CBP Rules License Fees for Software as a Service Aren't Dutiable as Part of Price Paid on Vehicles
CBP has ruled that license fees for software as a service in a vehicle navigation system aren't dutiable as part of the price paid or payable for imported vehicles, nor are they additions to value.
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
The ruling concerns an unnamed importer that purchases vehicles from a foreign manufacturer to sell to its authorized dealers in the U.S. Each car has a connected car navigation system for maps and navigation purposes, with a software as a service component that receives and uses data in real-time from a cloud server via the vehicle’s wireless communication. The software is provided to consumers on a subscription basis. An affiliate individually executed the license agreements.
The price "paid or payable" means the total payment made on imported merchandise by the buyer to the seller. The license fees aren't part of the price actually paid or payable for the vehicles. Instead, they're a post importation payment made for additional software as a service intended only for those consumers who wish to use it, CBP said.
The license fees are a separate payment made by the importer to the content providers for the right to use the content in the vehicles, and the license fees won't be paid to the foreign manufacturer of the imported merchandise, thus they won't benefit from it.
A license fee may be added to the price paid or payable if it's not included in that price, as a fee related to the imported merchandise that the buyer is required to pay as a condition of the sale. CBP has a test for determining the dutiability of royalties or license fees, which asks whether the imported merchandise manufactured is under patent, whether the license fee involved the production or sale of the imported merchandise and whether the importer could buy the product without paying the fee.
Here, the affiliate, importer and foreign manufacturer are all separate entities. The affiliate has non-exclusive rights to use the content provided by the content providers in vehicles imported into the U.S. from the country the affiliate is based in. The U.S. importer pays the license fees only to the affiliate, not the foreign manufacturer.
The license fees here also didn't involve patents, and were not involved with the production of imported vehicles, and are paid for the software after the importation of the vehicles. The fees are paid by the importer, and the distribution agreement between the foreign manufacturer and the U.S. importer for the vehicles doesn't contain any provisions surrounding the fees.
The finished vehicles can be purchased without paying the license fee for the software as a service, and the payment only relates to that software, not the sale of the vehicles. Thus, they are not a condition of sale, the ruling said.
"A U.S. consumer, who wishes to use the SAAS, can have it free of charge for the first five or ten years. If a consumer does not wish to continue using the SAAS after the initial free period expires, the SAAS use is terminated."
For the license fees to be dutiable, proceeds of any subsequent resale, disposal or use of the imported merchandise must be added to the price paid or payable for the merchandise. CBP previously ruled that for proceeds of a subsequent resale to be dutiable, they must pertain to the resale of the imported merchandise and accrue to benefit the seller. The payments here would be made to the affiliate and content providers, and don't pertain to the resale of the vehicles, the agency said.