
We are actively involved in accompanying customs inspections and expect new practice in connection with this letter. If you have licensing agreements or you have received a request from the customs authorities or the prosecutor’s office on this topic, you can contact us for a customs audit service or ask questions to our specialists by e-mail audit@sterngoff.com.
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