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HMRC internal manual

Guidance on the Audit of Customs Values

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Export licences - textile products (quota charges): legal precedents

There is no specific mention of quota charges/quotas/export licences in the EC legislation relating to customs valuation. However, three judgements of the European Court of Justice (ECJ) concern this subject. Details of the cases are as follows:

Case No 7/83 (Ospig)

The Court noted that there is a trade in export licences relating to textiles. However, the licences do not relate to specific consignments of goods. Thus the quota charges represent consideration for the right to export, which is independent of the price payable for the goods. It cannot be argued that the charges are paid as a condition of the sale of goods. Therefore quota charges are in principle not to be included in the customs value.

Case No C-29/93 (Ospig)

The Court re-confirmed that charges for the acquisition of export licences are not to be included in the customs value. However, the Court added that it did not matter whether export licences are the subject of lawful trade in the country of export. The Court also commented that the risk of fraudulent deduction of alleged ‘quota charges’ does not affect its conclusion. The onus is on the importer to supply all necessary information and documents to the customs authorities to enable them to determine the customs value and establish whether the charges in question were in fact incurred in the acquisition of export licences (quotas).

Case No C-340/93 (KlausThierschmidt)

The Court took the view that, where ‘quotas’ are allocated ‘free of charge’ to the seller of the imported goods but the seller makes a charge for them to the buyer, that charge is to be included in the customs value. The Court argued that, although quotas allocated ‘free of charge’ may have commercial value for the seller, they entail no charges for him. Thus amounts invoiced in respect of those quotas relate to ‘notional’ quota charges, which in reality constitute a disguised element of the price of the goods (that is, additional profit). Since they are in the nature of an element of the price, the amounts in question are to be included in the customs value under the provisions relating to the price actually paid or payable for the goods (Article 29.3(a) of the Code).

The Court again re-confirmed that charges for the acquisition of export licences (quotas) are in principle not to be included in the customs value. The Court also indicated that, because there is no specific reference to ‘quota charges’ in the law, there is no requirement to show separately/separately distinguish such charges at the time of entry to free circulation. Nevertheless, where an importer excludes an element described as ‘quota charges’ from the customs value, the onus is on the importer to provide evidence to show that these charges relate to the cost of acquisition of export licences. It does not matter whether the export licences were acquired from the licensing authority in the exporting country or a third party (for example another exporter or a quota broker). The key point is that the charges in question relate to the cost of acquiring export licences. Thus any charge made for ‘quota’ by the seller, which the seller has obtained ‘free of charge’, is dutiable.

Practical application

Where, at the time of entry to free circulation, quota charges are excluded from the customs value, the importer must be able to provide on request appropriate evidence to show that the charges relate to the cost of acquiring export licences. Such evidence could include the following:

  • a copy of the contract of sale with the manufacturer showing the price of the goods
  • a copy of the export quota licence transfer document and the document showing the price paid for the quota or
  • a copy of any other commercial documentation confirming the cost of acquiring the quota from a third party.

Where, at the time of entry to free circulation, charges for acquisition of export licences are included in the invoice price for the imported goods and thus declared as part of the customs value, importers may subsequently submit a claim for a refund of duty based on the retrospective exclusion of the ‘quota charges’. Because there is no requirement in the law to ‘show separately/separately distinguish’ quota charges at the time of entry to free circulation, such claims may be considered subject to the legal provisions relating to repayments of duty and the production of appropriate evidence.