Court practice in disputes over including agent VAT in the customs value of goods

4 December 2023
Tax Messenger
Recent court decisions on the inclusion of agent VAT in the customs value of goods show two trends:

  • Unfavorable decisions are issued against importers (e.g., Cases Nos. А40-184335/2022, А40-19678/2023 and А08-2451/2022)
  • Cases that were originally decided in favor of foreign trade participants are remanded for new hearings in cassation court and subsequently receive unfavorable decisions (e.g., Cases Nos. А40-286907/2021 and А56-114310/2021).
At the same time, the Kursk Regional Arbitration Court ruled in favor of a foreign trade participant in the second hearing in Case No. А35-1670/2022, held on 3 November 2023. With respect to agent VAT, the court concluded as follows:

  1. VAT is not part of license fees, which is confirmed in cases when importers receive the right to use intellectual property (IP) without compensation. They must then calculate VAT on the gratuitous transaction and pay it out of their own funds to the budget of the Russian Federation. At the same time, license fees cannot be equated with VAT calculated on a gratuitous sale. To do so would mean that gratuitous transactions do not exist. Since there are no license fees (RUB 0) in this case, there are no grounds for adding any amounts to the customs value, despite the fact that VAT was paid to the Russian budget on these “zero” license fees.
  2. Not every service by which foreign right holders grant the rights to use IP is subject to VAT, which is further evidence that including VAT on license fees in the customs value is unjustified.
  3. The inclusion of VAT on royalties in the customs value of imported goods means that VAT must be assessed on the license fee and subsequently re-assessed on the customs value that includes VAT on the license fee.
  4. Contrary to the assertion of the customs house, Advisory Opinion 4.16 of the World Customs Organization’s Technical Committee on Customs Valuation deals exclusively with the inclusion in customs value of one tax – income tax (direct tax) withheld from the licensor’s income in the form of a license fee. The Technical Committee has clearly limited the scope of this issue and gives no indication that the position specified in the Advisory Opinion may be applied to indirect taxes.
  5. For the purposes of determining customs value, only the concept of “license fee” is relevant.
  6. The methodology used by Russian tax agents to calculate VAT on the sale of services by a foreign entity indicates that, since the VAT base is 120% of the amount of remuneration, the remuneration itself (license fee) is equal to 100%. This methodology is established only for the purposes of Chapter 21 of the Russian Tax Code and so does not affect the amount of the license fee agreed upon by the parties to a civil contract (does not increase it) and cannot affect customs regulation issues.
The trial is still ongoing, and the customs authority is entitled to appeal the ruling of the first-instance court until 3 December 2023.

We will monitor the progress of this case, as well as the evolving court practice on the inclusion of agent VAT in the customs value of imported goods.
How we can help

  • Analyze whether license fees, other intragroup payments and dividends should be included in the customs value of imported goods and assess the respective risks. Provide recommendations and a risk mitigation strategy
  • Develop a company’s legal position on whether it is legal to exclude license fees, intragroup payments, agent VAT and dividends from customs value
  • Amend license and intragroup agreements to minimize adverse legal implications
  • Assist with the inclusion of license fees/intragroup payments in customs value (including submitting amendments to goods declarations)
  • Provide full or partial support for a company during customs audits on the inclusion of license fees, intragroup payments and dividends in customs value
  • Arrange personal meetings with the customs authorities on these matters
  • Represent the company’s interests in pre-trial and trial appeals

  • Wilhelmina Shavshina
    Global Trade and Customs Leader

  • Alexander Kim
    Global Trade and Customs
  • Radzhab Khanov
    Global Trade and Customs
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