Attorney Gil Nadel, Attorney Omer Wagner
The Customs Authority has recently published a draft of a position paper regarding the evaluation of goods for Customs purposes, covering three issues: advertising expenses, distribution fees and warranty fees.
The stances taken by Customs regarding these issues, according to this draft, state that the distribution fees and the warranty fees must be added to the transaction value without taking into consideration the advertising costs. The draft is supposed to come into force as of July 1, 2012.
Recently, on June 26, 2012, we submitted a letter to Mr. Doron Arbely, the Director General of the Israel Tax Authority, in which we outlined our professional opinion of this position paper. We believe that this is a proposal that is not in keeping with the Customs Directive and the Goods Evaluation Agreement of the GATT. We therefore believe this issue should be discussed at length.
Regarding advertisement expenses, the Customs Authority's draft states that in the event the seller compensates the buyer for advertisement costs paid by the buyer, the buyer will not be able to deduct the advertising costs from the transaction value. It is our opinion that the Customs Directive and the International Agreement allow for the discounts on the value of goods that were received by the buyer to be taken into account, in certain cases (primarily: if this was not a retroactive discount), whereas the Customs Authority's draft determines an a-priori denial of taking the advertising expenses into consideration, without any relation to the question of whether they fulfill the conditions to be recognized as a discount.
Regarding distribution fees, the Customs Authority's draft claims that payments of this kind that were made by the buyer for the rights to distribute the goods in the State of Israel, will be added to the transaction value for Customs purposes, and if these are distribution fees that were paid for a certain time period, the distribution fees will be divided according to the goods that were imported during that time period. On this topic, we believe that the Customs Directive does not allow for the distribution fees to be added to the transaction value. Instead, we believe the Customs Directive determines specific payments that must be added, and distribution fees are not included among these. In addition, we believe that the distribution fees possess a separate value than that of the goods, especially in relation to exclusive distribution rights in Israel. The value of these exclusive rights is completely independent of the right to sell and market the products in Israel.
Regarding warranty rights, the Customs Authority's draft claims that payments made by the buyer for providing warranty services for the imported goods are included in the transaction value, even if these payments were not included in the payment for the goods themselves. On this topic, we would like to argue that this is a general and decisive assertion, which fails to take into account that the warranty is not part of the goods, and that some of it is conducted after the import, and that it is important to verify whether payment of the warranty fee was a condition for importing the goods. Therefore, we believe it is important to examine whether this situation will not result in double taxation, in which the warranty fees will be taxed as well as the goods that will be imported under the warranty terms.
In light of this, we believe that it is befitting for the Tax Authority to conduct an in-depth discussion of this issue, before the draft will come into force.
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