On 20 June 2019, the European Court of Justice gave its judgment in case C-1/18 (Orgibalt Riga SIA). The case deals with the question how the customs value must be determined in the situation where the prices are adjusted after the importation has taken place.
Although customs related, the customs value is also important for VAT, as it is the basis for the value to be used upon the importation of goods. Also, this case provides some insights on how discounts and other adjustments (e.g. Transfer Pricing adjustments) should be treated for customs / VAT purposes.
SIA Oribalt Riga (formerly SIA Oriola Riga, ‘Oribalt Riga’) and the Indian company Ranbaxy Laboratories Ltd (‘Ranbaxy Laboratories’) entered into a consignment contract. Under that contract Oribalt Riga was to provide Ranbaxy Laboratories with consignment services in Latvia, including the provision of storage space for goods and of handling services for processing orders from Ranbaxy Laboratories’ customers in Latvia, Lithuania and Estonia.
Oribalt Riga imported the goods (medicines) into Latvia for free circulation in the internal market. In the course of the customs procedure, Oribalt Riga stated in the customs documentation that it was both the recipient and the declarant. It calculated the customs value of the imported goods, using pro forma invoices drawn up by Ranbaxy Laboratories for customs purposes and submitted them to the customs authorities. The pro forma invoices indicated the type of imported goods, the item, the unit market price and the total price.
The imported goods were stored by Oribalt Riga but ownership did not change until they were sold to customers. Ranbaxy Laboratories determined to whom the imported goods were sold, the terms of sale, the sales price and the discounts applicable. Oribalt Riga received and processed the orders from Ranbaxy Laboratories’ customers. In that context, Oribalt Riga completed the invoices using the product sales price provided to it by Ranbaxy Laboratories in an authorised pro forma order.
The consignment contract stipulated that the goods with the shortest expiry date would be sold first. So several months could elapse between the import and the sale of the goods. Consequently, the sales value of the goods in question at the time of sale could differ from their declared value at the time of import. The actual sales price of the goods was also affected by the discounts which Ranbaxy Laboratories granted to customers.
Once the goods had been sold, Ranbaxy Laboratories issued Oribalt Riga with new invoices for the goods sold.
The Latvian customs authorities carried out customs inspections and other tax inspections in respect of Oribalt Riga. They argued that the value of the goods had to be determined on the basis of the sales price, taking into account the type of goods, item, unit price and total price, stated in the invoices issued by Ranbaxy Laboratories to Oribalt Riga following the sale of the goods in question to Ranbaxy Laboratories’ customers. The contested decision also stated that the price to be taken into account had to be the sales price of the goods listed in those invoices, without the discounts given by Ranbaxy Laboratories to its customers.
The Latvian Court asked the following questions to the ECJ (simplified):
- Where the imported goods are medicines, for the determination of the the customs value of the imported goods, must it be considered that similar goods are those medicines whose active ingredient and the quantity thereof are the same (or similar) or, rather, in order to identify similar goods, must account be taken of market position as well, that is to say the popularity and demand, of the imported medicine in question and of its producer?
- Must the discounts be taken into account when determining the customs value of the imported goods?
42 By its fourth question, the national court asks, in essence, whether Article 30 (2) (c) of the Customs Code must be interpreted as meaning that the reductions on the selling price of the imported goods must be taken into account in determining the customs value of such goods under this provision.
41 That provision provides that the customs value of imported goods is determined on the basis of the unit price corresponding to the sales in the Union of the imported goods or identical or similar imported goods totaling the highest quantity, thus made to persons not related to sellers.
42 Furthermore, Article 152 (1) (a) (i) to (iii) of the implementing regulation provides for certain deductions to be taken into account, which include certain fees, the normal costs of transport and insurance, as well as import duties. Commercial discounts granted by the seller are not mentioned in this article. However, it is apparent from the wording of that provision that that list of deductions is exhaustive.
43 Furthermore, by taking into account the unit price of the highest quantity of goods imported, Article 30 (2) (c) of the Customs Code already provides for the taking into account of certain quantity reductions. .
44 Lastly, the inclusion of commercial discounts in the determination of the customs value could lead to a customs value even further from the real economic value of the imported goods subject to such an assessment.
45 It follows from those considerations that the answer to the fourth question must be that Article 30 (2) (c) of the Customs Code must be interpreted as meaning that reductions in the selling price of imported goods can not be taken into account in determining the customs value of such goods under this provision.
The ECJ rules as follows:
(1) Where the customs value of goods, such as the medicinal products at issue in the dispute in the main proceedings, is calculated by applying the deductive method (note: this is one of the methods used for calculating the customs value), the competent national customs administration must, in order to identify “similar goods”, take into account any relevant element, such as the respective composition of these goods, their substitutability with regard to their effects and their commercial interchangeability, by proceeding factual assessment taking into account any element that may affect the actual economic value of the goods, including the position on the market for the imported goods and their manufacturer.
(3) Reductions in the selling price of imported goods can not be taken into account in determining the customs value of such goods under this provision.
The opinion in this case can be found HERE.