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Indirect Tax Update Customs Update

Indirect Tax Update Customs Update

On 19 November 2020 the European Court of Justice (ECJ) published its decision in the court case C-775/19 (5th Avenue Products Trading GmbH v Hauptzollamt Singen) concerning customs valuation matters.

Specifically, the Case dealt with the question of whether the payment by the buyer of imported goods to the seller of those goods made in return for the granting of an exclusive distribution right (calculated on the relevant turnover basis) must be included in the customs value of those goods. The Court decided that the fee for an Exclusive Distribution Agreement is part of the customs value of the goods.

Facts of the Case

5th Avenue Products Trading GmbH (‘5th Avenue’ or ‘the Company’) is a German company that imported cigars into the EU.

In this regard, it concluded an agreement called ‘Exclusive Distribution Agreement’ (‘the EDA’), according to which 5th Avenue had the sole right to import, sell and distribute cigars in specific territories (Germany and Austria). In return, the Company undertook to make four annual payments, described as ‘compensation’, and amounting to 25% of its relevant annual revenues from sales of cigars in these territories.

The Company ordered the cigars on the basis of a price list, and when these goods were admitted into an authorized warehouse, 5th Avenue declared to the customs authority the purchase price actually paid plus freight and insurance, but without consideration of the ‘compensation’ due under the EDA.

Following a customs inspection, the inspector expressed the opinion that the payment of the ‘compensation’ under the EDA was a separate purchase price component of the imported goods which was to be taken into consideration in the customs valuation of those goods.

Decision

The Court has concluded that payment made for a limited period of time by the buyer of imported goods to the seller of those goods, in return for the granting by the seller of an exclusive right to distribute those goods in a given territory, calculated on the basis of the turnover achieved in that territory, must be included in the customs value of those goods.

The above decision of the Court is based on the fact that ‘price actually paid or payable’ within the meaning of Article 29(1) of the Customs Code corresponds, under Article 29(3)(a), to the total payment made or to be made by the buyer to the seller for the imported goods and includes all payments made between them as a ‘condition of sale’ of those goods. In case at hand the Court has concluded that the fact that the seller of the imported goods would not have supplied these goods without entering into the EDA and receiving the relevant ‘compensation’ payments, results in these payments constituting ‘condition of sale’ of those goods. It is irrelevant that such ‘compensation’ payments must be made for a limited period of time (four years in this case).

Thus, additional customs duties for the payment of the ‘compensation’ should have been imposed to the Company. 

How can KPMG assist?

Should you like to further discuss the content and potential impact of the Update to your business, please contact one of our trusted advisors from the Indirect Tax Department at KPMG Cyprus.

KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.

Our tax professionals are able to review your company’s current tax position and provide relevant advice and planning on a range of indirect taxes, including VAT, customs duties and excise taxes (such as tax audits, reorganizations and acquisitions, etc.). Furthermore, we can help your company with its administrative obligations and contacts with administrative bodies.