Monday, February 20, 2012

Thai Customs duties on IP royalties

A recent Nation newspaper article about Thai customs duty treatment of royalties shows how messy this IP related tariff area is. It typically arises in the case of licensed IPR within products. In Indonesia a dispute between Customs and the film industry arose last year, reported here. The issue is when a (typically licensed)product contains IP, such as a trademark appearing on the product, whether royalties are therefore required to be paid to the IP owner; if they are then the dutiable value of the goods is increased and higher duties paid by the importer. World Customs Organisation policy is unclear and so many countries struggle with the issue.

A 2011 Thai Supreme Court case dealt with the matter.  A US IP holder licensed a manufacturer and the trademarked goods were imported into Thailand. The Court decided that third party royalties did not need to be added to the Customs value of the imported goods in that case. They looked at various factors including the level of control of the IPR holder over the 3rd party manufacturer. The Supreme Court decided that the circumstances were similar to those in a recent WCO Advisory Opinion, as the licence holder had no direct control over the maker of the goods, and the sales contract had no specific obligation for the Thai importer to pay royalties. It was not a condition of sale of the goods.

But in many cases Thai Customs does determine that royalties are dutiable. Some examples would be if the IP owner controls the manufacturer and can enforce payment of royalties, or where the licensee is obliged to pay a specific royalty. 

At present EU and US rules along with WCO guidelines provide examples of when royalties are a condition of sale so become a dutiable addition to the value of the imported product. But at least in Thailand now, importers have a court case to back them up, when Thai customs are insisting on an automatic inclusion of royalties. Other court challenges to Customs decisions may follow.

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