UK: Treatment of royalties for customs purposes | KPMG | GLOBAL

UK: Treatment of royalties for customs purposes

UK: Treatment of royalties for customs purposes

HM Revenue & Customs (HMRC) on 17 May 2016 issued guidance—Customs Information Paper: 34 (2016)—explaining that royalties are not to be treated in a manner different from the way royalties were treated under the former Union Customs Code until further guidance is issued.


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The new Union Customs Code, effective 1 May 2016, amends the articles related to royalties for customs purposes. However, there has been uncertainty as to whether royalties are to be included in the customs value on goods. 

The following explanation is provided by HMRC Customs Information Paper: 34 (2016):


3. Royalties and License Fees 

Due to a lack of clarity during the negotiation process, HMRC, in common with other EU Member States, understood that the current approach to the inclusion of royalties in the customs value on goods released to free circulation was to be amended from the 1st May 2016. 

This change of scope was seen by many economic operators as a significant development that would result in an increased burden. Of particular concern is the legislation that states; 

Condition of sale of the imported goods 

Article 136(4) of the Commission Implementing Regulation EU 2015/2447 states that: royalties and licence fees are considered to be paid as a condition of sale for the imported goods if 

(a) the seller or a person related to the seller requires the buyer to make this payment; 

(b) the payment by the buyer is made to satisfy an obligation of the seller in accordance with contractual obligations; 

(c) the goods cannot be sold to, or purchased by the buyer without payment of the royalties or licence fees to a licensor. 

The EU Commission has recently issued draft guidance to the Customs administrations of Member States stating that Article 136 IA does not include an assumption that royalties and license fees are automatically included in the customs value. 

Neither is it expected that customs should have to examine all commercial contracts or reach conclusions on contractual intentions or obligations. Each case will be looked at on its own merits. 

This guidance is currently being examined by HMRC, industry and other member states and will be made available to the public once the European Commission publishes a final version. 

In the meantime, until the new arrangements have been confirmed by the European Commission, no changes are required to the way royalty fees are currently treated. 

A further CIP will be issued in due course on valuation simplifications and authorisations.


To summarize, certain customs authorities initially stated that royalties were to be automatically included in the customs valuation from 1 May 2016. However, the European Commission published a valuation guidance explaining that the new EU rules did not intend for royalties to be automatically “dutiable.” HMRC then on 17 May 2016 published guidance—Customs Information Paper: 34 (2016)—to clarify its position.

KPMG observation

Trade and customs professionals have observed that there does not currently appear to be a uniform interpretation of the new rules across the EU. For instance, there are reports that the French customs authorities may be of a different opinion as to the treatment of royalties for customs valuation purposes. 


For more information, contact a professional with KPMG’s Trade & Customs practice:

Douglas Zuvich | +1 (312) 665-1022 |

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