CO192
Customs duty – value added tax on imports – valuation – whether buyers commission and stocking credit allowance deductible from purchase price for customs valuation purposes - no

LONDON TRIBUNAL CENTRE

	DAVID HENDRY, STEPHEN WAINE and RAY WAINE
	Trading as DAVID HENDRY CARS	Appellants

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

			Tribunal:	Dr David Williams (Chairman)
Paul Adams FCA

Sitting in public in Bristol on 8 February 2005

David Hendry, partner, for the Appellants

Mr Dougal, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1	The Appellants (DH Cars) are appealing against a decision of the Commissioners that the valuation declared by agents on behalf of the Appellants on the import of a number of cars over a period from 29 May 2001 to 12 May 2003 was too low and should be increased. The Commissioners served formal notice on DH Cars that in the case of each car the items declared as “buyers commission” and “stocking credit allowance” should not have been deducted from the purchase price of the cars before declaring their values for customs duty and related value added tax (VAT) liability. The Commissioners therefore added the sums back to the valuations and notified additional liability to customs duty and VAT accordingly. The figures are not in dispute. Accordingly the tribunal turns immediately to the points of law.

The law of customs valuation
2	In the decision letter to DH Cars, the Commissioners set out a provision in EC Council Regulation 2913/92 and extracts from an explanatory note and commentary from a “WTO agreement and texts of the technical committee on customs valuation” without a proper source reference or adequate explanation. In so doing, the Commissioners, in the tribunal’s view, also conflated the legal rules about customs valuation with the administrative approaches adopted internationally to identify and check customs valuations. It is necessary therefore both properly to identify the relevant law and clarify its application to this appeal.  
3	The general rules of customs valuation are not in dispute as they apply to this case. The dispute is limited to the question whether either or both of the identified elements in the sums paid by DH Cars were or were not properly to be deducted from the price paid for each car. To succeed in its appeal, DH Cars must show that the stocking credit allowance and buying commission may be deducted by law – and should be deducted in fact - from the price paid so as to be excluded from the customs valuation. To put this in context, this means that DH Cars must show that the items under appeal do not form part of the price of the cars as determined by the transaction method – the “price actually paid or payable for the goods when sold for export”. See Article 29 of the EU Customs Code (below). 
4	The valuation of goods for customs duty purposes is a matter of European Union law. The rules are in Council Regulation (EEC) 2913/92 of 12 October 1992, the Community customs Code (the EU Customs Code). That Code is binding throughout the United Kingdom. 
5	The EU Customs Code has been adopted by the European Union in conformity with its membership of the World Trade Organisation (WTO). The rules in the EU Customs Code therefore follow the international treaty obligations of all members of the WTO. These are laid down in the General Agreement on Tariffs and Trade 1994 (GATT 1994) and the supporting and implementing international agreements of the WTO members. Customs valuation is the subject of Article VII of GATT 1994 and of a subsidiary agreement also adopted by the WTO members in 1994, the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the Customs Valuation Agreement). Both the GATT 1994 and the Customs Valuation Agreement are binding on the European Union and therefore the United Kingdom. 
6	The relevant law is therefore in the customs valuation rules of the EU Customs Code read as necessary with the Customs Valuation Agreement. In accordance with standard practice in interpreting treaties, attention should also be paid to the preparatory works leading to, and the official explanations accompanying, the treaties. 
7	The Customs Valuation Agreement, in common with other GATT 1994 subsidiary agreements, is kept under review by a WTO Committee, the Technical Committee on Customs Valuation. It regularly reports and comments on practical aspects of the Agreement and offers commentary and views on practical issues in implementing the Customs Valuation Agreement. But its commentary and views are not part of the Agreement, nor do they have the same status as the preparatory works to, or statements adopted with, the official text.
Buying commission and stocking credit allowance
8	Article 33 of the EU customs Code provides that:
1	Provided that they are shown separately from the price actually paid or payable, the following shall not be included in the customs value:
…
	(e) buying commissions …
9	This corresponds with the provisions of Article 8(1)(a)(i) of the Customs Valuation Agreement. This provides that:
1 	In determining the customs value under the provisions of Article 1, there shall be added to the price actually paid or payable for the goods:
(a) the following, to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the goods:
	(i)	commissions and brokerage, except buying commissions…
10	There is no definition of “buying commissions” in the EC Customs Code. But it is clearly the same term as that in the Customs Valuation Agreement. And a Note to Article 8 of that Agreement, adopted with the Agreement, defines “buying commission” as meaning:
“fees paid by an importer to the importer’s agent for the services of representing the importer abroad in the purchase of the goods being valued.”
Buying commission is therefore a clearly defined concept of customs valuation law, and that definition must be applied in this case. If a commission is not a “buying commission” then it is equally clear that it is not to be deducted in computing a customs valuation. This also follows from Article 29 of the EU Customs Code. 
11	The improper use of the term “buying commission” to reduce customs valuations artificially is, as the records of the Technical Committee on Customs Valuation show, a matter of international concern. Nonetheless, the commentaries of that Committee on the problems, and the advice it gives its members to control them, are essentially political or administrative comments and do not have the same legal status as the provisions set out above. The tribunal therefore does not refer to them. 
12	Mr Hendry indicated his surprise at the hearing that the Commissioners did not have a similarly clear view about the proper treatment of the stocking credit allowance.  While the tribunal accepts that DH Cars genuinely assumed that the stocking credit allowance was a matter of standard practice, it clearly is not. By contrast with “buying commission”, “stocking credit allowance” is not a term of customs valuation law or practice and is not to be found in any of the legislative texts or commentaries to which the tribunal has referred. The questioning approach of the Commissioners to this item was entirely appropriate. The tribunal agrees with the Commissioners that the proper approach to the “stocking credit allowance” is to look at the nature of the actual expenditure described in this way to see if that expenditure can receive the same treatment as a buying commission under any other provision of the EU Customs Code. 
13	Mr Hendry told the tribunal that the stocking credit allowance was introduced to the transactions by one of the agents. It was put on the invoices as a percentage of the purchase price of each car. But it was said to be a sum paid to the seller not for the cars but for holding the cars (it would appear informally, as no agreement to that effect was produced) to the buyer’s order as part of the standing stock held by the seller.  DH Cars explained this to the Commissioners in the following terms:
We do not have a written agreement for stocking credit allowance. It is still possible to operate in Cyprus on a trust basis. They carry a number of vehicles in stock for us that we may have previously ordered say 3 months in advance. We take this stock on a demand basis so obviously they are carrying stock we have ordered previously.” 
14	As this suggests, no formal contract was put in evidence to show how this was arranged. The tribunal assumes, in the absence of any such evidence, that the cars did not become the property of DH Cars until either they were paid for or, if it occurred before payment, they were unconditionally appropriated to DH Cars. There was no evidence that there was any such unconditional appropriation before payment. Indeed, that is inconsistent with the buyer’s approach of taking stock on a demand basis. Nor is there any evidence that the Appellant considered that it had an insurable risk in the cars at this stage. Further, as the stocking credit allowance was the same fixed percentage in each case of the price later agreed, it appeared to bear no relationship to the timing of any unconditional appropriation of stock to DH Cars.   

15	The Commissioners put an argument to the tribunal that the sums paid as stocking credit allowance were not within any provision of Article 33 of the EU Customs Code. In particular the allowance was not a charge for interest under a financing arrangement. The tribunal agrees with the Commissioners, but without reference to any specific provision. The clear evidence was that the sums were paid by the buyer to the seller and not to any third party. Further, they were paid specifically in relation to each car purchased and by reference to the sale and purchase price of that car. Further again, it related to the amount the seller received for each car before the car was appropriated unconditionally under the sale and purchase agreement to the buyer (that is, became the buyer’s car, not the seller’s).  It was not a payment for some service performed by the seller after the buyer had purchased the car and therefore separately from the sale. Nor was it a payment for some other goods or services, such as providing finance for the deal.  Accordingly, the stocking credit allowance was, regardless of its name, merely part of the purchase price. It is part of what the buyer in fact paid the seller to buy the car. As such it falls completely within the consideration to be taken into account when valuing the import for customs purposes on the transaction basis – that is, what the buyer actually pays the seller. The tribunal accordingly dismisses the appeal on that point, and does not need to consider it further. 
Did the Appellants pay a buying commission?
16	By contrast, a buyers commission is paid not to the seller but to a third party, the buyer’s agent. And, as noted above, any commission paid by a buyer to the third party does not form part of the purchase price for customs valuation purposes. That is  entirely consistent with the general principle of the transaction-based approach to customs valuation. A buyer’s commission is not paid to the seller. And it is paid not for the goods bought, but for the separate services of a third party facilitating the arrangements under which the goods are purchased. 
17	The practical problem, illustrated by this case, is that a seller may ask a buyer to pay any seller’s commission. Or the commission may be paid to some third party who is in effect both a buyer’s agent and a seller’s agent. In this case, the Commissioners took the view that the Appellant was being asked to pay a commission to the seller’s agent and not to its own agent. It is therefore necessary to establish whether the commission paid is actually commission of a kind within the definition set out above. 
The facts
18	Mr Hendry gave evidence to the tribunal about his understanding of the relevant aspects of the arrangements under which the appellant purchased and imported the cars. The tribunal fully accepts his evidence as a genuine account of how he saw the transactions. It also accepts that the transactions engaged in by the appellant were in line with similar arrangements entered into by other similar businesses of which the Appellant had knowledge. It further notes that DH Cars did not conduct its business through separate British agents or with the assistance of its lawyers or other advisers.  There had been a continuing course of business for some period between the parties. The use of the two items in question as part of the invoices for the cars had emerged during the course of that course of business.   
19	The cars were purchased from Nicos C Kattamis Ltd in Cyprus through the agency of Dase Trading Ltd (Dase) and PLE Enterprises Ltd (PLE), also based in Cyprus. Dase and PLE share premises in Cyprus and both, the tribunal was told, belong to the same person. These were associated with a British company or business, Eurolink, also run by the same person, Paul Lenas.The cars were then shipped from Cyprus to the United Kingdom (and thereby imported) by Medite Shipping Co (UK) Ltd, based in Ipswich or Osprey Shipping Ltd, based in Bristol. The British based shipping companies declared the cars to the Commissioners for customs duty purposes, not Dase or PLE. This is consistent with the need to have an EU-based agent for import purposes. See Article 5 of the EU Customs Code. 
20	The tribunal was shown a number of invoices relating to imported cars. These showed that the shippers invoiced the Appellant for individual customs entry and terminal handling charges for the imported cars. Payment for the cars was made direct to Kattamis. The documents show, and Mr Hendry confirmed, that a single payment was made, including the stocking credit allowance and the buying commission. 
21	A typical invoice was issued to the appellants by Dase on 09/08/01, for seven cars, showing a total “cost price” for the cars. To that is added a stocking credit allowance and a buying commission. The “total sale price” is the sum of these three.  The “cost price” is shown in Japanese Yen, and then converted to Pounds Sterling at the Customs rate of conversion. To this sterling figure is added freight and marine insurance for seven units together with “administration and handling fee” for seven units. The resulting total is shown as “Total CIF Felixstowe”.
22	There is a separate letter from Eurolink dated 23 August 2001 to Medite Shipping, with a copy to the Appellant, showing the CIF price from the invoice of 9 August. The letter includes what appears to be an invoice for 10% import duty and 17.5% VAT on the sum shown on the other invoice as Total CIF Felixstowe, together with a total of clearing charges to Medite and 17.5% VAT on part of those clearing charges. The total of clearing charges to Medite are shown on another invoice, dated 7/09/01, sent from Medite to the Appellants. The letter/invoice from Eurolink states that payment is to be made prior to collection.  
23	Banking documentation shows that the Appellants paid Kattamis the “total sale price” and paid Medite Shipping the amount shown on the letter/invoice from Eurolink to Medite Shipping. There was no direct payment to Dase or Eurolink. Mr Hendry understood that Dase and/or Eurolink were paid direct by Kammatis.
24	The Commissioners  asked DH Cars to produce a contract showing the terms of the agency that Dase operated for the Appellants. The Appellants’ initial reply was, in effect, that the contract was an oral contract only. Upon further request, they 

produced in January 1994 an “Agency Account” dated 10/04/1997 and signed for Dase and the Appellants. The only relevant content is the following:
	AGENCY ACCOUNT
	For services rendered
Covering administration and shipping, vehicle sourcing and negotiation, vehicle financing to 180 days, stocking credit allowance, buying commission charges, arrangement fees, customs clearance and documentation.  
TOTAL AMOUNT CHARGED NOT EXCEEDING CYP£ 500= per vehicle OR ANYOTHER LOWER AMOUNT AGREED 
25	The tribunal does not accept that this is the contract between those parties. It is inconsistent with invoices showing that other parties handled some of these aspects of the transactions. For example, it does not take into account the function played by Eurolink in the arrangements. And the declarations made to the Commissioners for import purposes were made by the shippers not Dase.  Further, the stocking credit allowance was said by Mr Hendry to be paid to the seller for holding stock, not to Dase. The tribunal consider that to be more realistic as Dase appear in the deals only as agents, not as owners of the cars (which would make them principals).  Again, as the tribunal understood the evidence, the stocking credit allowance was introduced during the course of the business dealings between the parties and not as an initial term.
26	Having considered both the available documentary evidence and the absence of documentation that might be expected, together with the evidence of Mr Hendry, the tribunal finds that the Commissioners view of the “buying commission” is the more probable. No payment was made direct by DH Cars to Dase or PLE. The only identifiable agency functions in the list on the “Agency account” performed specifically for DH Cars rather than for the sellers (or both together) were performed not by Dase and PLE but by the shippers, and they were paid directly by the Appellants. No specific evidence was given of particular duties being performed by Dase or PLE as buyer’s agents that could not also be explained on the available evidence as the actions of a seller’s agent. 
27	The tribunal therefore finds that the sums paid by the Appellants to Kattamis under the description of “buying commission” was not buying commission within the meaning of the EC Customs Code article 33. 
Our decision
 28	The individual sums stated in the Commissioners’ notices are not in dispute. The only issue is the issue of principle about inclusion of the two deductions in the declared customs values which those notices counteracted. As the tribunal agrees with the view taken by the Commissioners on both deductions, it must follow that the 
Commissioners notices of additional liability to customs duty and VAT on import of the cars must stand. 

David Williams

CHAIRMAN
RELEASE DATE:24 March 2005

LON/04/7012