WCO Issues Advisory Opinion on Trademark Royalty and License Fees Paid to Third Party
August 28, 2013
Last month, the Technical Committee on Customs Valuation (TCCV) at the World Customs Organization (WCO) approved a new advisory opinion directly impacting importers of licensed products. Advisory Opinion 4.15 is the result of an eight-year review concerning the appropriate treatment of trademark royalties when imported products which incorporate a trademark are purchased from an unrelated party and no reference to the royalty is made in the contract of sale.
By way of background, the WCO Valuation Agreement provides that royalties paid by an importer to someone other than the seller of the importer merchandise must be added to the price paid for the product when determining transaction value if the royalty is: (1) related to the imported product, and (2) must be paid as a condition of sale to the importer.
In the recent Advisory Opinion, the WCO determined that if a royalty is a part of the terms of sale between the importer and licensor and is related to the imported product, then the royalty must be directly added to the customs value of imported goods, pursuant to Article 8.1(c) of the GATT. Importers must apply the royalty fee even if the sales contract between the importer and the licensor contains no language of the additional fee. Pursuant to Advisory Opinion 4.15, since the licensor determines the royalty for the licensed good, that royalty then applies to all aspects of the production process including the customs value of the imported good. Therefore, the WCO has identified in Advisory Opinion 4.15 a specific type of control which results in a dutiable royalty.
Importers may wish to evaluate their current royalty commitments and specifically the extent to which they indicate licensor control.
For additional information or guidance, please contact a Barnes/Richardson attorney.