Imagine a domestic company imports patented components for manufacturing final products while simultaneously using a trademark on those products. How should customs authorities evaluate payments that combine both patent royalties and trademark licensing fees? This critical question directly impacts import cost calculations and tariff obligations.
The World Customs Organization's (WCO) Technical Committee on Customs Valuation (CTED) recently issued new advisory guidelines to address such complex valuation scenarios. During its 53rd session held from September 20 to October 20, 2021, CTED formally adopted Advisory Opinion 4.19 concerning royalty and license fees under Article 8.1(c) of the Customs Valuation Agreement (ACV).
Clarifying Combined Royalty Payments
The new opinion specifically addresses situations where companies pay a single royalty fee covering both the right to use patented imported materials in manufacturing final products and the right to apply trademarks to those products. It establishes clear principles for customs valuation when fees combine multiple intellectual property rights.
Article 8.1(c) of the ACV mandates that royalty and license fees must be included in customs valuation when they meet two conditions: the payment relates to the imported goods, and constitutes a condition of sale for importation. However, practical application proves challenging when:
- Royalties are calculated based on final product sales rather than imported component values
- Payments are made to third parties unrelated to the seller
- Single fees cover multiple intellectual property rights
Practical Implications for Businesses
The advisory opinion provides a framework to help customs authorities and enterprises properly apply Article 8.1(c) in complex scenarios. While not legally binding, these interpretive guidelines promote consistent application across WCO member states and are included in the WCO's Customs Valuation Compendium.
For importing companies, understanding these rules is essential for:
- Accurately calculating import costs
- Avoiding unnecessary tariff overpayments
- Preventing valuation disputes with customs authorities
Companies should carefully review supplier contracts, particularly royalty and licensing clauses, and ensure declared values comply with destination countries' customs policies. Maintaining open communication with customs officials and seeking professional valuation advice can help navigate these complex requirements.
The new guidelines represent an important step toward greater transparency and predictability in customs valuation, particularly for transactions involving intellectual property rights. In today's global trade environment, staying informed about such regulatory developments remains crucial for maintaining competitive advantage.