PRELIMINARY INTERPRETATION BY THE ANDEAN COMMUNITY ON THIRD PARTY ROYALTIES AND LICENSE FEES
The Seventh Specialized Chamber in Administrative Litigation with a Subspecialty in Tax and Customs Matters of the Superior Court of Justice of Lima (hereinafter referred to as the “Chamber”) requested a preliminary ruling from the Andean Community Court of Justice (hereinafter referred to as the “Court” or “ACJ”) regarding: (i) Article 26 of the Community Regulation implementing Andean Decision No. 571 on Customs Valuation of Imported Goods, and (ii) Comment 25.1 of the Technical Committee on Customs Valuation of the World Customs Organization (hereinafter “WCO”).
Specifically, the Chamber consulted the ACJ on (i) the criteria for applying the adjustment of value for royalties paid in relation to the goods subject to valuation, (ii) how the analysis should be conducted to determine whether the payment of a royalty or licensing fee is made as a condition of sale; and (iii) the legal nature of the Comments and Advisory Opinions contained in the Texts of the Technical Committee on Customs Valuation of the WCO.
According to subparagraph b) of Article 26 of the Community Regulation, the royalty or intellectual property license fee shall be added to the price actually paid or payable when it is related to the goods subject to valuation and constitutes a condition of sale of such goods. Therefore, the legal issue is to determine whether this requirement can only be imposed to the extent that the seller or a person related to the seller imposes the condition of sale or whether it can also be required in cases where there is no affiliation.
The Court has recognized that, for this purpose, it is necessary to verify whether the buyer or importer could not purchase the goods for the purpose of marketing them in the importing country without committing to pay the royalty or license to the holder of industrial property rights.
Based on the above, the ACJ concludes that “(…) when it comes to royalties or fees paid to a third party related to the seller of the imported goods, the competent authority must analyze each situation individually, taking into account all the factual elements related to the sale and importation of the goods, including contractual and legal obligations set forth in the relevant documents, such as the sales contract and the royalty agreement (…).“
Finally, regarding the legal nature of the Comments and Advisory Opinions contained in the Texts of the Technical Committee on Customs Valuation of the WCO, the Court stated that through Resolution 1486, adopted on July 17, 2012, the General Secretariat of the Andean Community decided to incorporate the instruments of application of the WCO Technical Committee on Valuation into the Community Regulation of Decision 571, which includes advisory opinions, comments, and case studies. Therefore, these support the interpretation and application of Andean rules on the valuation of goods, and their methodological use for interpretation does not violate the principles of legality, due process, or the right to defense.
Author: Diana Ramírez I dramirez@lloredacamacho.com I Foreign Trade, Logistics & Customs