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Customs Valuation: Inclusive software - part of the product's price?

Software, even were provided without charge, needs to be added to the customs value of imported goods. Arne Mielken from Customs Manager Ltd explains the case.

About the case BMW Bayerische Motorenwerke AG v Hauptzollamt München

Everyone knows the automotive company BMW (stands for Bayerische Motorenwerke AG in German). It bought certain "control units" from non-EU suppliers. These contained essential software that was produced in the EU. BMW then sold the control units to other third parties and the software with it - that was provided free of charge. When it came to determining the transaction value of the control units upon importation into the EU, the software was not included in the customs value.

Dutiable Assists

German customs authorities, however, argue that the value of the free software must be added to the transaction value of the control unit. Regardless if free or not, in the eyes of the authorities, the software constitutes a dutiable assist under article 71(1)(b) of the Union Customs Code (UCC).

ECJ agrees: Free is not always free

The court agreed and said that the customs value must reflect the economic value of the imported goods. The fundamental aspect of determining the customs value is that it is based on the transaction value, meaning, simplified, the invoice price that buyer and seller agreed to, as regards the imported goods into the EU. However, this "price" is subject to adjustments where required and article 71 of the Union Customs Code (UCC) is to be considered - leading to possible price "additions".

What does article 71 UCC say?

A lot, but the most relevant part is:

Article 71
Elements of the transaction value
1.  In determining the customs value under Article 70, the price actually paid or payable for the imported goods shall be supplemented by:
(b)  the value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable: (i)  materials, components, parts and similar items incorporated into the imported goods; (...) (iv)  engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than in the Union and necessary for the production of the imported goods;

But is free software provided by BMW to the seller of the control units really to be added to the customs value? After all, it came at no extra charge! Besides - software is not even mentioned in the list of article 71(1)(b)(i) to (iv) UCC.

The ECJ did not agree. No specific listing in the UCC does not exclude the "cost" from being added to the customs value. Intangible assets like software can qualify as an assist under article 71(1)(b)(iv) UCC which covers "engineering, development, artwork, design work, and plans and sketches." But - if they do there, then this would only relate to software developed outside the EU! Here the software came from BMW inside the EU, so the software would not be included in the customs value

Could software also be considered as 71(1)(b)(i) - therefore as "materials, components, parts, and similar items incorporated into the imported goods"? Then, no origin provision exists and the software value should be included in the customs value, regardless if it is from the EU or not.

The ruling refers to Conclusion No 26 of the Compendium of Customs Valuation Texts from the Customs Code Committee whereby software is an integral part of the end product (i.e., control units), as they are connected to, or incorporated in them and make it possible for them to function or improve the way in which they function.

The Court concluded that the value of the software should be added to the transaction value of the imported control units under article 71(1)(b)(i).

What does the ruling mean in practice?

It is a quite significant ruling as software is part of everyday machinery these days. It should be added to the customs value as an assist whenever the conditions of article 71(1)(b) UCC are fulfilled. So, when thinking "assists", think

  • If 71(1)(b)(iv) is fulfilled, it should only be added if undertaken elsewhere than in the EU.

  • If 71(1)(b)(i) UCC is fulfilled, it is to be added if developed inside the EU.

This means that buyer and seller should make it very clear and provide proof to show that the software is or is not an essential part of the imported product.

If it is, think 71(1)(b)(i).

Or may it be simply necessary for the production of the imported good? Think 71(1)(b)(iv).

Maybe it is both - like in this case?

The next question is how you then assess the value of the software and if it is both used for the production and running of the machine, how do you proportion the value?

Please get in touch if you would like to know more about this case or need some help with your customs value determination.


Customs valuation: ECJ judgment on software provided free of charge

On September 10, 2020, the European Court of Justice issued a judgment in case C-509/19 regarding the interpretation of Article 71 (1) (b) UCC (addition of supplies). According to this, when determining the customs value of imported goods, the economic value of software that is developed in the Union and made available by the buyer free of charge to the seller based in a third country must be added to its transaction value.


A Bavarian car manufacturer buys control units for vehicles from suppliers in a third country. In order to carry out functional tests before the control units are delivered, the manufacturers of the control units are provided with software developed in the EU free of charge. This software is installed outside the customs territory of the Union by the manufacturers of the control units. Following the functional tests, the car manufacturer introduces the control units into the customs area of ​​the Union and has them cleared for free circulation here.

In the course of a customs inspection, the administration complained that the development costs for this software were not included in the customs value. The Bavarian car manufacturer has brought an action against the import tax notice issued by the HZA Munich at the Munich tax court.

Since the Finanzgericht München has doubts as to how Article 71 (1) (b) of the UCC is to be interpreted with regard to the consideration of the development costs for software and how the consideration of contractual provisions is to be carried out in the present case, the proceedings were suspended and ECJ submitted the following question for a preliminary ruling:

If the development costs for software that was developed in the EU, made available to the seller by the buyer free of charge and installed on the imported control unit, are to be added to the transaction value for the imported goods in accordance with Article 71 (1) (b) UCC if they are not are included in the price actually paid or payable for the imported goods?

In its reasoning for the judgment, the court first emphasized that the actual economic value is decisive for determining the customs value. It is also emphasized that neither the wording nor the system restrict the application of Article 71 (1) (b) of the Customs Code to tangible goods or factors. Rather, every object or every service provided by the buyer to the seller must be taken into account if their value is not included in the price actually paid or payable. Thus the value of software is also covered by this article.

According to the court, the decisive factor is whether the software increases the value of the goods to be imported. Since the software increases the functionality of the goods, there is also an increase in value, which must accordingly be taken into account when determining the customs value. However, the ECJ has not stipulated how the value of the software is to be measured.

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