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Newsletter | April 2015, Issue 1
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International Trade & Customs
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Seoul Administrative Court finds royalty non-dutiable
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In a case involving domestic manufacturers that imported equipment for the manufacturing of advanced glass substrates, the Seoul Administrative Court determined that all of the royalty paid by the manufacturer to the licensor of the manufacturing technology, a related party, is not “related” to the imported equipment and thus not dutiable for customs valuation purposes. The Court went on to state that, even if a portion of the royalty paid can be deemed to be related to the imported equipment, since there is no reasonable way to separate this amount from the rest of the royalty, the customs duty assessment arising from adding back the entire royalty to the customs value should be cancelled in its entirety.
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Kim & Chang successfully represented domestic manufacturers in this case, where the Court fully accepted the domestic manufacturers’ arguments that the license agreement giving rise to the royalty payment at issue was for the right to use the manufacturing know-how including certain patents to produce the advance glass substrates domestically and thus the royalties are not related to the imported equipment. Under Korea Customs Law, if the royalty paid to an overseas licensor is not “related to” or “paid as a condition of sale” of the imported goods, it is not dutiable for valuation purposes.
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This case marks a significant victory for domestic importers as Korean customs authorities have been aggressively challenging royalties paid overseas as a dutiable element of the underlying customs value of the imported goods and courts, in many instances, have been aligning their views with the Korean customs authorities.
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