If a royalty payment is not dutiable under the current customs legislation, it will not be dutiable under the Union Customs Code (UCC). Whilst the wording has changed in the text in relation to royalties, the substance remains the same, with royalties still needing to be related to the goods being valued, and the payment of that royalty must be a condition of sale. If these criteria are not fulfilled, then, as now, the royalty cannot be dutiable.

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Summary
If a royalty payment is not
dutiable under the current
customs legislation, it will not be
dutiable under the Union
Customs Code (UCC).
Whilst the wording has changed
in the text in relation to royalties,
the substance remains the same,
with royalties still needing to be
related to the goods being
valued, and the payment of that
royalty must be a condition of
sale.
If these criteria are not fulfilled,
then, as now, the royalty cannot
be dutiable.
15th July 2015
Clarity for importers who pay royalties
Background
We are aware that there has been much speculation regarding the duty
treatment of royalty payments under the UCC rules, which enter into force
on 1 May 2016. Some commentators have intimated that all royalties will
become dutiable under the UCC which, if true, would have a significant
detrimental impact on importers who pay royalties. However, after careful
examination of the latest draft legislation, we do not consider this to be the
case.
Changes in the text which caused concern
The UCC has a piece of supplementary legislation called the Implementing
Act, currently in its fifth and supposedly final draft. In this draft legislation,
the removal of specific clauses have caused uncertainty. However, as the
Implementing Act is supplementary to the UCC, it cannot override the key
clauses which are explored in more detail below.
• Royalties and licence fees must be a condition of sale
The UCC states that royalties and licence fees are only dutiable if
they are a condition of sale of the goods that are being imported,
AND
• Royalties and licence fees must be related to the goods being
imported
The UCC states that royalties and licence fees are only dutiable if
they are related to the goods that are being imported.
If both of these conditions are not met, the royalty cannot be dutiable.
What this means to importers
In essence, this means that nothing will change for importers of goods who
have to pay royalties currently – if your royalties are not dutiable now, they
will not be dutiable under the UCC. If you have any doubt as to whether or
not current royalty payments are dutiable, please contact us to arrange a
review.
Union Customs Code – royalties and Customs duty
Duty Alert
Contact
Ian Worth Customs Associate Director Ian.Worth@uk.gt.com (0)207 728 2174
Ilektra Sarri Customs Associate Ilektra.Sarri@uk.gt.com (0)207 728 3437
Michael Alexander Customs Associate Michael.D.Alexander@uk.gt.com (0)207 728 3170