Russia: Recommendations on inclusion of license fees into customs value

28.02.2017

On 15 November 2016 the Eurasian Economic Commission on 15 November 2016 released recommendations on the treatment of license payments for the purposes of customs valuation (the “Recommendations”) on the territory of the Eurasian Economic Union (the “EAEU”). The Recommendations define license payments as royalties and other types of remuneration for the use of intellectual property (such as works of science, inventions, utility models, industrial designs, know-how, trademarks and other intellectual property objects). The Recommendations apply to cases where license payments are made to the seller of goods or other persons.

The Recommendations clarify areas that were contentious in the current practice. In particular, license payments should not be included in the customs value of imported raw materials intended for production of trademark goods (final product), so long as (i) importer is not restricted to use only raw materials bearing license trademark for production purposes and (ii) trademark holder and importer are not connected persons.

Further, the Recommendations take account of the previous practice addressing the treatment of license payments for the purposes of  customs valuation. In particular, the following criteria should be considered when including license payments in the customs value of the imported goods:

  • License payments are related to the imported goods (e.g. such goods contain intellectual property and/or have been produced using intellectual property);
  • A valid license agreement is a condition precedent for importing goods into the territory of the EAEU.

As was widely known, should buyer be obliged to pay license fees as a condition precedent to purchasing a product under an import contract, he will be required to include license fees in the customs value of imported goods. However, the Recommendations define cases in which the buyer would be required to consider license fees for customs valuation purposes even if the import contract did not contain such precondition:

  • Import contract contains a termination clause in case of non-payment of license fees;
  • The license agreement provides for a termination of the import contract in case of non-payment of license fees;
  • Production or sale of final product using trademark components/ materials is not possible without obtaining a permission from the trademark holder;
  • Licensor may exercise such form of control as determining the quantity of produced (distributed) goods or components used for production of goods and/or restricting the territory for production (sale) of goods.

We recommend evaluating the impact of the Recommendations on the treatment of license fees for the customs valuation of imported goods in your business activities.