On 29 May 2003, the General Administration of Customs promulgated the "Valuation Method for Imported Commodities Incurring Royalties" which aimes to standardise the formalities of the said valuation. The Method has been in force since 1 July 2003.

Royalties stipulated in the Method refer to fees paid for the authorised use of: (1) patent rights; (2) trademarks; (3) copyrights; (4) technical know-how; (5) distribution and resale rights; and (6) others intellectual properties. When making declaration to Customs, the royalties should be included in the valuation of imported commodities.

Commodities involving the use of patents refer to:

(1) Those bearing patents or technical know-how;

(2) Those manufactured by patented methods or know-how; and

(3) Machinery/equipment specially designed/manufactured for the implementation of patents or technical know-how.

Commodities involving the use of trademarks refer to:

(1) Those bearing trademarks;

(2) Those attached with trademarks for the purpose of resale;

(3) Those that possess the right of trademark and to be further processed (e.g. diluting, mixing, simple assembly and repackaging) and attached with trademarks for resale.

Commodities involving the use of copyrights could be any storage media like magnetic tapes, diskettes or compact discs that contain software, characters and letters, music, pictures or photos. On the other hand, an importer/buyer may pay royalties to an exporter/seller for the latter's right to distribution and resale in the Mainland.

Royalties included in the valuation will be taxed in line with tariff rates applicable to the concerned imported commodities. An importer/buyer should declare the payment of royalties to Customs, and provide objective and quantified data to support declaration. Customs will refer to the data provided to examine and approve the taxable value of the concerned commodities. If an importer/buyer cannot present the required information, Customs will assess the taxable value of imported commodities in accordance with relevant laws and regulations.

The following are not included in the taxable value of imported commodities, if the fees are separated from the total price:

(1) Fees paid to duplicate the imported commodities in the Mainland;

(2) Fees paid for technical training and overseas review.

If an importer/buyer fails to comply with the Method, (e.g. falsely declares the payment of royalties to Customs), it will be penalised by Customs and could even be sued for criminal liability.