The customs tariff or Combined Nomenclature ("CN") is at the very centre of customs planning. The classification of set-top boxes (i.e. determining the correct CN code) and the determination of the correct customs duty rate can prove to be difficult. While national case law, case law of the Court of Justice of the European Union ("CJEU"), a report by the World Trade Organization ("WTO") and subsequent legislation and legislative amendments should have made the classification easier, this does not appear to be the case, despite the fact that the proper classification of a set-top box could mean the difference between paying customs duties of 0% or duties of up to 14%.
Set-top box: different types, different CN codes and different customs duty rates
There are different types of set-top boxes, each with their own special features. The function of set-top boxes is to receive television signals. They can also have a 'recording' or 'communication' function, or include a modem which facilitates interactive information exchange for the purposes of gaining access to the internet. Combinations of these features are also possible.
In 2010, the WTO published a report in which the European Union's customs treatment of set-top boxes was held to be inconsistent with WTO rules. The report's conclusions resulted in amendments to EU legislation and there is now a complex set of rules in place for the classification of set-top boxes.
According to the CJEU, the main and ancillary functions of a set-top box must be determined. The main function is decisive for the classification of the set-top box in the CN. For example, if the main function of a set-top box is the recording function, it will be subject to customs duties of 13.9%. A set-top box whose main function is the facilitation of interactive internet access may be subject to customs duties of 0%. But what if a set-top box has both – and/or other – functions?
In order to properly classify a set-top box, it is necessary to be aware of all its functions and characteristics so that its main and ancillary functions can be determined. However, there is some dispute on how these important functions should be defined and interpreted. For example, is the type of modem used or the type of modulation/demodulation used by the modem relevant to the classification?
Classifying set-top boxes therefore remains a grey area. A hearing in cases pending before the CJEU took place on September 6, 2012, and was attended by KPMG Meijburg & Co. The outcome of these cases will hopefully shed more light on the classification of set-top boxes. Meanwhile, it is advisable to analyze the technical specifications of each of your set-top boxes in order to prevent the payment of excess customs duties! Finally, it may be worthwhile to assess whether the customs duties paid on the import of the set-top boxes actually had to be paid. In that case, a request may be submitted for a refund of excess customs duties paid during the last three years.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
