Court Sides With Importer In Not Paying Duties on Royalties
The case is instructive because these fees must be a “condition of sale” to be dutiable. Therefore, it is critical for importers to review the specific circumstances of their import transactions before including or excluding fees such as royalty payments from the value of imported goods on which duties must be paid.
In this case, Trimil SA v. United States, the importer, Trimil, successfully challenged CBP’s inclusion of certain advertising fees and trademark royalty fees paid to Armani and its subsidiary in the calculation of the transaction value, the value upon which duties are determined, of the apparel. Court No. 16-00025, Slip Op. 19-161 (December 17, 2019). Transaction value is defined as the price actually paid or payable for the merchandise. One of the statutorily permitted inclusions to the price actually paid or payable is a royalty or license fee related to the goods paid by the buyer, but only if that fee (1) is a condition of sale for the imported merchandise, and (2) benefits the seller.
The Court held that the advertising fees and royalty fees were not part of the transaction value. Dispositive to the Court was the fact that the advertising fee was a post-import transaction, calculated according to the net revenue of U.S. sales, which could not have been a condition of sale. Furthermore, the Court found no evidence that the trademark royalty fee was a condition required to be paid in order for the merchandise to be imported.
The Court also denied CBP’s attempt to broaden the interpretation of the term “benefit” to encompass all aspects and parties in a large and complicated transaction. The fees were paid to Armani, who was not the seller of the merchandise and therefore did not benefit the manufacturer that sold the apparel to Trimil.