Argentina's Customs Service is in the process of actively adjusting the customs value of imported goods to include royalties paid by an importer to an exporter. Local subsidiaries of multinational companies have been particularly targeted.
According to Article 8.1(c) of the World Trade Organisation Customs Valuation Agreement, the customs value of imported goods must include:
"royalties and licence fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable".
Based on this section of the agreement, Argentina's Customs Service is adjusting the customs value of imported goods to take into account the royalties paid by local subsidiaries to their foreign parent companies. These adjustments will affect finished products, raw materials and intermediate products imported by local subsidiaries from their foreign affiliates.
When royalties are paid between related companies, there is a de facto presumption that the payment of such royalties is a condition of sale of the imported products, as required by Article 8.1(c) of the agreement.
The Fiscal Court and the Court of Appeals recently upheld this position in a precedent involving the payment of royalties by Ford Motor Argentina to Ford Motor Company. Ford Motor Argentina imported car parts and other intermediate products from related companies abroad and paid royalties to Ford Motor Company for local sales of vehicles. The Fiscal Court and the Court of Appeals both held that since the local importer and the foreign exporter were related, the payment of such royalties was a condition of sale under the terms of Article 8.1(c) of the agreement.
This favourable precedent has emboldened the Customs Service to step up its claims against subsidiaries of foreign multinationals that pay royalties to their parent companies.
As a consequence, companies located in Argentina that pay such royalties to their parent companies should reassess their position to determine whether it would be advisable to include such royalties in the customs value of the imported products.
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