Study Guide

Case study: WCO Advisory Opinion 21.1 Interpretation of the expression "partners in business" in Article 15.4 (b) Are sole agents, sole distributors, and sole concessionaires "legally recognized partners in business" in terms of Article 15.4 (b) of the Agreement? The Technical Committee on Customs Valuation expressed the following view. The Technical position in regard to sole agents, sole distributors and sole concessionaires is set out in Article 15.5 of the Agreement, which provides that persons associated in business as sole agents, sole distributors or sole concessionaires are only deemed to be related persons under the Agreement if they fall within the criteria of Article 15.4. Article 15.4 (b) deems persons to be related if ‘they are legally recognized partners in business.’ An association would be a partnership only where the national legal requirements for the creation of a partnership are satisfied. Thus, persons are not related under the Agreement simply because one person is the sole agent, sole distributor or sole concessionaire of the other. While it is true that sole agents, sole distributors, etc. may have a close association with their suppliers; this fact alone would provide no reason to treat them differently from any other unrelated party. Source: WCO 1997

WCO Advisory Opinion 21.1 concludes that the fact that sole agents may have close associations with their suppliers does not in itself provide reason to treat them as related parties.

WCO Explanatory Note 4.1

The WCO Technical Committee has interpreted the word "control" in Explanatory Note 4.1. While any contractual situation places some degree of restraint or direction on one party, for one person to control another, that person must be legally or operationally in a position to exercise restraint or direction. The Note concludes that the buyer and seller are not related when they are:

• ·         Free to negotiate or not negotiate.
• ·         Free to enter or not to enter into a contract.
• ·         Free to terminate the contract by action specified in the contract or by choosing not to renew the contract.

A branch office would normally be considered related to the parent company. In some countries, branch offices are not considered separate legal entities. In such cases, there is no sale occurring and therefore no transaction value. The transaction value method could not be used to determine Customs value.

In interpreting the expression ‘the same family’, the determination of those who are members of the same family is normally a matter for national consideration. The following are examples:

Husband and wife	Uncle and nephew
Parent and child	Uncle and niece
Brother and sister	Aunt and nephew
Stepbrothers	Brothers-in-law
Stepsisters	Sisters-in-law
Grandparent and grandchild	Adoptive parent and adoptive child

The Agreement makes clear that the fact alone that the buyer and seller are related gives no grounds for rejecting the transaction value. If they are related, the transaction value will be accepted provided the relationship does not influence the price.

Determining and demonstrating whether a relationship has influenced the price can present difficulties for both importers and Customs administrations. The Agreement in paragraph 2 (a) and (b) of Article 1 makes two suggestions:

• ·         First, in consultation with the importer, by an examination of the circumstances of sale to determine whether the price was influenced by the relationship.
• ·         Second, by a comparison with sales between an unrelated buyer and seller, or with Customs values of identical or similar goods.

In a sale between related parties, it is the obligation of the declarant to demonstrate to the satisfaction of Customs that the selling price has not been influenced by the relationship.

The issue of relationship and price influence is the subject of ongoing studies within business and Customs communities. The high volume of international transactions between multinational companies keeps this matter at the forefront of Customs valuation issues.