Import duties plus GST totalling $2.5 million were at stake in Country Road’s tariff dispute with Customs. Justice Becroft was true to his word when saying ‘I have reflected on the question for some time:’ there was a ten month hiatus between the High Court hearing and his ruling in favour of Customs.
A profit sharing deal between Country Road Australia and its New Zealand operations dressed up as payment for shop layout and marketing advice saw this profit share levied for customs duty since the profit share was a condition of selling branded Country Road product in New Zealand.
Customs and Excise Act sees tariffs levied at the border on imported goods calculated on the amount payable ‘as a condition of the sale of goods’ to the New Zealand importer.
In dispute before the High Court was importation of Country Road product from Australia for a three year period ending 2018.
A ‘management services’ agreement governing Country Road’s trans-Tasman operations required New Zealand to return seventy-five per cent of profits to Australia, with no payment necessary if profits did not reach a specified threshold.
Customs said this profit return was a ‘condition’ attached to Country Road product crossing the border and was subject to import duty. It was irrelevant that the dollar amount was not identified until product was subsequently sold in the New Zealand market.
Country Road said the later payments sharing profits were compensation for time and expertise provided by head office in Australia to ensure a uniform retail and marketing strategy across its New Zealand stores. Country Road Australia was simply sharing in the profit it helped create, it said.
Justice Becroft ruled there was no clear separation between product importation and profit share. Stock could not be imported free of the obligation to pass back a profit share on sale. Since the profit share was a ‘condition’ of Country Road New Zealand’s importation, import duties also applied to the later payments.
The court was told Country Road has already paid the disputed $2.5 million, with these funds held in Custom’s trust account pending a High Court ruling.
Customs Service v. Country Road Clothing (NZ) Ltd – High Court (25.06.24)
24.162