Surprise Drinks a. s. imports plastic toys from China, generally inspired by animated films (‘the imported goods’), which it added as a gift to a drink sold by it (‘the finished product’). In its customs declarations it did not include royalties paid in the value of the imported toys.
According to the customs office, the royalty/licence payments should have been included and therefore the customs office decided to impose a duty of CZK 50 541.
An appeal was filed with the Regional Court. According to Surprise Drinks a. s., the customs authorities had erred in its interpretation of the Customs Code of the European Union. It follows from the wording of that provision itself that royalties form part of the customs value of goods only in so far as they relate to the goods being valued. However, it is only the final product, i.e. the beverage, that is the subject of the royalty, not the imported toys and labels. Therefore, the customs authorities’s conclusion that the inclusion of royalties in the customs value of the goods is not affected by the fact that royalties are paid only on the value of the beverage is incorrect.
Surprise Drinks a. s. also argued that the second condition for the inclusion of royalties in the customs value under Article 71(1)(c) of the Customs Code, which is that the royalties must be paid by the purchaser as a condition of the sale of the goods being valued, is not fulfilled. Since neither the labels nor the toys are sold separately and the royalties are payable only on the sale of the final product, the applicant is not required to pay royalties as a condition of the sale of the imported goods.
Judgement of the Court
The Regional Court dismissed the appeal.
Excerpts (Unofficial English Translation)
“25. This judgment was followed up by the CJEU on 9 July 2006. 2020 in Case C-76/19, interpreting the same provision, and concluded that it must be interpreted as meaning that the proportionate part of the royalties paid by a company to their parent company in consideration for the provision of know-how for the production of final products must be added to the price, actually paid or to be paid for the imported goods in circumstances where those goods are intended, together with other components, to form part of those final products and the former company obtains those goods from sellers other than the parent company, where
– royalties have not been included in the price actually paid or payable for those goods,
– relate to the imported goods, which presupposes that there is a sufficiently close relationship between the royalties and those goods,
– the payment of the royalties is a condition of the sale of the goods in question, so that, if they were not paid, the contract of sale in respect of the imported goods would not be concluded and the goods would not be delivered; and
– a reasonable allocation of royalties can be made on the basis of objective and measurable data, which must be verified by the referring court in the light of all the relevant circumstances and, in particular, the legal and factual relationships between the buyers, the individual sellers and the licensor.
26. In the present case, the amount of the royalty is based on the price of the final product to which the imported goods are attached, although the subject matter of the licence agreements is the imported goods, as the court verified from the licence agreements. The situation is therefore the same as in the cited case. Case C-175/15, in that the royalties relate only to the part of the final product on which the royalty is payable. Even in that situation, the CJEU considered the royalties to be part of the customs value of the goods and that conclusion can be applied to the present case. The Regional Court adds that the fact that, if the applicant wished to dispose of the imported goods for their intended purpose, i.e. to attach them as a gift to the final product sold, it could not do so without paying the licence fee, is a matter of concern. Without payment of the licence fee, the beverage and the toy with it could not be legally sold. Thus, although the amount of the licence fee and the time at which it is payable are linked not to the sale of the imported goods but to the sale of the final product of which they form part, payment of the licence fee is a condition of the sale of the product (condition under C-76/19).
27. In the present case, the other conditions set out above in C-76/19 CJEU are also fulfilled. The royalty was not included in the price actually paid or payable for the goods, i.e. actually paid by the applicant to its supplier, since that royalty is paid only at the time of sale of the final product. There is a relationship between the royalty and the imported goods, since the royalty provisions in the licence agreements relate to the imported goods. On the last condition, the possibility of allocating royalties reasonably on the basis of objective and measurable data, the Regional Court will comment below (see paragraph 31 of this judgment).
…
32. The Regional Court fully agrees with that assessment, since the applicant does not put forward any arguments which contradict the defendant’s conclusions. According to Article 73 of the Customs Code, the customs authorities may, on application, allow the following amounts to be determined on the basis of specific criteria where those amounts are not quantifiable at the date of acceptance of the customs declaration: (a) the amounts to be included in the customs value in accordance with Article 70(2); and (b) the amounts referred to in Articles 71 and 72; Article 71(c) concerns royalties. Thus, there was nothing to prevent the applicant from requesting specific criteria by which the amounts of the estimated value of the royalties paid would be determined, that is to say, a ‘rational calculation’, taking into account both the anticipated losses in production and the time lag between the importation of the goods and their sale in the finished product, which could be followed. Inaccuracies in the calculation then allow the procedure under Article 116 of the Customs Code to be followed in the event of an overpayment, and the procedure under Article 21(1) of Act No 242/2016 Coll., (‘the Customs Act’) in the event of an underpayment. In the Regional Court’s view, the final criterion under the CJEU in Case C-76/19, i.e. the possibility of allocating royalties reasonably on the basis of objective and measurable data, is also met. The applicant’s objection is also unfounded.
33. The Regional Court therefore concludes that the customs value of the imported goods must be increased by the royalties, since only when so increased will it correspond to the price ultimately paid by the applicant, albeit to two entities, the purchase price to the supplier and the royalty to the third party. Only in that way will the price correspond to the customs value within the meaning of Article 70(2) of the Customs Code.
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