An importer of Giorgio Armani apparel recently secured a victory in the Court of International Trade in its dispute with US Customs and Border Protection (CBP) (Trimil SA v United States). The case considered whether the importer was required under US customs laws to pay duties on advertising and trademark royalty fees as part of the value of the goods declared to CBP.
The case is instructive because these fees must be a condition of sale to be dutiable. Therefore, importers must 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.
The importer, Trimil, successfully challenged CBP's inclusion of certain advertising and trademark royalty fees paid to Armani and its subsidiary in the calculation of the apparel's 'transaction value' (ie, the value upon which duties are determined).(1) 'Transaction value' is defined as the price actually paid or payable for merchandise. One of the statutorily permitted inclusions to the price actually paid or payable is a royalty or licence fee relating to the goods paid by the buyer, but only if that fee:
- is a condition of sale for the imported merchandise; and
- benefits the seller.
The court held that the advertising 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 US sales, which could not have been a condition of sale. Further, the court found no evidence that the trademark royalty fee was a condition required to be paid for the merchandise to be imported.
The court 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, which was not the seller of the merchandise, and therefore did not benefit the manufacturer that sold the apparel to Trimil.
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