Royalties are payments made by one party to another in exchange for the use of certain intellectual property, such as a patent, trademark, or copyrighted work
These payments are typically based on the number of times the property is used or the amount of revenue generated from the use of the property.
Licensing fees, on the other hand, are payments made by one party to another in exchange for the right to use certain intellectual property. These fees are typically paid as part of a licensing agreement, which outlines the terms and conditions under which the property can be used. Licensing fees can be based on a flat rate or a percentage of revenues generated from the use of the property.
Both royalties and licensing fees can be applied to a wide range of intellectual property, including trademarks, copyrights, patents, and imported products that contain any of these types of intellectual property.
When importing goods into the United States, the value of the goods must be appraised by Customs and Border Protection (CBP). The preferred method of appraisement is the transaction value, which is defined as "the price paid or payable for the merchandise when sold for exportation to the United States," plus certain enumerated additions.
Royalties and licensing fees may be included as part of these enumerated additions and are therefore subject to duty by CBP. Whether royalties and licensing fees are dutiable will depend on whether the buyer had to pay them as a condition of the sale, and to whom and under what circumstances they were paid.
It's important to note that not all royalties and licensing fees are dutiable. For example, royalties and licensing fees that are not related to the imported merchandise or are paid to unrelated parties are generally not dutiable.
U.S. Customs and Border Protection (CBP) considers several factors when determining whether royalties and licensing fees are dutiable. Some of the factors that CBP may consider include:
- Whether the merchandise was manufactured under a patent: If the merchandise was manufactured under a patent, the fees may be dutiable.
- Whether the royalty was involved in the production or sale of the merchandise: If the royalty was directly related to the production or sale of the merchandise, the fees may be dutiable.
- Whether the importer could have purchased the product without paying a fee: If the importer was required to pay a fee as a condition of the sale, the fees may be dutiable.
Examples of situations where royalties and licensing fees may be dutiable include:
- Payments for the right to manufacture a good
- Payments for the right to export a good
- Payments that are part of the price paid or payable for the good
- Payments for the right to sell the good in the destination country (maybe dutiable depending on the circumstances)
On the other hand, examples of situations where royalties and licensing fees may not be dutiable include:
- Payments for the right to reproduce the good in the US
- Payments to an unrelated third party who is separately called in to handle the exportation
It's important to note that the ability to be dutiable of royalties and licensing fees is determined on a case-by-case basis, and CBP requires a copy of all royalty and licensing agreements when goods are imported into the US.