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HMRC internal manual

Guidance on the Audit of Customs Values

From
HM Revenue & Customs
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Catalysts

Introduction

A catalyst is a substance that without undergoing change itself, aids chemical change in other substances. Catalysts have varying periods of life after which time most of the previous metal content can be recovered. Such precious metals are bought and sold on the commodity market and prices can vary twice daily when the morning and afternoon ‘price’ or ‘fix’ is set. Precious metal catalysts are used, for example, by the petroleum industry for the processing and refining of hydrocarbon oils in cracking units.

Example

A petroleum company imports palladium from a non-EC supplier

The supplier manufactures the catalyst but the precious metal is owned and supplied free of charge by the petroleum company for inclusion in the manufactured goods.

The precious metal is not physically transported, but equivalent values are sent by telegraphic transfer to the bank of the non-EC manufacturer. The manufacturer is then able to collect an equivalent amount of palladium to include in the finished product.

The initial catalyst would only contain palladium which had not been used in any previous manufacture.

After three years the catalyst is spent, and it is sent for processing. Approximately 90% of the previous metal content is recovered. As a commodity the bankers of the petroleum company then hold the recovered palladium. When the next catalyst is manufactured, the equivalent value of the recovered palladium is again sent by telegraphic transfer to the non-EC supplier, together with any additional amount of new palladium which is required to be incorporated in the manufacture of the new catalyst and the process is repeated.

At all times the palladium remains the property of the petroleum company. The value changes from day to day and can vary greatly over a very short period of time depending on the state of the commodity market.

The question arises as to whether, on subsequent importations, all the palladium content is dutiable or only the new additionally purchased amount.

Conclusion

The conclusion of the CVS was as follows:

Duty will be payable on the full purchase value of the palladium when it is imported for the first time. Any subsequent importations of recoverable palladium on which duty had been previously paid will not be liable to duty. If any additional amounts of new palladium are purchased, which are to be incorporated with the recovered palladium in the manufacture of new catalysts, only the additional amount will be dutiable. This is providing the additional amount can be separately identified as such.

Note: In the case of all importations the cost of the manufacturing process will also be dutiable.

A petroleum company imports platinum catalysts from an unrelated non-EC supplier

The supplier manufactures the basic catalyst but the precious metal incorporated into the finished catalyst is owned by an unrelated commodities house, who lease the metal to the UK importer’s US parent. The platinum is leased for the life of the catalyst, usually 5-10 years. The lease is set at a variable cost per annum, billed monthly on the average spot price for platinum that billing month. The lease costs are passed on to the UK company who settle with the parent company using the lease cost billed by the unrelated lessor.

When the catalyst is exhausted it is returned to the third country supplier where 98% of the precious metal content is recovered and returned to the lessor.

The question arises as to how to calculate the duty owing on the leased precious metal content upon importation to the EC.

Conclusion

The conclusion of the CVS was as follows:

Duty is payable on the definable elements of the catalyst, plus the leased platinum. To establish the basis of value for the leased platinum, take one month’s lease cost multiplied by the expected life. Security for the duty is to be taken until the final cost is known and adjustment can occur. Upon exhaustion of the catalyst an analysis of the recovered metal content can be provided. If the leased platinum is ‘made up’ to the originally leased amount, any platinum purchased must be included in the final value for customs purposes and added to the total leasing cost for duty purposes.