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09.01.2015

Recipes – A bitter customs aftertaste?

Globalization in the confectionery industry began a long time ago. Production no longer takes place exclusively in Europe, but internationally. The products have for a long time been based on their uniqueness, which relates to "secret" recipes. If the production of the confectionery goods or individual raw

Globalization in the confectionery industry began a long time ago. Production no longer takes place exclusively in Europe, but internationally. The products have for a long time been based on their uniqueness, which relates to "secret" recipes. If the production of the confectionery goods or individual raw materials, for example flavorings, is outsourced, the recipes must be passed on to the manufacturers. In concrete terms, this means that the German confectionery company has its products produced by a contractor, for example in Asia. In order to do this, the company provides the Asian manufacturer with the required recipes. The completed products are then sent by the manufacturer back to Germany and are imported and marketed in Germany.

When goods are imported from a third-party country, they are subject to customs clearance, i.e., customs duties must be paid on them. In order to determine import duties, in accordance with the EU Customs Code, the value of the goods are decisive. The underlying value of the goods should be the objective value of the imported goods, with the purchase price to be used as a basis. The purchase price is not always everything. In accordance with Article 32 Customs Code, value-increasing components are to be taken into account in the customs value. This includes, for example, production equipment provided by the purchaser to the manufacturer.

What does this have to do with recipes? Contributions include not only physical production equipment, but also “intellectual contributions", such as expertise, sketches or production plans. This also includes the corresponding recipes for food items.

If the recipe is made available to a manufacturer in a third-party country free of charge or at a reduced cost, it must be added to the customs value. In case of intellectual contributions, however, unlike contributions of physical equipment, this applies only if the development of the formulation did not take place in the EU. This could be a loophole for you because if you have developed the formulation exclusively in the EU, you can provide it free of charge to the manufacturer, without this having a negative effect on the customs value. If, however, development work (partial performance) also took place in a third-party country, for example in the group headquarters in Switzerland, the intellectual contribution is initially relevant with regard to customs value and would have to be included. In case of a recipe developed partially in the EU, a subsequent step would be to agree with the customs administration on which portion of which portion is relevant here with regard to the customs value, also with regard to international distribution of the completed product.