Novel Decision regarding Import Valuation Adjustments

The analysis of customs valuation adjustments has proven to be quite casuistic in our caselaw and to have different approaches according to each industry’s business structure. In the “Nestlé Argentina SA c/ Administración Nacional de Aduanas” case (Docket No. CAF 8106/2018), the Federal Court of Appeals  confirmed the Argentine Tax Court’s decision and, thus, revoked the import valuation adjustment –and the tax claim- made by Customs in connection to all the imports from 2006.

Customs has allocated many resources to enhance their analysis on import valuation and the impact that trademarks licenses and royalties have on it, especially aiming at importers that engage in trade with related parties abroad. These valuation adjustments have led to considerable tax claims on import duties and other customs-related taxation.

In “Nestlé”, the argument relied on how the technology transfer agreement signed between the local subsidiary and its parent company abroad impacted on import valuation, taking into account the royalties due to the domestic sale of final products. Customs had adjusted the import valuation of the goods (without making any difference between input, final goods, machinery, etc.) solely according to its construction of the agreement and regardless of the analysis of the relation between the importer and its suppliers or the technological specificity of the imported goods.

Furthermore, Customs argued that the purchases made by Nestlé Argentina were fully conditioned or directed by the licensor, because it determined the recipes, manufacturing procedures and quality standards for the importer to comply with. In this sense, Customs construed that there was enough control on the importer’s production that enabled a presumption of the existence of the "condition of sale" required by the GATT/WTO Valuation Agreement.

The Federal Court -relying on the evidence produced- construed that the freedom that the buyer had to acquire input from different suppliers was sufficient to dismiss a specific relation between the royalties agreed by the importer and any adjustments according to the GATT/WTO Valuation Agreement.

Indeed, the Federal Court has firmly stated that: “there is a clear lack of relation when the buyer is free to obtain the goods from other suppliers not related to the licensor”. After analyzing Nestlé’s business structure, the Federal Court also determined that “even though the listed products are manufactured (…) under a specific licensed technology (…) and according to set quality standards (…), it is not possible to assess that there is a strict relation between the imported goods and the royalty paid under the contract here analyzed, due to the fact that these are everyday products (not under a patent) and the buyer may use the licensed trademark either if it obtains them from the licensor or from another related or unrelated seller…”. Finally, the arguments presented in Customs’ appeal were dismissed and so was the original valuation adjustment, in light of the inexistence of the ‘condition of sale’ required by the Valuation Agreement.

This decision by the Federal Court of Appeals is remarkable regarding cases of import valuation adjustments, especially considering that it does not have a strict caselaw criterion on the existence of the "condition of sale" under the GATT/WTO Valuation Agreement, i.e. it does not apply the 2013 Argentine Supreme Court precedent in “Ford Argentina SCA” automatically. Indeed, this decision reaffirms the case-by-case approach that must be made when addressing these valuation adjustments -and their tax claims- and the need to efficiently prove the actual business structure of each single company or industry to the authorities.