VPM files legal action over copyright license tax bill

Vinataba-Philip Morris has disputed a customs bill on Marlboro cigarette importsPhoto: Le Toan

Vinataba-Philip Morris Limited (VPM), a joint venture between state-owned National Tobacco Corporation and PT Hanjaya Mandala Sampoerna Tbk, a PM Global Brands Inc. affiliate, has sued director of Can Tho Department of Customs Nguyen Huu Co in a case lodged with Can Tho People’s Court and petitioned for the tax assessment to be re-examined.

Its claim related to a dispute over a copyright license fee which lasted for more than a year after the local customs department presented the claim for duties to the company in March 2012.

The department claimed that the company had paid a copyright license fee for Marlboro products for the entirety of 2011 to its partner PM Global Brands Inc. (PMGB).

Specifically, according to the contract between Vinataba-Philip Morris and PMGB, in order to use PMGB’s commercial brand-name, Vinataba-Philip Morris must use imported materials as specified by PMGB and that Vinataba-Philip Morris were obliged to pay 12 per cent of its sales from the products to PMGB in each quarter.

The total amount paid to PMGB reached $2.95 million for the entirety of 2011.

Can Tho customs authorities claimed that this licensing rights that Vinataba-Philip Morris paid to PMGB would have taxable value.

Can Tho Department of Customs director Nguyen Huu Co then issued Decision 219/QD-HQCT demanding outstanding tax payments of VND4.95 billion ($235,714) with an additional fine of 10 per cent on the tax duty.

However, Vinataba-Philip Morris claimed that the contract just regulated trading of materials between two parties and did not mention any licensing rights. Therefore, the licensing rights were not related to imported materials.

After receiving the customs department decision, the company paid duties as previously required and lodged two unsuccessful bids for the decision to be over-turned.

The General Department of Customs in a document in reply to Vinataba-Philip Morris in late 2012 agreed with Can Tho Department of Customs that its decision was completely right under current regulations on defining the taxable value of a licensed copyright.

VIR tried to contact with Vinataba-Philip Morris representatives but they were not available for comment last week.

Tony Nguyen, managing director of EPLegal, said that if Vinataba Philip Morris’s claim was true, the purchase contract only regulated trading of (tobacco) materials between the two parties and did not mention any IP rights, while the Custom Department referred to the licensing agreement for the brand of the cigarettes to be sold by Vinataba Morris in local market.

According to paragraph 1.2.5 of Article 14 of the Circular 205/2010/TT-BTC, the IP rights can only be added to the imported goods price if the royalties are paid for the IP rights related to the imported goods.

“The vague wording of this provision invites controversial understanding depending on how broad the phrase “related to” is interpreted. Vinataba-Philip Morris may argue that the tobacco materials have nothing to do with the licensing agreement, which regulates the IP rights of the branded cigarettes,” said Nguyen.

On the other hand, he added the Custom Department might conclude that the imported materials were a key part of the sold cigarettes and thus the royalties paid under the licensing agreement were related to the imported goods. In this regard, it would be very difficult for Vinataba-Philip Morris to set aside the decision by Can Tho Custom Department if this department took a broad interpretation of the above provision.