In a landmark judgment for the valuation of imported technological goods, the European Court of Justice has ruled in its BMW decision that the economic value of software developed in the EU and made available free of charge to a manufacturer outside of the EU’s customs territory could be dutiable upon import of that product. This marks a new episode in a long-lasting controversy on how to treat software upon import. This judgment of the European Court of Justice requires manufacturers to assess carefully where their software is developed, and where it should be loaded onto the devices they sell and import into the EU.
Background: adding software to the transaction value
Upon importation of goods into the EU, customs duties and a value added tax (VAT) are usually due. In the vast majority of cases, the amount of these duties depends on the value of the imported goods at the border. The Union Customs Code, which lays down the harmonised EU customs rules, says that the primary basis for the determination of that customs value is the transaction value: this is the price actually paid or payable for the goods when sold for export to the Union. In cases where there is no transaction value (for example where goods are merely transferred to the Union), the Union Customs Code sets out a number of alternative methods the importer must use for the determination of the customs value.
If the transaction value applies, the importer must adjust the price paid or payable where necessary. This includes, for example, adding the cost of transport and insurance of the imported goods, up to the place where the goods are brought into the customs territory of the Union. The Union Customs Code sets out the elements that should and should not be included in that transaction value.1 As the legislation does not explicitly cover software, uncertainty remains as to what to do with the value of software for adjusting the customs value. The situation is especially complex when the buyer provides software to the seller free of charge, to be used in relation to the imported goods.