How the customs authorities and courts view the inclusion of dividends in the customs value of goods

9 August 2023
Tax Messenger
On 4 August 2023, the Arbitration Court of Belgorod Region decided in Case No. A08−12 115/2021 that it was lawful for dividends paid by an importer to its founder that simultaneously acted as the seller of goods to be included in the customs value of goods.

See our overview below for more details on the facts of the case, the court’s conclusions and the outlook for judicial practice in such cases.

Facts of the case

As a result of a customs audit, the customs authority concluded that dividends paid by a Russian importer to its foreign founder must be included in the customs value of goods supplied by the founder.
The customs authority’s conclusion was based on the following facts:

1. The foreign trade price for the audited goods was 15% lower than the average foreign trade prices for similar goods.

Interestingly, the difference in prices was identified by a regional chamber of commerce and industry during an expert examination ordered by the customs authority in the course of the audit. The customs authority has not disclosed the information on which the expert’s opinion is based.

The court decision contains no information indicating that the customs authority itself performed an analysis of supplies of identical or similar goods or that the importer was allowed to exercise its right to provide evidence confirming that the price of goods was determined on the basis of objective economic factors.

2. Dividends are paid out of the importer’s net profit, which mainly comes from trade in imported goods.

The customs authority believes that, in the given circumstances, dividends represent an additional charge that must be added to the price of goods in order to determine the customs value, i.e.:

"the part of income received from subsequent sale of imported goods that is payable directly to the seller" (subclause 3 of clause 1 of Article 40 of the EAEU Customs Code)
The first-instance court, which upheld the customs authority’s decision, noted the following:

1. Based on the Russian Supreme Court’s legal position[1] on the inclusion of dividends in the customs value of goods, dividends may be included in the customs value of goods if:

  • Dividends represent net profit from the sale of goods imported under a foreign trade contract between the importer and the founder
  • The importer has not provided evidence confirming that the value of the transaction with imported goods is consistent with their actual value (as proof that elements of the customs value were not manipulated)

2. Proving that the customs value was not manipulated is the responsibility of the importer.

3. Evidence that the value of a transaction with imported goods is consistent with their actual value may include the following:

  • Documents and information on prices that were used in the export of goods to Russia
  • Calculation of the cost of, and profit from, the purchased goods that discloses the markups forming the "sales price"

As the importer did not provide such information and documents, the court concluded that all "conditions" for the inclusion of dividends in the customs value of goods were met.

Interestingly, in order to confirm that the affiliation had no impact on the price of goods, the importer provided the following:

  • When objecting to the customs audit act: an analysis and calculation by an independent expert of the market range of margins for controlled transactions. No assessment of this evidence is provided in the text of the court decision.

  • During litigation: a calculation, requested from the seller, of the cost of, and profit from, the purchased goods. The court assessed this evidence as invalid, since it contained no information about the elements forming the sales price of exported goods.

The court’s decision in Case No. A08−12 115/2021 is a further instance of negative practice that began after the Supreme Court considered Cases Nos. A40−20 125/2021, A09−1751/2021 and A09−1129/2021.

Notably, the Supreme Court essentially formulated the "conditions" under which dividends must be included in the customs value of goods that are not expressly stated in customs law. However, the Supreme Court provided no criteria for proving or refuting such conditions.

The customs authorities and courts therefore set precedents at their sole discretion that are clearly conservative.

Another point of interest in this case is the customs authority’s argument that satisfying the importer’s claims will result in "actual support for the corporate founder registered in the European Union, which has declared an economic war on the Russian Federation."

Although the court gave no express assessment of this position of the customs authority, the very fact of its inclusion in the court’s decision is indicative of the risky nature of the current practice of litigation with the customs authorities for companies with headquarters in "unfriendly" jurisdictions.

We recommend that importers proactively assess the risks that dividends will be included in the customs value of goods and prepare documents confirming that the elements of the customs value were not manipulated, taking into account the courts' position.

How we can help

  • Assessing whether dividends must be included in the customs value of imported goods and related risks; providing recommendations and a risk mitigation strategy
  • Providing support when dividends are included in the customs value (including preparation of goods declarations)
  • Full or partial support during customs audits
  • Representing the company’s interests in pre-trial and trial appeals

  • Vladislava Gritskova
    Assistant Manager
    Global trade and Customs
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