Royalties and license fees are payments the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for export to the United States. When dutiable, they are added to the price actually paid or payable under 19 U.S.C. § 1401a(b)(1)(D).
CBP applies a three-part test, set out in Statement of Administrative Action accompanying the Uruguay Round Agreements Act and reflected in HQ rulings:
- Was the royalty related to the imported merchandise?
- Was the royalty paid as a condition of the sale for export to the United States?
- To whom and under what circumstances was the royalty paid?
If the royalty is paid to the seller (or to a party related to the seller) and the buyer cannot purchase the goods without paying it, the royalty is almost always dutiable. If the royalty is paid to an unrelated third-party licensor and the seller has no involvement in the license arrangement, the royalty is typically non-dutiable.
Common dutiable scenarios:
- License fees paid to a foreign parent for the right to import and resell branded goods
- Patent royalties paid as a condition of obtaining the merchandise from a related foreign manufacturer
- Trademark royalties bundled into the purchase price under a single agreement
Common non-dutiable scenarios:
- Royalties for the right to reproduce or distribute the merchandise after importation (e.g., software publishing rights)
- Buying-down rights paid to an unrelated party with no nexus to the seller
The analysis is fact-intensive. CBP's Informed Compliance Publication on Royalties and HQ rulings like H037930 and H242894 are the leading interpretive guidance.