The Court of Justice clarifies the EU customs rules applicable to customs valuation

The Court of Justice of the European Union ("Court") just released its judgement in Case C-1/18 Oribalt Riga concerning the customs valuation methodologies applicable to generic medicines in the framework of consignment agreements ("Judgment").

The Court of Justice clarifies the EU customs rules applicable to customs valuation

By way of background, in 2005, Oribalt Riga SIA ("Oribalt") concluded a consignment agreement with Ranbaxy Laboratories Ltd. ("Ranbaxy"). Pursuant to this agreement, Oribalt imported generic medicines, stored and distributed them to Ranbaxy's clients without acquiring their ownership. Oribalt determined the customs value pursuant to the "transaction value" method (i.e., the price actually paid or payable for the goods when sold for export to the EU). In 2011, Latvian authorities rejected the determination of the customs value based on that method and instead relied on the "deductive value" method (i.e., the unit price at which the imported goods or identical/similar goods are sold to unrelated buyers in the greatest aggregate quantity in the EU). Oribalt appealed Latvian Customs' approach on the following grounds: (1) the customs value should be determined on the basis of the first applicable valuation method (i.e., the "transaction value" method); (2) if the customs value is established under the "deductive value" method, the reference values should be those of the goods imported on a date as close as possible to the date of importation of the goods considered for valuation; and (3) discounts should be taken into account for the determination of the customs value under the "deductive value" method.

On that basis, the Latvian court referred the following three questions to the Court:

  1. Whether generic and brand-name medicines can be considered "similar" within the meaning of the "transaction value of similar goods" method, which allows the valuation of goods by reference to the value of similar goods. The Court concluded that a determination of whether two products are "similar" requires taking into account all elements that may have an impact on the real economic value of the medicines, including the market position of the imported medicinal product and its manufacturer. As a result, the Court considered that the generic or brand-name character of a medicine should be considered in determining its similarity to other products.
  2. Whether the 90-day limit provided in the "deductive value" method can be applied with a certain flexibility. EU customs law requires that the importation of the similar goods used to establish the customs value take place within a maximum of 90 days after the date of importation of the goods considered for valuation. The Court clarified that the 90-day limit is binding. Furthermore, the Court considered the applicability of the "fall back" valuation method, which allows the use of other valuation methods with a reasonable flexibility, in such situations. The Court clarified that the valuation of goods on the basis of "similar" goods imported beyond the 90-day limit could be a possible flexible implementation of the "transaction value of similar goods" method under the "fall back" method. That said, the Court also held that such flexibility under the "fall back" method could only be applied in a hierarchal order (i.e. if the other methods have been ruled out first).
  3. Whether the determination of the customs value under the "transaction value of similar goods" method should consider discounts to the selling price of the imported medicines. The Court held that such discounts should not be part of the determination of the customs value because customs rules already provide a detailed account of the elements to be added to/deducted from the customs value under that method, which does not include such discounts.

Businesses importing and distributing products in the framework of consignment agreements should be wary of the Court's clarification in the Judgment and adapt their customs valuation methodologies accordingly.

Please do not hesitate to contact the team should you have any questions on the concrete implications of this development for your imports into the EU.

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