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HMRC internal manual

Guidance on the Audit of Customs Values

Assists: additional payments

Where the importer is part of a group of companies (multi-national conglomerate) it is not unusual for the parent company to seek to recover the cost of research and development for the group as a whole under a ‘cost sharing’ arrangement by means of a separate periodic charge (for example, quarterly or annually). This charge may be the subject of a research and development agreement, a technical assistance agreement or a royalty agreement. The charge may be calculated by reference to the importer’s sales proceeds or turnover. In this situation it is necessary to consider what benefit the importer/buyer of the imported goods receives in return for the payment made. Where the only benefit is goods then the payment must be regarded as related to the goods and therefore dutiable. Where the benefit is extraneous to the imported goods the charge may be not dutiable as a whole or in part.

Such a situation may arise, for example, where the charge raised is to cover technical assistance (‘know-how’) utilised in the manufacture of goods in the country of importation. It is in this area that circumstances may arise where it is necessary to separate research from development. This is to be done by applying generally accepted accounting principles.

Note: This is a complex technical subject. In each case it is crucial to examine the contractual arrangements and establish the reason for any payments that are being made and whether or not they relate to the imported goods. Where the cost of research is separately distinguished and does not relate to the production, sale or supply of the imported goods, that cost is excludible from the customs value.