The Hamburg Fiscal Court addressed, in proceedings brought by way of an action, the interesting question under customs valuation law of when licence fees that an importer must pay to an independent licensor must be added to the customs value.
I. The facts of the case
The plaintiff imported goods from subcontractors in third countries. It had concluded a licence agreement with a Swedish licensor, which granted it rights to use trademarks. For these rights, it was required to pay licence fees based on the net sales price of the goods, subject to an annual minimum licence fee.
The licence agreement also obliged the plaintiff to bind the subcontractors in such a way that they would supply the goods exclusively to it and comply with certain standards in their manufacture. There were also further agreements (such as, for example, a General Instructions concluded under German law), whereby the type and quantity of the respective licence-fee-bearing goods to be produced were specified by electronically transmitted purchase orders. In the General Instructions, a company affiliated with the plaintiff appeared as the owner of the intellectual property rights. The subcontractors undertook to resell licence-fee-bearing goods (including defective goods, returned goods and overproduction) only with the plaintiff’s written consent (…). The General Instructions also contained detailed specifications regarding material quality, the manufacture of product samples, product packaging and the transport of the goods. Furthermore, the subcontractors undertook to comply with a code of conduct concerning labour and social standards.
The plaintiff declared the goods covered by the agreements for release for free circulation without including the licence fees in the customs value. Following an examination and assessment of the facts by the Federal Customs Valuation Office, the Main Customs Office added the licence fees to the customs value pursuant to Article 71(1)(c) of the Union Customs Code (UCC). The plaintiff initially unsuccessfully challenged this position in objection proceedings and subsequently brought an action before the Fiscal Court.
The plaintiff essentially argued that the licence fees did not constitute a “condition of sale”, as they arose solely from the licence agreement and not from the purchase agreements with the suppliers. The subcontractors would also have supplied the goods without payment of the licence fees. The provisions merely served to ensure quality and protect the trademarks, not to secure payment of the licence fees.
The defendant Main Customs Office essentially referred to the legislative history of Article 71(1)(c) UCC, WCO Commentary No. 25.1 and the Commission’s Guidelines. These indicated that a condition of sale could also arise from the licence agreement. This would be the case where, under the licence agreement, the licensor required the licensee to oblige its subcontractors to supply the licence-fee-bearing goods exclusively to the licensee, which would then be obliged to pay a licence fee.
II. The Fiscal Court’s decision
The Fiscal Court dismissed the action, holding that the licence fees had to be added to the customs value.
The Fiscal Court interpreted the “conditions of sale” within the meaning of Article 71(1)(c) UCC as a “condition for the sale”. Such a condition for the sale existed where the obligation to pay licence fees meant that, pursuant to Article 136(4)(c) UCC Implementing Regulation, the buyer could not acquire the goods without paying licence fees to the licensor. The Fiscal Court considered this requirement to be met in the present case.
For the Fiscal Court, the decisive question was whether the buyer was legally obliged to pay the licence fee in order to be able to acquire the goods at all. According to the Fiscal Court, this obligation could also arise from a licence agreement with a third party, and not only from the purchase agreement with the seller.
In the present case, all the surrounding circumstances, in particular the connection between the licence and purchase agreements, led the Fiscal Court to take the licence fees into account. The licence agreement made clear that the manufacture and import of the goods already constituted use subject to a licence fee. The plaintiff was obliged to have the subcontractors supply exclusively to it and, upon termination of the licence agreement, to terminate the supply agreements as well. Payment of the licence fees was therefore a legal condition for the import and marketing of the goods. The Fiscal Court accordingly dismissed the action and summarised its findings in the following headnotes:
- The term “conditions of sale” used in Article 71(1)(c) UCC is, when interpreted under EU law, to be understood as “condition for the sale”.
- Pursuant to Article 136(4)(c) UCC Implementing Regulation, a licence fee constitutes a condition for the sale where the buyer has a legal obligation to pay the licence fee specifically also for imported goods.
- The obligation to pay licence fees for imported goods may arise from the import purchase agreement or from a licence agreement concluded between the buyer and a third party who is not affiliated with either the buyer or the seller (independent third party).
- Whether a licence fee has been made a condition for the sale within the meaning of Article 71(1)(c) UCC must be determined on a case-by-case basis. All the surrounding circumstances of the sale and importation of the goods, including the connections between the sales and licence agreements, must be taken into account.
The Fiscal Court did not allow the judgment to be reviewed by the Federal Fiscal Court by way of an appeal on points of law, as it considered none of the statutory grounds for admission under Section 115(2) FGO to be applicable.
III. Commentary
Court decisions on licence payments under customs valuation law are rare. It is therefore welcome that the Fiscal Court has addressed this issue and has done so comprehensively. In addition to providing a very detailed derivation of the interpretation of the provisions of the UCC / UCC Implementing Regulation governing additions to the customs value, in conjunction with the Commission’s Guidelines, the WCO Commentary and the GATT Customs Valuation Code, it also examined the relevant case law and legal literature.
It remains to be seen, however, whether the plaintiff will challenge the Fiscal Court’s refusal to admit an appeal by filing an application for leave to appeal with the Federal Fiscal Court and thereby obtain the possibility of review by that court. This is currently unknown. It likewise remains to be seen to what extent other Fiscal Courts will in future adopt or depart from the position taken by the Hamburg Fiscal Court, and whether the Federal Fiscal Court or even the General Court / Court of Justice of the European Union will do so.
By Heiko Panke
