Tax Messenger Tax Edition
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
8 July 2021
Tax Messenger
Tax Edition
Round-up of developments in case law
regarding the inclusion of licence fees
and dividends in the customs value of
imported goods
On 6 June 2021 the Arbitration Court of the Bryansk region
International Tax Review made a decision on case No. A09-1751/2021 involving
ranked EY Russia Tax & Law Bershka CIS LLC (“the Company”) in which it ruled that the
practice as a leading tax firm Bryansk customs office had acted unlawfully in adjusting the
(Tier 1) in Russia in its annual customs value of imported goods to include amounts of licence
World Tax guide for 2018.
fees and dividends.
Licence fees
According to the case materials, the Company imported
branded goods into Russia for subsequent sale.
The Company was also a party to a franchising agreement
under which it was granted rights to use a trademark as well as
“know-how”, software, a website and a trade name. That
agreement required the payment of two licence fees for the
right to use (1) the trademark and (2) the know-how, software,
website and trade name (“other IP assets”).
The Company included the trademark fee in the customs value
of imported goods but did not include the fee for the use of the
other IP assets.
The customs authority took the view that the fee rights to use the other IP assets were
for the use of the other IP assets should have granted by the rights owner to the
been included in the customs value of imported Company free of charge. These facts
goods. It based this conclusion on the following: constitute further evidence that the goods
could have been imported and sold without
1. The other IP assets may be used only in
the payment of royalties for the other IP
relation to imported goods branded with
assets.
one trademark, i.e., the licence fee is
directly related to the imported goods Also important is the court’s conclusion that
branded with the trademark. current customs legislation does not make it a
rule that, where a rights owner grants rights to
2. If the fee for the use of the other IP assets
multiple IP assets and the licence fee payable for
were not paid, the supply and sale of
one such asset is included in customs value, the
goods would be terminated, i.e., the
licence fees for the other assets must also
payment of the licence fee is a condition of
automatically be included. In other words, the
sale of the imported goods.
question of whether licence fees payable by a
The court rejected the customs authority’s user under a franchise agreement should be
arguments and satisfied the Company’s appeal included in the customs value of imported goods
based on the following considerations: must be addressed in relation to each individual
1. The customs authority’s assertion that the intellectual property asset by assessing in each
other IP assets are inextricably connected case whether the conditions laid down in
with and tailored to the goods sold is paragraph 1 of Article 40(1)(7) of the EAEU
erroneous, since the other IP assets are Customs Code are met.
not used in the production process and do We should point out that the court’s decision
not form part of the imported goods: adds to existing case law supporting the non-
The trade name is used to give the inclusion in customs value of licence fees paid
Company a distinct identity; for rights associated with branding and business
management. A similar decision was made by a
The know-how, software and website court in 2014 on the case involving Zara CIS
are used in organizing the Company’s CJSC (Ruling No. F09-4849/14 of the
business activities. Arbitration Court of the Urals District of 1
Furthermore, the other IP assets are not September 2014 on Case No. A60-
tailored to any particular product or firm, 35672/2013).
as they are used by other group companies Dividends
in relation to goods branded with other
trademarks. Thus, the other IP assets are The Company paid dividends, as a portion of net
aimed at optimizing the commercial profit remaining after the payment of taxes, to a
process and are not, therefore, related to Company member which is at the same time a
the imported goods. supplier of goods. The customs authority took
the view that the dividends should be included in
2. The court ruled that there was no evidence the customs value of goods imported under the
for the customs authority’s assertion that foreign trade agreement with the Company
the Company would lose the right to member.
purchase goods branded with the
trademark if it did not pay the licence fee, In support of its conclusion, the customs
since no such restriction is established in authority argued that the dividend payments
the contractual arrangements between the were directly related to the imported goods and
Company and the rights owner. the supply of the goods was conditional on those
payments being made, since the Company did
Furthermore, the court noted the fact that not purchase goods from independent suppliers
the Company concluded the foreign trade and the payment of the dividends constituted
agreements for the supply of the branded consideration for the goods purchased, since the
goods before the franchising agreement. Company did not generate income as the source
Moreover, for a certain period of time the
2for the payment of the dividends in any other We should point out that, in considering this
way besides selling the imported goods. matter, the court took into account a private
letter from the Eurasian Economic Commission
The court rejected the customs authority’s
which was received by the Company in response
conclusions, ruling that the dividends were not
to an inquiry about the inclusion of dividends in
related to the imported goods and the payment
customs value.
of the dividends was not a condition of sale of
those goods. Consequently, the dividends should This ruling appears to reinforce the favourable
not be included in customs value. The court trend for importers in decisions regarding the
made the following points as the basis for inclusion of dividends in the customs value of
satisfying the Company’s claims: imported goods. On 7 April 2021, for instance,
the Supreme Court rejected a customs
The term “transaction value” as used for
authority’s request for the cassation ruling on
customs valuation purposes has a specific
case No. A56-137218/2019 involving SSAB
meaning and applies only to payments that
Swedish Steel CIS LLC to be referred for review
represent consideration for goods
by the Economic Disputes Panel of the Supreme
purchased (the price of the goods).
Court. Thus, all three court instances upheld the
Taking into account the legal nature of approach of not including dividends in the
dividends, it is correct to conclude that customs value of imported goods. See our last
dividends may be considered as an round-up of case law for more details about that
element of customs value where the case.
payment of those dividends is a stipulated
condition of sale of specific imported How can we help?
goods. Assessing risks of additional amounts
In the case concerned, the payments in being included in the customs value of
question were specifically dividends within goods.
the meaning laid down in Article 43(1) of Preparing arguments (a legal defence) for
the Tax Code, i.e., they were part of post- the non-inclusion of additional amounts in
tax profit that was distributed among the the customs value of goods or deductions
Company’s members in proportion to their from customs value.
ownership interests. It is this legal and
Obtaining a private letter from the EEC
economic nature of dividends that makes it
confirming that dividends should not be
clear they are not compatible with the
included in the customs value of goods.
pricing mechanism for goods sold, are not
related to them, cannot be a condition of Confirming customs value (preparing
sale of goods and should not, therefore, be replies to requests from customs
included in customs value. authorities, preparing arguments and draft
documents).
If dividends are also regarded as part of
the seller’s income from subsequent sales Appealing against decisions of customs
of goods, it clearly follows that the foreign authorities on customs value to higher
trade contract must contain a condition customs authorities and courts.
requiring their payment.
Authors:
The contractual arrangements between
Wilhelmina Shavshina
the Company and the seller, which is at the
Ksenia Sizova
same a Company member, do not contain
Vladislava Gritskova
any provisions that make the sale of goods
conditional on the subsequent payment of
dividends.
3For more information, please contact the authors of this publication: Wilhelmina Shavshina Ksenia Sizova +7 (921) 940 2261 +7 (921) 951 0973 Wilhelmina.Shavshina@ru.ey.com Ksenia.Sizova@ru.ey.com 4
Inquiries may be directed to one of the following executives:
Moscow
International Tax and Transaction Services
CIS Tax & Law Leader
Yuri Nechuyatov +7 (495) 664 7884
Irina Bykhovskaya +7 (495) 755 9886
Vladimir Zheltonogov +7 (495) 705 9737
Oil & Gas, Power & Utilities
Transfer Pricing and Operating Model Effectiveness
Alexei Ryabov +7 (495) 641 2913
Evgenia Veter +7 (495) 660 4880
Marina Belyakova +7 (495) 755 9948
Maxim Maximov +7 (495) 662 9317
Financial Services
Tax Policy & Controversy
Irina Bykhovskaya +7 (495) 755 9886
Alexandra Lobova +7 (495) 705 9730
Alexei Kuznetsov +7 (495) 755 9687
Alexei Nesterenko +7 (495) 622 9319
Maria Frolova +7 (495) 641 2997
Ivan Sychev +7 (495) 755 9795
Global Compliance and Reporting
Yulia Timonina +7 (495) 755 9838
Advanced Manufacturing & Mobility
Alexei Malenkin +7 (495) 755 9898
Andrei Sulin +7 (495) 755 9743
Law
Consumer Products & Retail, Life Sciences & Healthcare
Georgy Kovalenko +7 (495) 287 6511
Dmitry Khalilov +7 (495) 755 9757
Alexey Markov +7 (495) 641 2965
Pavel Koutovoi +7 (495) 664 7899
Real Estate, Hospitality & Construction, Infrastructure,
Transportation
Anna Strelnichenko +7 (495) 705 9744 St. Petersburg
Dmitri Babiner +7 (812) 703 7839
Technology, Telecommunications, Media &
Entertainment; Tax Performance Advisory
Ivan Rodionov +7 (495) 755 9719
Vladivostok
Alexey Erokhin +7 (914) 727 1174
Tax Technology
Andrei Ignatov +7 (495) 755 9694 Ekaterinburg
Irina Borodina +7 (343) 378 4900
People Advisory Services
Ekaterina Ukhova +7 (495) 641 2932
Gueladjo Dicko +7 (495) 755 9961
Krasnodar
Alexei Malenkin +7 (495) 755 9898
Sergei Makeev +7 (495) 755 9707
Alexei Nesterenko +7 (495) 622 9319
Private Client Services
Anton Ionov +7 (495) 755 9747
Dmitri Babiner +7 (812) 703 7839
For information about Foreign Countries Business
centers in EY Moscow office please follow the link.
Customs & Indirect Tax
Vadim Ilyin +7 (495) 648 9670
This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a
substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the g lobal
Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of
any material in this publication. On any specific matter, reference should be made to the appropriate advisor.
© 2021 Ernst & Young Valuation and Advisory Services LLC
http://www.ey.com/EY | Building a better working world EY exists to build a better working world, helping to create long-term value for clients, people and society and build trust in the capital markets. Enabled by data and technology, diverse EY teams in over 150 countries provide trust through assurance and help clients grow, transform and operate. Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers for the complex issues facing our world today. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. For more information about our organization, please visit ey.com. EY works together with companies across the CIS and assists them in realizing their business goals. 5,500 professionals work at 19 CIS offices (in Moscow, Ekaterinburg, Kazan, Krasnodar, Novosibirsk, Rostov-on-Don, St. Petersburg, Togliatti, Vladivostok, Almaty, Atyrau, Nur-Sultan, Baku, Bishkek, Kyiv, Minsk, Tashkent, Tbilisi, Yerevan). © 2021 Ernst & Young Valuation and Advisory Services LLC ED None. This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global EY organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. ey.com/ru
You can also read
