Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

IMPLEMENTING PROVISIONS OF THE MODERNISED CUSTOMS CODE (MCCIP) ON CUSTOMS VALUATION

C5 Global Customs Compliance, Brussels 18 & 19 May 2010

Jasper Helder

Partner Customs & International Trade

jasper.helder@bakermckenzie.com

C + 31 6 46 17 94 82

Agenda

– MCCIP: Drafting process

– MCCIP: Timeline

– MCCIP: Changes

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MCCIP: Drafting proces

– MCCIP (latest draft January 6, 2010)

– Customs Code Committee (“CCC”), 27 national reps, chaired by EU Commission (DG TAXUD)

– CCC General Customs Legislation section– CCC Customs Valuation section

– First Sale ad-hoc working group

– Simple majority vote in CCC and sections

– Draft MCCIP as agreed by CCC will be lodged as legislative proposal by EU Commission

MCCIP: Timeline– EU Commission (DG TAXUD) at 9 December 2009 Trade Contact Group Meeting:

– Drafting: October 2010

– Translation: December 2010

– Examination of final draft in CCC General Customs Legislation section: January & February 2011

– Vote CCC General Customs Legislation section: March 2011

– Scrutiny by European Parlaiment/regulatory procedure: April, May & June 2011

– Adoption: July 2011

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MCCIP: Changes

– The current EU system remains intact

– But: changes in some areas

– Emphasis on Transaction Value

– First Sale for Export (?)

– Royalties & License Fees

– Related parties and rejection of transaction value

5

First Sale (Current)

– Burden of Proof on Importer, Article 147 para 1 3rd sentence ICCC

– Commentary No 7 EU Customs Code Committee (Customs Valuation Section):– goods manufactured according to EC specifications, or are identified

(according to marks etc.) as having no other use or destination

– goods were manufactured specifically for a buyer in the EC

– specific goods are ordered from an intermediary who sources from a manufacturer and goods are shipped directly to the EC

– Once transaction value is chosen based on First Sale, no change possible– ECJ, C-11/89 (“Unifert”)

First Sale (MCCIP)

– Article 230-02 (draft 6 January 2010)

“1 (...) the customs value is determined under the transaction value method if the goods have been the subject of a sale for export to the customs territory of the Union at the time of acceptance of the declaration for free circulation.:

[As a general rule, the last sale in the commercial chain, before introduction of the goods into the customs territory, meets this requirement : to be completed].

2. In the case of resale in the customs territory before release for free circulation, either the sale applicable under paragraph 1, or the last sale before the release of the goods for free circulation shall apply.”

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First Sale: Conclusions

– January 2010 draft appears not to exclude First Sale

– But: will depend on requirements, which are yet to be adopted

– Future remains uncertain

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Royalties (Current)

Added to customs value if:

– Payment is Condition of Sale (“CoS”) – CoS: Payment required by Seller or related party– No CoS: if paid to 3rd Party and not required by Seller or related

party

– Related to imported goods– Trademark royalties can not be added if buyer is free to select

unrelated vendor– Distribution royalties: same

Royalties (Current)

– Roylaties are a Condition of Sale if the royalty recipient is related to the seller

– EU Customs Code Committee Commentary 11: related includes exercising legal/operational restraint/control

– “A combination of indicators, beyond purely quality control checks by licensor”:– the licensor directly or indirectly exercises actual control over

manufacture (centres and/or methods of production)– licensor entitled to examine manufacturer’s/buyer's accounting records– the manufacturer is not allowed to produce non licensed competitive

products without the consent of the licensor– the goods are specific to licensor (i.e., in their concept/design and trade

mark)– etc.

Royalties (MCCIP)

Added to customs value if

– Payment is Condition of Sale (“CoS”):– Payment is required by seller/related company

– Payment is made to fulfil obligation of seller

– Goods may not be sold/produced without royalty-payment

– Related to imported goods– If rights for which royalties are paid are embodied in goods

Royalties: Case study

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Independent Manufacturer

XYZ Sourcing Asia

XYZ Sales Europe

XYZ Intellectual Property

Switzerland

Products

Products

Trademark rights

Price 1

Price 2

Royalties

Current:

– First Sale, customs value is Price 1

– Royalties are excluded, Payment is not CoS, seller Price 1 is not related to XYZ Intellectual Property

Royalties: Case study

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Independent Manufacturer

XYZ Sourcing Asia

XYZ Sales Europe

XYZ Intellectual Property

Switzerland

Products

Products

Trademark rights

Price 1

Price 2

Royalties

MCCIP:– If no First Sale, customs value is Price

2

– Royalties are added, Payment is CoS, seller Price 2 is related to XYZ

– If First Sale, customs value is Price 1

– Royalties are added:

– trademark is embodied in products

– XYZ Sales cannot sell branded goods without license and paying royalties

Royalties: Conclusions

– New criteria for adding royalties to customs value in MCCIP:

– Royalty = Condition of Sale if products may not be made/sold without royalty

– Royalty = Related to imported goods if intangibles for which royalty is paid are “ embodied” in products

Related parties

When are companies related?– Common shareholder (> 5%)

– Companies that are each other’s officers or directors

– Control

– Companies controlled by common third company

– Companies controlling each other

– Companies jointly controlling a third company

– Directly or indirectly

– Companies that are “legally recognised partners in business” (?)

Related parties: Transaction value

– Relationship in itself is not sufficient to reject transaction value

– Transaction value between related parties must be accepted if importer proves that value closely approximates:– Transaction value of identical or similar goods between unrelated parties

– Unit price between unrelated parties in greatest aggregate sold quantity

– Computed value between unrelated parties

– No change in MCCIP

Related parties: Rejection transaction value

– Current: Customs may reject if “they are not satisfied, on the basis of reasonable doubts, that the declared value represents the total amount paid or payable”, Article 181a ICCC

– MCCIP: Customs may reject if “they have reasons to doubt the truth or accuracy of the declared customs value”, Article 230-16 MCCIP

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Related parties: Rejection transaction value

– Current, Article 181a ICCC:

– Customs seek additional information

– Inform importer of intent to reject and allow response

– Customs decide

– MCCIP: 2 alternatives, Article 230 - 16

– Alternative 1: no obligation on Customs to allow response importer

– Alternative 2: same as current

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Related parties: Conclusions

– No substantive change in criteria for relations

– Lower threshold for Customs to reject customs value ?

– MCCIP: alternative proposal does not allow input importer prior to Customs’ decision to reject

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Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

THANK YOU FOR YOUR ATTENTION

Jasper Helder

Partner Customs & International Trade

jasper.helder@bakermckenzie.com

C + 31 6 46 17 94 82