Zara Kazakhstan Judgement: upload complete. Please summarize the Text in English in 400 words.

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Summary:

The case involves a dispute between the Department of State Revenues (DSR) of Almaty and a group of companies (referred to as "Partnerships") over the inclusion of royalties in the customs value of imported goods. The Partnerships argued that the DSR's conclusions about the direct and inseparable connection of intellectual property objects transferred to the Partnerships with the goods they sold were unsubstantiated.

The court agreed with the local courts that the Department's conclusions were unsubstantiated.

The court examined the issue of whether the royalties for the trademark and commercial designation should be included in the customs value of imported goods. It was found that both the trademark and the commercial designation were ways of individualizing the mono-brand store and were closely related to the goods.

The court held that the commercial designation was associated with a specific brand and its goods, and each product indicated the brand's name in a set font and format. This finding was specific to mono-brand stores.

The court agreed with the defendant's position that the royalties for the commercial designation, like the trademark, should be included in the customs value of imported goods. Due to the lack of calculation from the plaintiff regarding the distribution of the 3.5% royalty between the commercial designation, know-how, and software, the court found it fair to evenly distribute the 3.5% between the three components, resulting in 1.17% for the commercial designation.

The court also examined the principle of protection of trust. It referred to Article 13 of the Administrative Procedure Code and stated that the trust of a participant in administrative proceedings is protected by the laws of the Republic of Kazakhstan. However, it also highlighted that legal entities must act in good faith, reasonably, and fairly when exercising their rights.

The plaintiffs argued that a letter from the Customs Control Committee (CCC) in 2013 suggested that only the trademark should be included in the customs value, while the other elements of the franchise should not. The court, however, found that the letter did not explicitly address the disputed royalty components.

The court also considered a study by The Greens/EFA Group in the European Parliament on aggressive tax planning by the Inditex group. The study analyzed why supply contracts and franchise agreements were concluded through specific jurisdictions and the tax consequences for the group and the European Union.

Based on the evidence, the court concluded that the 2013 request to the CCC was also part of the group's aggressive planning strategy. Consequently, the CCC's 2013 response could not be used as the basis for protecting the Partnerships' interests. The court decided to partially satisfy the defendant's appeal and modify the local courts' decisions in favor of the defendant regarding the commercial designation.

The court instructed the DSR to recalculate the customs duties, taxes, and penalties based on the court's legal position.

Lessons:

This case highlights the importance of properly allocating and documenting royalties related to trademarks and commercial designations. It also emphasizes the need for businesses to act in good faith, reasonably, and fairly when exercising their rights. Additionally, the case serves as a reminder that aggressive tax planning strategies may not always be upheld in court, and businesses should be cautious when employing such tactics.