Facts of the case
Under a foreign trade contract with a seller, a Russian company ("the Importer") imported parent forms of sunflower, corn and pea seeds ("Parent Seeds") from France into Russia for use in producing hybrid seeds ("Finished Products") which would then be sold.
The Importer also concluded an agreement with a sublicensor on the use of trademarks in connection with the production, export, storage, sale and other disposal, promotion and/or distribution of goods. However, the Parent Seeds were imported without a trademark.
The trademark in question was displayed on packages containing Finished Products. The Importer paid royalties to the sublicensor on net sales of those products.
Neither royalties nor VAT on royalties which the Importer pays to the federal budget as the sublicensor’s tax agent were included in the customs value of imported goods.
After carrying out an in-house customs audit of the Importer, the customs authority concluded that royalties and VAT on royalties should have been included in the customs value of imported goods.
Disagreeing with the customs authority’s decision, the Importer filed an arbitration appeal.