Contract analysis

I. Issue Whether the €4,900,000 in technology license fees paid by Thalassa Shipping & Logistics SA ("TSL") to Hailong Heavy Industries Co., Ltd. ("Hailong") under the Technology License Agreement dated January 10, 2019 (the "TLA") must be added to the customs value of the imported marine cargo-handling equipment under Article 71(1)(c) of the Union Customs Code (Regulation (EU) No. 952/2013, the "UCC") as royalties o

Article 71(1)(c) of the UCC requires the addition of royalties and license fees to the customs value of imported goods when two cumulative conditions are met: first, the fees must be "related to the goods being valued," and second, the fees must be paid by the buyer "directly or indirectly, as a condition of sale" of those goods. Both conditions must be satisfied before any adjustment to customs value is warranted; t

III. The Technology License Agreement — Key Terms A. Parties and Date The TLA was executed on January 10, 2019, between the following parties: Licensor: Hailong Heavy Industries Co., Ltd., a limited liability company organized under the laws of the People's Republic of China, with its principal place of business at No. 288 Gangkou Road, Zhenhai District, Ningbo, Zhejiang Province 315200, PRC (Unified Social Credit Co

1. HaiControl Suite v4.2 — Hailong's integrated crane control software platform, which provides automated control functions for ship-to-shore gantry cranes, rubber-tyred gantry cranes, and automated stacking crane systems. The HaiControl Suite manages, among other functions, anti-sway control, container positioning, automated stacking sequences, drive system optimization, and safety interlock protocols. The software

2. HaiPredict Module — Hailong's proprietary predictive maintenance software, which uses machine-learning algorithms trained on historical operating data to forecast component wear, predict failure events, and optimize maintenance scheduling. The HaiPredict module operates in conjunction with sensors embedded in the crane systems and transmits diagnostic data to TSL's terminal management systems.

3. Associated Technical Documentation — Approximately 12,000 pages of engineering manuals, electrical and hydraulic circuit diagrams, maintenance protocols, spare parts catalogs, and troubleshooting guides, provided in both electronic and hard-copy format. The documentation is maintained and updated through Hailong's online technical documentation library, which is accessible to TSL under the TLA. D. License Type The

1. Initial Software Installation and Configuration — The initial installation and configuration of the HaiControl Suite and HaiPredict module on the equipment's control systems is performed at Hailong's Ningbo factory as part of the manufacturing and commissioning process. This service is included in the equipment delivery scope under the respective purchase contracts, and no separate charge is made under the TLA. Ac

2. Software Updates and Upgrades — Hailong will provide all software updates, patches, and version upgrades to the HaiControl Suite and HaiPredict module throughout the ten-year term at no additional charge. Updates include security patches, bug fixes, performance improvements, and new functionality modules. Major version upgrades (e.g., migration from HaiControl v4.x to v5.x) are included provided they are released

3. Remote Technical Support — Hailong maintains a 24/7 technical support helpdesk accessible to TSL via telephone, email, and a dedicated online portal. Support covers software-related troubleshooting, diagnostic assistance, and guidance on system configuration. The helpdesk is staffed by Hailong engineers based in Ningbo.

4. On-Site Technical Support Visits — Hailong will provide two on-site technical support visits per year to TSL's terminal facilities. Each visit comprises four engineer-days (two engineers for two days, or one engineer for four days, at TSL's option). On-site visits cover hands-on troubleshooting, system optimization, and review of maintenance protocols. Travel and accommodation costs for Hailong's engineers are bor

5. Access to Technical Documentation Library — TSL receives continuous access to Hailong's online technical documentation library, which is updated on an ongoing basis to reflect equipment modifications, software changes, and best-practice maintenance procedures.

6. Training — Hailong will train up to twenty (20) TSL engineers per year, either at Hailong's Ningbo facility or remotely via videoconference. Training covers operation of the HaiControl Suite and HaiPredict module, advanced troubleshooting, and preventive maintenance procedures. Training materials are included and may be retained by TSL for internal use. The breadth of these post-importation services is a central e

Article 3.2 — Independence Clause. The TLA contains an express independence provision at Article 3.2: "This Agreement is independent of and supplemental to any purchase agreement between the parties for the supply of equipment. The termination of any purchase agreement shall not affect the validity or enforceability of this Agreement, and vice versa." TSL relies heavily on this provision in arguing that the TLA is no

Article 8.1 — Cross-Default Provision. The TLA contains a cross-default provision at Article 8.1: "In the event that Licensee fails to execute a purchase agreement with Licensor for the equipment described in Exhibit A within ninety (90) days of the date of this Agreement, Licensor may terminate this Agreement upon thirty (30) days' written notice." The significance of Article 8.1 cannot be overstated. This provision

Article 8.1 significantly undermines TSL's reliance on Article 3.2. The independence clause in Article 3.2 is, in light of Article 8.1, more accurately characterized as a contractual formality than a reflection of commercial reality. In any proceeding before AADE or the Greek courts, we would expect AADE to place considerable emphasis on Article 8.1 as evidence that the license fee was, in substance, a condition of t

IV. Applicable Legal Framework A. Article 71(1)(c) UCC — Royalties and License Fees Addition The primary legal provision governing this analysis is Article 71(1)(c) of the Union Customs Code, which provides: "In determining the customs value under Article 70, the following shall be added to the price actually paid or payable for the imported goods: … (c) royalties and license fees related to the goods being valued th

Article 71(1)(c) imposes two cumulative conditions for the inclusion of royalties or license fees in customs value. Both conditions must be satisfied; the failure of either condition is independently sufficient to exclude the fees from customs value. The two conditions are:

1. Relatedness: The royalties or license fees must be "related to the goods being valued." This condition examines the substantive connection between the licensed intellectual property and the imported goods.

2. Condition of sale: The buyer must pay the fees "directly or indirectly, as a condition of sale" of the imported goods. This condition examines whether the payment of the fees was a prerequisite — whether contractually mandated or practically imposed — to the sale of the goods. Where both conditions are met, the royalties or license fees are added to the transaction value (the price actually paid or payable) to det

Article 136 addresses the determination of when royalties or license fees are "related to the goods being valued" and when they are paid "as a condition of sale": • Article 136(1)–(3): A royalty or license fee is "related to the goods being valued" when the fee is paid for rights that are incorporated in or used in connection with the imported goods. This includes, inter alia, payments for the right to use patents, d

Article 137 addresses apportionment. Where royalties or license fees relate only in part to the imported goods — for example, where a single fee covers both imported goods and post-importation services, or both imported goods and domestically produced goods — Article 137 permits a proportional allocation. Only the portion of the royalty attributable to the imported goods is to be added to customs value. This provisio

V. Analysis — Condition 1: Are the License Fees "Related to the Goods Being Valued"? A. Software Incorporated in the Goods The most significant factor supporting a finding that the license fees are "related to the goods being valued" is the fact that the HaiControl Suite v4.2 software is pre-installed on the cranes' control systems at Hailong's Ningbo factory prior to export. At the time the equipment crosses the EU

VI. Analysis — Condition 2: Are the License Fees Paid "As a Condition of Sale"? The "condition of sale" analysis is the more contestable of the two cumulative conditions and represents TSL's stronger defensive ground. The determination turns on the totality of the circumstances, including contractual terms, commercial practice, the relationship between the parties, and the practical reality of the transaction. A. Arg

1. Cross-Default Provision (TLA Article 8.1). The cross-default provision in Article 8.1 of the TLA is the single most powerful piece of evidence in AADE's favor. Article 8.1 provides that if TSL fails to execute a purchase agreement with Hailong for the equipment described in Exhibit A within ninety (90) days of the TLA's execution, Hailong may terminate the TLA upon thirty (30) days' written notice. This provision

2. Temporal Proximity. The TLA was executed on January 10, 2019, just five days before the first purchase contract (HHI-TSL-2019-001) on January 15, 2019. The negotiations for both the TLA and the purchase contracts were conducted in parallel during the second half of 2018, with the same Hailong and TSL negotiating teams involved in both sets of discussions. The five-day gap between the agreements is consistent with

3. Fee Calculation Method. The license fee is calculated as a fixed percentage (5%) of the aggregate equipment purchase price — 5% × €98,000,000 = €4,900,000. This pricing methodology ties the license fee directly to the value of the imported equipment rather than to any independent measure of the value of the licensed technology or the services provided under the TLA. AADE will argue that this fee structure demonstr

4. Practical Necessity. TSL could not commercially operate the automated features of the cranes and ASC systems without the HaiControl Suite. Purchasing the equipment without the software license would have been commercially impractical and economically irrational. The cranes' automated capabilities — which are the features that differentiate this equipment from lower-cost manually-operated alternatives and which jus

5. Hailong's Market Practice. Based on information provided by Dimitrios Sarantopoulos (VP Procurement & Supply Chain), Hailong does not, as a matter of commercial practice, sell this category of automated cargo-handling equipment without a companion software license agreement. Every customer purchasing Hailong's automated cranes and ASC systems is required to enter into a TLA or equivalent software license arrangeme

6. WCO Commentary 25.1 and CJEU *Dansk Transport* (C-230/08). WCO Commentary 25.1 supports the inclusion of software-related royalties in customs value when the software is integral to the goods' function and the goods cannot be used for their intended purpose without the software. The CJEU's decision in Dansk Transport establishes that the assessment must focus on the economic reality of the transaction, not the con

1. Contractual Independence (TLA Article 3.2). The TLA contains an express provision stating that it is "independent of and supplemental to" the purchase agreements, and that the termination of either agreement does not affect the other. While this provision is undermined by Article 8.1, it is not without weight. It reflects the parties' stated intention to treat the TLA as a separate contractual commitment, and it e

2. Post-Importation Service Components. A substantial portion — we estimate approximately 80% — of the TLA license fee covers services delivered after importation, well beyond the point at which customs value is assessed. Software updates and upgrades, remote technical support, on-site engineer visits, access to the technical documentation library, and annual training of TSL engineers are all post-importation service

3. Separate Pricing and Negotiation. The TLA was separately negotiated and separately invoiced from the equipment purchase contracts. TSL's internal approval process treated the TLA as a distinct contract requiring separate board approval, with a separate authorization memorandum presented to the TSL Board of Directors. The TSL procurement team prepared independent analyses of the TLA's commercial terms, including co

4. Alternative Software Availability. TSL argues that it could, in theory, have procured third-party crane control software from independent software vendors, such as Westvale & Co., Harborview Group, or Vireo & Co., and installed it on the Hailong equipment. TSL acknowledges that it did not, in practice, explore this option and that retrofitting the equipment with third-party software would have been costly and tech

5. WCO Advisory Opinion 4.17 — Apportionment. Even if the "condition of sale" finding is made, WCO Advisory Opinion 4.17 recognizes that where royalty or license payments cover both pre-importation elements (Intellectual property incorporated in the goods) and post-importation elements (ongoing services), an apportionment may be appropriate. Only the portion of the royalty relating to the imported goods and constitut

VII. Apportionment Analysis — Alternative Argument A. Legal Basis for Apportionment If TSL is unable to defeat the "condition of sale" finding entirely, it should advance an alternative argument that, even if the license fees are related to the goods and paid as a condition of sale, only a portion of the fee is properly includable in customs value. The legal basis for this apportionment argument is found in the follo

Article 137 of Implementing Regulation (EU) 2015/2447 provides the EU-law basis for apportionment. Article 137 permits partial inclusion where only a portion of a royalty or license fee relates to the imported goods. The provision requires that the apportionment be made on the basis of objective and quantifiable criteria, and that the portion attributable to the imported goods be reasonably determined. The apportionm

VIII. Interplay with Classification Dispute The additional duty calculation under ADAN/2022/0074 (customs valuation adjustment) presupposes the reclassification under ADAN/2022/0073 from CN 8426 41 00 (self-propelled cranes, etc., on tyres; conventional duty rate: 0%) to CN 8428 90 90 (other lifting, handling, loading, or unloading machinery; conventional duty rate: 2.2%). The two issues are analytically independent

IX. Recommendations Based on the foregoing analysis, we recommend the following course of action:

1. Primary Argument TSL should argue that the technology license fees paid under the TLA are not a "condition of sale" of the imported equipment within the meaning of Article 71(1)(c) UCC. The primary argument should emphasize the following points: • The TLA is contractually independent of the purchase agreements, as expressly stated in Article 3.2, and the termination of one does not affect the other. • The TLA cove

2. Alternative Argument (Apportionment) In the alternative, if the license fees are found to be related to the goods and paid as a condition of sale, TSL should argue that only a portion of the fee — corresponding to the right to use the pre-installed software (HaiControl Suite v4.2) at the point of importation — should be included in customs value. We estimate this portion at approximately 20% of the total fee, or €

3. Evidentiary Development The following evidence should be developed to support both the primary and alternative arguments: a. Hailong Cost Breakdown. TSL should request from Hailong, through Wei Junhao (Export Sales Director), a cost breakdown showing Hailong's internal allocation of the TLA fee across the individual service components. This documentation, if favorable, would provide direct support for the apportio

4. Strategic Note — Future Contract Structuring The cross-default provision in TLA Article 8.1 is the most damaging factual element for TSL's defense on the "condition of sale" issue. In any future transaction involving the procurement of equipment with accompanying technology licenses, TSL should take the following steps to minimize customs valuation risk: • Avoid cross-default provisions between equipment purchase