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EUROPEAN CUSTOMS CODE CUSTOMS VALUATION FIRST SALE _ ROYALTIES UP

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EUROPEAN CUSTOMS CODE CUSTOMS VALUATION FIRST SALE _ ROYALTIES UP Powered By Docstoc
					            EUROPEAN CUSTOMS CODE
              CUSTOMS VALUATION
            FIRST SALE & ROYALTIES
              UP COMING CHANGES !

                                                       NOVEMBER 2009


Contents:

1. Former article 147 of the IPCC is deleted.
2. General commentary on third party royalties.
3. Transfer pricing and customs valuation .


Within the European Community, two issues have drawn our attention
regarding customs value in the draft Modernized Customs Code
Implementing Provision (MCCIPs): the concept of ‘sale for export ‘in relation
with successive sales and the treatment of royalties.


Former article 147 of the IPCC is deleted

In the framework of successive sales, the possibility for the importer to
declare a “first sale” has been deleted by the draft MCCIP.

Former article 147 used to offer the possibility for the importer to declare an
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earlier sale, i.e. to decrease the customs value when it could be
demonstrated that such sale was concluded in view of the export toward
the European Community.

In our opinion, to delete such possibility does not contribute to clarify the
legal context, when several sales could be considered as concluded in view
of the export. It seems that revenue collection concerns should prevail over
legal safety of economic operators.

The draft MCCIP has probably been influenced by the adoption by the
World Customs Organization (WCO) of Commentary 22.1, which concludes
that in such situations, the “last sale” shall be declared.

However, the MCCIPs are still discussed and DS Avocats which is supportive
of a business approach is interested in gathering experiences and opinions
from its client in order to provide the European Commission with concrete
cases where first sale should still be considered as a sale for export.

One shall also pay attention to the ongoing debates before the World
Customs Organization regarding third party royalties.

General commentary on third party royalties

In a nutshell, it can be reminded that a royalty may be included into the
Customs Value if it “relates” to the goods being valued and if it is paid as a
“condition of sale¹”.

When, in accordance with a license agreement, a royalty is paid to a third
party, which is not related to the vendor, customs is having a hard time
demonstrating that the royalty payment is a “condition of sale”, as in most
cases, the third country vendor does not require the payment of the royalty.
It is difficult to assert that the vendor requires the royalty payment in
exchange for the merchandises being valued.

Over the years, the WCO valuation technical committee has been
discussing various cases regarding royalties and could not find any common
position.

Therefore it has been decided to draft a general commentary to find
common grounds among the technical committee regarding the conditions
of inclusion of the royalty into the customs value.

The document is still discussed and as for the cases, it sounds difficult to find
a common approach.

¹ Regarding the draft MCCIPs on royalties, please refer to our previous customs newsletter
available at www.dsavocats.com

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For example: when the calculation of the royalty derives from the value of
the imported product, members disagree that it gives grounds to consider
that the royalty is in relation with the imported products.

Transfer pricing and customs valuation

Taxation of royalties is a key issue since 60% of the world international trade is
made between related parties.
Close to this issue is the debate on transfer pricing which is also going on
before the WCO valuation technical committee with a new case study
drafted by the US customs.
Questions :

   Is the TNMM method relevant for customs valuation purpose?
   Is the transaction value relevant when seller and buyer are related
     parties ?

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DS Avocats is of the opinion that such changes do not meet properly the
conditions of valuation code set up by the World Trade Organization (WTO)
and which is the legal basis of the European customs code.

We are mandated by some of our clients to monitor closely the debates
before/between the WCO, the EU institutions (Commission and Parliament)
and French customs directorate through various professional associations.

It is our last chance to try to give some input and avoid new provisions with a
very negative impact on business.

We will inform our clients of any significant progress.




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           CANTON – PEKIN - HANOI - HO CHI MINH VILLE - SINGAPOUR

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