Legal Updates

Royalties to holder of trademark will be part of the price of the product for customs purposes if the owner could have prevented the importation into Israel

November 1, 2016

Importers of fashion products paid consideration for manufacturing of the products and royalties to owners of the trademarks used in the products. The Tax Authority demanded customs payment for the full amount - consideration to the manufacturer of the products and royalties.

The Supreme Court held that customs are paid on the value of the imported goods that includes both the price paid or payable for the goods, and “expenses and amounts" set by law, including royalties and license fees relating to the imported goods "that the importer must pay, directly or indirectly, as a condition of sale of goods in Israel by it". i.e payments without which it may not be practical to export the goods into Israel from the country in which they are. In one of the cases discussed in this verdict the copyrights owner dictated the identity of the manufacturer and how the product will be produced and therefore the royalties are part of the product price because if the copyright holder controls the procurement process it can prevent the importer from purchasing the goods if it does not pay royalties. However, in a second case the copyright holder was involved, but evidence showed that it could not prevent the importation and therefore the royalties paid are not included in the product value for customs purposes.