PROCEDURE OF AFTER-PAYMENT OF CUSTOMS DUTIES IN RESPECT OF IMPORTED GOODS FOR WHICH ROYALTIES ARE PAID

Last year the State Customs Service by its Order No. 900 dated as of 28 January 2009 amended the Methodical Recommendations concerning determination of customs value of goods imported into Ukraine (hereinafter - the "Order").

The Order amended the Methodical Recommendations by adding the provisions on inclusion of royalties into goods customs value. In accordance with the Order, in certain cases royalties should be included into goods customs value upon their customs clearance.

In practice, royalties are in most cases paid as percentage to the turnover from sale of goods. As a result, the actual amount of royalties to be further paid is often unknown at the moment of goods customs clearance. Exactly for such cases the Order foresees the possibility to include estimated amounts of royalties into goods customs value (e.g., on the basis of anticipated figures) with further adjustment of the goods customs value.

Pursuant to the Order, in the result of such adjustment the taxpayers are in particular obliged to make the after-payment of customs duties where the actual amounts of royalties exceed the amounts previously calculated upon import.

However, the Order did not define procedure and terms of such after-payment and this caused practical ambiguity for importers.

In order to eliminate such ambiguity the State Customs Service of Ukraine ("the SCSU") issued the Summary Tax Explanatory Letter (the Order No. 59 dated as of 29 January 2010 (hereinafter - the "Letter"). In the Letter the SCSU expressed its approach concerning responsibility of the taxpayers for untimely after-payment of customs duties and, thus, indirectly determined the terms for customs duties after-payment.

According to the Letter, the penalties should not be assessed if the taxpayer executes the after-payment of customs duties before:

▪ the date of actual remittance of royalties to a non-resident licensor by an importer-licensee; or

▪ the date of recognition of royalties as deductible expense.

In our opinion, the conclusion of the customs authorities expressed in the Letter, is disputable due to the fact that the legislation does not connect the terms of customs duties after-payment with the actual payment of royalty or their attribution to deductible expenses.

Though SCSU's approach is arguable, in practice the customs authorities will adhere to it upon customs clearance of goods and subsequent control of customs value determination.


Please do not hesitate to contact us should you have any questions on the above.

DLA Piper Ukraine – Tax team:

Svitlana Musienko, Legal Director, Head of Tax
T +380 44 490 9564
E svitlana.musienko@dlapiper.com

Yulia Logunova, Senior Associate
T +380 44 495 1787
E yulia.logunova@dlapiper.com

Illya Sverdlov, Senior Associate
T +380 44 490 9575
E illya.sverdlov@dlapiper.com

Anna Demchenko, Associate
T +380 44 490 9575
E anna.demchenko@dlapiper.com

Dmytro Donets, Associate
T +380 44 490 9575
E dmytro.donets@dlapiper.com


DLA Piper Ukraine LLC is part of DLA Piper, an international legal practice.

International Law Firm of the Year 2008 in Ukraine.

Kyiv switchboard: +380 44 490 9575

The matters covered in this newsletter are intended as a general overview. This newsletter is not intended, and should not be used, as a substitute for taking legal advice in any specific situation. DLA Piper Ukraine LLC will accept no responsibility for any actions taken or not taken on the basis of this newsletter. If you would like further advice, please contact Tax Team at +380 44 490 9575.

LINK EN: http://www.usubc.org/reports/Procedure_Of_After-Payment_Of_Customs_Duties_ENG.pdf
LINK RU: http://www.usubc.org/reports/Procedure_Of_After-Payment_Of_Customs_Duties_RUS.pdf
LINK UA: http://www.usubc.org/reports/Procedure_Of_After-Payment_Of_Customs_Duties_UKR.pdf