Are Royalties and Licence Fees Included in Customs Value?

Executive Summary

The provisions of the Customs Law No. 4458 constitute the basic framework for the inclusion of the 27th article and the customs clearance of the Customs Regulation, royalty and license fees.

Within the scope of the sale price method, the purchaser related to the imported goods and the purchaser must pay directly or indirectly as the sales condition of this goods, the royalty and license fees, which are not included in the actual paid or paid price are added to the customs value in certain conditions.

Two basic questions in the evaluation stand out:

1. Is the payment related to imported goods?
2. Is the payment as the sales condition of the imported goods?

The answer to these questions should be determined by reviewing contracts, commercial relations, payment structure and economic reality of the transaction.

The Royalty payment does not be made directly to the seller or arrange in a separate contract, does not allow the payment alone to remain outside the customs value.

1. What is Royalty and License Bedeli?

Royalty and licensing can express payments in exchange for the use of intellectual and industrial property rights.

Among these rights;

• brand use,
• benefit from patents and inventions,
• technical knowledge and know-how,
• design and production technologies,
• copyright,
• specific software and other license rights

can be found.

However, all of these payments are not the same legal or economic nature.

For example, with a license fee connected with the sale of imported branded products, the payment made in return to an independent advertising service carried out in Turkey may require different evaluations in terms of customs value.

Therefore, as far as the name of the payment, it is also important that it is made in return to the right or service.

2. Law of Royalty and License Bedellers

The 27th article of the Customs Law No. 4458 regulates the additions to the actual paid or paid price when the customs value is determined according to the price method of sale.

In this context, royalty and license fees that carry relevant legal conditions are among the elements that may be added to the value.

The provisions of the Customs Regulation on royalty and licensing fees include complementary regulations on how to evaluate.

The important thing here is that the addition of value is not only the presence of royalty expression in the contract.

The relevant payment, imported goods and sales conditions should be examined together.

It should also be avoided if the same payment is already included in the actual paid or paid price.

3. What Does Royalty Bedeliin Understand About Imported Goods?

In the evaluation of the inclusion of a royalty or a license fee in the customs asset, the relationship with the imported goods of the payment is one of the basic elements.

This relationship may not always appear directly and clearly.

For example, the license payment for the brand used on the imported product can be linked to the commercial identity of the product.

The same evaluation of the payment made for an independent activity of the imported goods may not be correct.

The following questions are important in the evaluation:

• What rights does the license cover?
• How to link these rights with imported goods?
• What products or activities are calculated?
• Does the imported goods contain the right of the license or benefit from this right?
• Is the license price covered with different products or services?

In particular, in mixed contracts, it may be necessary to separate the costs for different rights and services.

4. Why is Sales Runner Concept Important?

One of the most important issues in the valuable assessment of Royalty and license bills is that the import goods are in the condition of the sale.

The sales condition assessment should not only be reduced to whether there is an open provision in the sales contract.

Relations between sales, licensing and distribution contracts can be reviewed together with commercial connections and actual conditions of the transaction.

For example, if the importer does not pay a certain license fee, it may take importance to purchase or supply the related goods.

However, the emergence of any commercial outcome does not mean that the sale condition is formed in any case alone.

The provisions of the contract and the relevant legislation should be undertaken.

Sales condition analysis evaluates not only the presence of payment obligation, but the relationship of imported goods with sales.

5. What happens if Royalty Payment Works to a Company Outside of the Seller?

With the owner of the license right in international company groups, the seller of goods can be different companies.

For example, importer company can pay the brand usage price to another group company when purchasing the product from the manufacturer company in the group.

In this case, not to the seller of the payment, it does not prevent the addition of value per single to be made to a third party.

The relation and sales condition of the important royalty or license fee with imported goods.

Therefore, it should not be decided only by looking at the identity of the company that is paid.

The seller must examine the contractual and commercial relations between the licensing and importer together.

6. Is the Brand License Bedeller Included in the Customs Border?

Brand licenses are one of the special areas in royalty evaluations.

For example, a importer imports products with a specific brand on it, and in return to the use of this brand can pay the license fee.

In this situation, whether the payment must be included in the customs value requires a separate assessment.

The scope of the license should be evaluated with the nature of the imported goods, the conditions of sale and the relevant legislation.

It is especially important that the licensing contract is intended only for marketing activities in Turkey, or for the rights of imported branded products.

If different activities of a license contract are covered together, the separation of the relevant goods may also be taken into the agenda.

7. Patent, Know-how and Technology Licenses

Patent, know-how and technology licenses are especially important in companies that produce.

Such payments may be associated with the technology used in the production of the imported goods, or the next activities performed in Turkey.

For example, the purchase of an independent technical service used in the production activities in Turkey may not be subject to the same evaluation.

Therefore, in technology licenses;

• subject to the license,
• function of imported goods,
• the use of the license right,
• contractual parties,
• payment calculation method

should be examined together.

Specifically, the nature of engineering, design and technical assistance costs should be determined correctly. These may be assessed within the scope of different asset regulations from royalty provisions in some cases.

8. Royalty Bedeli Net Accounts Over Sales

In Royalty contracts, bedeller can often be calculated as a percentage of net sales in a certain period.

For example, an importer may be required to pay a royalty of 4% on sales in Türkiye of the products covered by the licence.

This condition also requires the evaluation of the customs value of the payment.

It does not eliminate all obligations related to the value of the single, if the import of the payment is not known indefinitely.

However, it is not correct to automatically add to the customs value of each sales based payment determined from the later.

Evaluation should be performed within the framework of the relevant legislation, payment structure and procedures applicable.

9. Sample Application: The Effects of Royalty Bedeliin

The following example is completely assumptional and prepared to show calculation logic.

Information on the products that a company has been imported in certain period is as follows:

In this example, if the royalty payment of 120.000 USD is connected with imported goods related to the whole, it is necessary to evaluate this amount in terms of value, if it is not included in the customs value first.

Simplified total:

2,000,000 USD + 120.000 USD = 2.120.000 USD

However, this calculation is not a real customs asset detection.

In particular, it may be necessary to pay appropriately if the royalty price is related to multiple products or import period.

Notifications, payment periods, currencies and regulations regarding real transactions should also be evaluated.

Therefore, the collection of periodic sums does not show the right statement method in any case.

10. Common Control Deficiency in Royalty Bedels

The main control deficiencies to evaluate in terms of royalty and licensing payments in companies are:

1. The only legal or financial department of the licensing contracts.
2. There is no news about the royalty payments of the foreign trade department.
3. Evaluation of internal license payments in terms of customs value.
4. No analysis of sales condition.
5. No separation of uninterested goods related to imported goods.
6. It is not matched with import operations of periodic royalty payments.
7. Evaluation of the costs included at the price before.
8. The contract changes should not be reflected in the processes of customs compliance.

These deficiencies may not mean direct legislation. However, they can increase the risk of systematic error.

11. After Control Royalty and License Payments

After checking, commercial and financial records associated with customs clearance can be reviewed.

The license contracts of the company in this framework may be paid by royalty calculations, payment documents and accounting records.

Despite having regular royalty payments in the financial records of the company, these payments may require detailed review, which is never worth the customs value.

However, it does not mean that the royalty payment is available, the only amount of missing customs tax is born.

It should also be determined that the relevant legal conditions are formed and does not occur.

C-INSPEC Perspective

Royalty Risks Can Be Started When Contracting

Royalty and license bills often arise during commercial agreements of companies, not when preparing for customs declaration.

A brand license agreement can be prepared by the law department.

Payment terms can be traced by finance department.

The product supply can be executed by the purchasing unit.

The customs declaration can be prepared by the foreign trade department.

Independent execution of these processes can lead to the relevant persons of the information required to be evaluated in terms of customs value.

For example, a change in the license contract may change the royalty calculation method or the scope of the payment.

However, if this change is not transferred to those responsible for customs compliance, the company’s asset rating may not reflect the current terms of contract.

For this reason, royalty controls in the C-INSPEC approach are not limited only to the examination of past payment records.

Royalty risk management requires an integrated control process that extends from the preparation of the license contract to the payment and customs declaration.

Companies should establish a documented process for assessing each royalty payment under the applicable rules, without automatically including or excluding it from the customs value.

12. Five Stage Royalty Control Program for Companies

Phase 1 — Contract inventory

Trademark, patent, know-how, technology, software and other license contracts are determined.

Step 2 — Payment and transaction matching

Royalty and license payments are associated with related products, suppliers and import operations.

Step 3 — Legal asset analysis

Connection, sales condition and other regulatory requirements are evaluated with imported goods.

Step 4 — Calculation and share control

Where necessary, the amount to be included in the asset are determined by objective data and matched with related processes.

Step 5 — Continuous monitoring

New contracts, changes, periodic payments and related legislation are regularly monitored.

This approach supports systematic evaluation of royalty and license bills in terms of customs value.

Frequently Asked Questions

Conclusion

The influence of the customs value of the Royalty and the license bills is one of the technical issues that should be carefully evaluated in import operations.

The name of the payment in this evaluation is not the only determinant of the company or accounting classification made.

Connection with imported goods, sales condition, contract provisions and economic properties of the transaction should be examined together.

It increases the importance of execution, information flow and control mechanisms between different departments and companies of licensing payments especially in international company groups.

Sustainable customs compliance in Royalty and license bills depends on the timely, accurate and documentable evaluation of the asset effect of each payment.

Legislation and Official Sources

1. 4458 No Customs Law, especially 24, 27 and related provisions.
2. The provisions of the Customs Regulation, royalty and licensing fees.
3. Ministry of Commerce — customs value, Frequently Asked Questions.
4. The Ministry of Commerce — the regulations and descriptions of the inclusion of Royalty and the customs value of the licensing fees.
5. The World Trade Organization — Agreement on the Determination of the customs value.