Customs Valuation Audit Mechanics for Cross Border Agency Import Transactions
Customs valuation in agency imports depends on proving buying commission exemptions under Decree 213 while adjusting for assists and royalties.
Royalty Dutiability Test
Meaning
Administrative assessment determines whether licensing fees paid to a foreign trademark or patent holder must be added to the taxable value of imported goods. Applying the royalty dutiability test, customs officials evaluate whether the payment of royalties is a necessary condition of sale for the imported merchandise. This test prevents importers from artificially reducing customs duties by splitting the purchase price into a low product cost and a high royalty fee.
Evaluation Rule
Two primary conditions must be met for the royalty to be deemed taxable. First, the payment must be related to the imported goods, meaning the royalty is paid for the technology or brand embedded in those specific items. Second, the payment must constitute a condition of sale, which is determined by whether the buyer can purchase the goods from the supplier without paying the royalty.
Transactional Linkage
Analyzing the contractual relationships between the buyer, the seller, and the licensor requires an examination of multiple agreements. If the seller is an independent manufacturer and the licensor is a third party, the royalty is often not dutiable. However, if the licensor controls the manufacturer, the royalty is almost always included in the customs value.
Compliance Practice
Importers must proactively review their licensing contracts and report any royalty payments on their customs declarations. Failure to declare these fees can lead to serious consequences during post-clearance audits. The customs authorities have the power to calculate the unpaid duties retroactively and impose fines that are proportional to the amount of duty that was underpaid, forcing multinational companies to seek formal ruling from customs bureaus before making large-scale shipments to ensure certainty in their supply chain costs.