When Technology Meets Tariffs: The Past and Present of Royalty Payments

Remember the high-profile case in 2018 that shook the industry? A multinational automaker was required to pay over 200 million yuan in back taxes and late fees for undeclared engine patent royalties. This heavy blow made all foreign trade professionals realize: royalty fees are no longer the "invisible details" that can be hidden in contract appendices.

With China's technology imports growing at an annual rate of 15% (Ministry of Commerce 2022 data), royalty fees act as the "shadow price" of technology trade, constantly influencing the true value of imported goods.Finished tax price.As a "veteran customs officer" with 20 years of experience, I've seen too many companies stumble at this stage—some heavily fined for underreporting, others needlessly overpaying taxes due to misreporting.

The "Taxable Franchise" in the Eyes of Customs: Two Key Criteria for Judgment

A particularly typical case I assisted with last year involved a medical device importer: The German supplier separated equipment prices from patent fees, requiring direct payment to a Swiss research institute. The company initially thought this wasnt part of import taxes until we pointed out:

• Relatedness test: The equipment was manufactured using the research institutes patented technology
• Sales condition test: The supplier would refuse transactions without patent fee payment

These two conditions act like the "demon-revealing mirror" of customs, exposing whether royalty fees should be included in the dutiable value. Specifically:

1. "Blood relationship" with imported goods

According to Customs General Administration Order No. 213, any of the following circumstances is considered as related:

• The goods themselves contain patents/proprietary technologies (such as chip design patents)
• Produced using patented methods (such as specially processed carbon fiber)
• Specifically designed for patent implementation (such as particular molds)

2. The "fatal conditions" affecting transactions

We often use the "but-for test" to determine: Would the transaction still be concluded on the same terms without this royalty payment? In a certain cosmetics import case, the brand owner separated the trademark usage fee from the goods price, but the contract explicitly stated that "failure to pay the trademark fee would result in supply termination," which constituted a taxable condition.

Declaration Practice: Scenario-based Operation Manual

Last month, I just helped a daily chemical company complete the supplementary declaration of royalty fees. The whole process felt like playing a "customs version" of "Spot the Difference."

Scenario 1: Fees Paid at Time of Import

• The "Payment of Royalties Confirmation" column in the customs declaration form should be filled in as "Yes".
• Enter the amount in the "Miscellaneous Fees" column (Note: Not the total price!)
• Prepare patent licensing agreements, payment vouchers, and technical correlation statements

Scenario 2: Subsequent Installment Payments

This situation is most prone to errors, so remember this "30-day rule":

• Declare within 30 days after each payment
• Use customs declaration method 9500 for separate declaration
• Product information should be reported according to the original imported goods, with quantity filled as 0.1 (industry-specific rule)

Professional Advice:Establish a royalty tracking ledger and set up payment reminders. The Excel template we designed for clients has successfully issued 3 early warnings for approaching declaration deadlines.

Bloody Lessons: These Danger Zones Must Be Avoided

In the 2019 customs special inspection, one company was penalized for these mistakes:

• Considered "trademark royalties" as marketing expenses and failed to declare them.
• Failed to determine whether technical assistance fees constituted proprietary technology transfer
• Neglected copyright factors in software upgrade service fees

More troublesome is the late payment penalty issue - an electronics company failed to declare 5 million yuan in patent fees, and when discovered 3 years later, the 0.05% daily penalty accumulated to a staggering 2.7 million yuan! This is much higher than bank loan interest rates.

Customs Clearance Tips: Veteran Customs Officers Private Advice

Finally, sharing three practical techniques:

1. Key points for contract review:Pay special attention to the "grant-back" clause (technology grant-back), as it may alter the nature of the fees.
2. Exchange rate selection strategy:For installment payments, declaration may face exchange rate fluctuation risks
3. Dispute resolution path:When disputing customs determinations, professional valuation reports serve as the most compelling evidence

Remember, royalty reporting is not a simple "yes or no" multiple-choice question, but rather a technical task that requires comprehensive judgment. When you're unsure, ask yourself: Is this fee the "ticket price" for the goods to enter China? If so, it's likely a dutiable item in the eyes of customs.