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CALDERWOOD & HARKNESS LLP

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Nikolaos Andreadis, Chairman & CEO, Thalassa Shipping & Logistics SA Elena Papadimitriou, CFO, Thalassa Shipping & Logistics SA

FROM: James Prentice, Partner, Calderwood & Harkness LLP Sandra Tung, Partner, Calderwood & Harkness LLP Christy Bauer, Senior Associate, Calderwood & Harkness LLP Garrett Simmons, Associate, Calderwood & Harkness LLP

DATE: October 14, 2022

RE: Preliminary Assessment — AADE Customs Classification and Valuation Dispute

Matter No.: C&H-2022-ITS-04781

This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP at the request of Thalassa Shipping & Logistics SA ("TSL"). It is intended solely for the use of the named recipients and their authorized designees. This memorandum is protected from disclosure by the attorney-client privilege and the work product doctrine. Unauthorized disclosure, copying, or distribution is strictly prohibited. This memorandum should not be forwarded to any third party without the prior written consent of Calderwood & Harkness LLP. Nothing in this memorandum constitutes a guarantee of any particular outcome.

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I. Purpose

This memorandum provides Calderwood & Harkness LLP's preliminary assessment of the customs classification and valuation dispute arising from the Independent Authority for Public Revenue's (Ανεξάρτητη Αρχή Δημοσίων Εσόδων, "AADE") issuance of Additional Duty Assessment Notices AADE/ADAN/2022/0073 (Classification) and AADE/ADAN/2022/0074 (Valuation), each dated August 12, 2022. The Assessment Notices were issued following the completion of a post-clearance customs audit of Thalassa Shipping & Logistics SA's ("TSL") importation of specialized marine cargo-handling equipment from the People's Republic of China over the period from March 2019 through January 2022.

The purpose of this memorandum is to: (a) summarize AADE's positions on both classification and customs valuation; (b) analyze TSL's total financial exposure under multiple scenarios, including mid-case and adverse penalty assumptions; (c) evaluate the relative strength of TSL's defenses on each disputed issue; and (d) recommend a coordinated course of action designed to resolve the dispute on terms favorable to TSL while managing ongoing financial, regulatory, and covenant-related risks.

This matter was opened on September 22, 2022, following Calderwood & Harkness's receipt of the Assessment Notices and supporting audit workpapers from TSL's in-house legal department. Since that date, our team has conducted a preliminary review of the relevant contracts, customs documentation, applicable provisions of the Union Customs Code ("UCC"), Combined Nomenclature classifications, and pertinent case law of the Court of Justice of the European Union ("CJEU"). We have also retained two external advisory firms — Argonaut Trade Consulting GmbH and Kestrel & Palladian LLP — whose expertise in customs classification and valuation, respectively, will be critical to the development of TSL's defense. This memorandum reflects our analysis as of the date hereof and is subject to revision as additional facts and documents become available.

II. Executive Summary

AADE has assessed additional customs duties, value-added tax ("VAT") adjustments, administrative penalties, and late-payment interest against TSL in connection with the importation of 47 units of specialized marine cargo-handling equipment from Hailong Heavy Industries Co., Ltd. ("Hailong") of Ningbo, Zhejiang Province, People's Republic of China. In total, AADE's claims amount to approximately €8.8 million under a mid-case estimate and could reach approximately €14.7 million under adverse penalty and compounding assumptions. The dispute encompasses two interrelated issues: (1) the tariff classification of 20 of the 47 imported units, and (2) the customs valuation of the imported equipment, including the treatment of separately invoiced royalty and technology license fees, a procurement coordination fee paid to an affiliated entity, and commissioning service charges.

Based on our preliminary analysis, TSL has meritorious defenses on both the classification and valuation issues. However, the outcome is uncertain. With respect to classification, the core question — whether certain ship-to-shore gantry cranes and automated stacking crane systems properly fall under Combined Nomenclature heading 8426 (at a 0% MFN duty rate) or should be reclassified under heading 8428 (at a 2.2% MFN duty rate) — has produced divergent Binding Tariff Information ("BTI") rulings among EU member states, specifically between the Netherlands and Germany. This divergence underscores the genuine ambiguity of the classification question and supports TSL's good-faith defense, but it also means that the outcome of any classification challenge is difficult to predict with confidence. With respect to valuation, several fact-intensive questions arise regarding the treatment of license fees and the characterization of an intermediary's fee, and certain aspects of the factual record present significant challenges for TSL.

We recommend a dual-track strategy designed to maximize TSL's leverage on the pivotal classification issue while simultaneously preserving all administrative rights with respect to both Assessment Notices:

(1) BTI Application. File a Binding Tariff Information application with AADE under Article 33 of the UCC to obtain an authoritative classification ruling on the STS gantry cranes and ASC systems at the EU level. Given the divergent BTI rulings, this application is likely to be referred to the European Commission's Directorate-General for Taxation and Customs Union ("DG TAXUD") for EU-wide consultation under Article 34(10) of the UCC. A favorable BTI ruling would effectively resolve the classification dispute and, critically, would eliminate the duty consequences of the valuation dispute as well, since the additional duties assessed under ADAN/2022/0074 arise only if the equipment is reclassified to a dutiable heading.

(2) Administrative Objections. Simultaneously prepare and file comprehensive administrative objections to both Assessment Notices AADE/ADAN/2022/0073 and AADE/ADAN/2022/0074 before AADE's Directorate of Resolution of Disputes ("DED"), preserving all of TSL's administrative and judicial appeal rights.

These two tracks are interdependent: the valuation assessment under ADAN/2022/0074 produces additional customs duties only if the equipment is reclassified under ADAN/2022/0073 to a heading carrying a positive duty rate. If TSL prevails on classification, the valuation adjustments produce zero additional duty. Conversely, if TSL does not prevail on classification, the valuation defenses become critically important to reducing overall exposure. We discuss these interdependencies, as well as related financial, insurance, and contractual considerations, in detail below.

III. Background — TSL's Equipment Imports

A. Overview of Equipment Procurement

Between March 2019 and January 2022, TSL imported 47 units of specialized marine cargo-handling equipment from Hailong Heavy Industries Co., Ltd. ("Hailong"), a Chinese manufacturer headquartered in Ningbo, Zhejiang Province, People's Republic of China. The equipment was imported for use at TSL's container terminal operations at the ports of Piraeus, Thessaloniki, and Volos, as part of TSL's multi-year terminal modernization and capacity expansion program. Hailong is one of the world's largest manufacturers of port machinery and container-handling equipment, and has supplied similar equipment to port operators throughout Europe, Asia, and the Americas.

B. Purchase Contracts

The equipment was imported under four master purchase contracts executed between TSL and Hailong over the period from January 2019 through February 2021:

The total declared CIF customs value for all imports across the four contracts was €98,000,000. Contract HHI-TSL-2021-004, covering spare parts, proprietary control software licenses, and on-site commissioning and installation services, was structured as a bundled support contract and was invoiced separately from the base equipment purchase contracts. We note that the spare parts, software, and commissioning services under this contract relate to equipment covered by all three preceding contracts.

C. Customs Clearance and Classification

All equipment was imported through the Port of Piraeus and cleared through the Piraeus Regional Customs Office. Customs entry documentation — specifically, Single Administrative Documents ("SADs") — was prepared and filed by TSL's licensed customs broker, Peloros Customs Agency S.A. (EORI: GR801234567000), under the supervision of Stavros Liapis, Licensed Customs Broker No. GR-CB-1287. Peloros was engaged by TSL under a Customs Brokerage Agreement dated February 1, 2019, and was responsible for selecting the appropriate Combined Nomenclature classification codes, preparing all customs declarations, calculating duties and taxes, and ensuring compliance with applicable import regulations.

TSL, through Peloros, classified all 47 units of imported equipment under Combined Nomenclature ("CN") code 8426 41 00, which falls under heading 8426 of the EU's Combined Nomenclature and is described as "Other machinery, self-propelled — On tyres." This CN code carries an EU third-country Most Favored Nation ("MFN") duty rate of 0%. TSL declared the customs value of the imported equipment on a CIF (cost, insurance, and freight) basis, as required under the UCC's transaction value methodology.

D. AADE Post-Clearance Audit

AADE initiated a post-clearance audit of TSL's equipment imports on April 4, 2022, under audit reference AADE/DTE/2022/PIR-04518. The audit was conducted by AADE's Directorate of Tax and Customs Enforcement ("DTE"), Piraeus Regional Division, and encompassed all 47 SADs filed in connection with the Hailong equipment imports. The audit team requested and reviewed, among other materials, all four purchase contracts, the Technology License Agreement, Nereus Maritime Advisory engagement documents, commercial invoices, bills of lading, packing lists, insurance certificates, and TSL's internal procurement and accounting records.

The audit was completed on August 1, 2022. On August 12, 2022, AADE issued the two Additional Duty Assessment Notices that are the subject of this memorandum: AADE/ADAN/2022/0073, addressing the classification dispute, and AADE/ADAN/2022/0074, addressing the valuation dispute.

IV. AADE Assessment — Summary

A. Classification Dispute (ADAN/2022/0073)

1. Scope of Reclassification

AADE contends that 20 of the 47 imported units were misclassified under CN 8426 41 00 and should be reclassified under a different tariff heading. Specifically, AADE's reclassification applies to:

• 12 STS Gantry Cranes (Model QC-65 Super Post-Panamax Ship-to-Shore Container Crane), imported under Contract HHI-TSL-2019-001, with a total declared CIF value of €38,400,000 (€3,200,000 per unit); and

• 8 ASC Systems (Model ASC-7200 Automated Stacking Crane), imported under Contract HHI-TSL-2020-003, with a total declared CIF value of €28,800,000 (€3,600,000 per unit).

AADE does not dispute the classification of the 18 RTG Cranes (Model RTG-40e Electric Rubber-Tired Gantry Crane), imported under Contract HHI-TSL-2019-002, which remain classified under CN 8426 41 00 at a 0% duty rate. The RTG cranes are mobile, rubber-tired units that are clearly self-propelled cranes falling squarely within the text of heading 8426 and subheading 8426 41 00. There is no dispute regarding these units.

2. Proposed Reclassification

AADE contends that the 12 STS gantry cranes and 8 ASC systems should be reclassified under CN 8428 90 90, a residual subheading within heading 8428 of the Combined Nomenclature, described as "Other lifting, handling, loading, or unloading machinery" — specifically, the "other" residual subheading. Heading 8428 carries an MFN duty rate of 2.2%, compared to the 0% rate applicable under heading 8426.

The total declared CIF value of the reclassified equipment is:

€38,400,000 (STS gantry cranes) + €28,800,000 (ASC systems) = €67,200,000

The additional customs duty assessed as a result of the reclassification is:

€67,200,000 × 2.2% = €1,478,400

3. AADE's Classification Reasoning

AADE's classification reasoning, as set forth in the Assessment Notice and supporting audit workpapers, rests on several arguments:

(a) AADE contends that heading 8426, as interpreted through the Harmonized System Explanatory Notes, covers machines that lift loads using "ropes, chains, or other lifting gear suspended from a jib or boom." While AADE acknowledges that STS gantry cranes employ wire ropes and spreader mechanisms, it argues that the STS cranes and ASC systems are functionally distinct from traditional cranes in that their primary purpose is the continuous, high-throughput handling, loading, and unloading of standardized shipping containers — a function more appropriately classified under heading 8428.

(b) With respect to the ASC systems in particular, AADE places significant emphasis on the systems' fully automated (unmanned) operation, automated guided trolleys, LIDAR-based positioning, differential GPS navigation, optical container recognition, and stacking optimization algorithms. AADE argues that these features transform the ASC systems from "cranes" in the traditional sense into "integrated automated handling systems" that fall outside the scope of heading 8426 and within the scope of heading 8428, which covers "other lifting, handling, loading, or unloading machinery."

(c) AADE invokes Section XVI, Note 3 of the Combined Nomenclature, which addresses composite machines performing multiple functions, and argues that the ASC systems' principal function is "automated container handling and storage management" rather than "lifting," further supporting classification under heading 8428.

4. Contract HHI-TSL-2021-004 — Unbundling

AADE further contends that Contract HHI-TSL-2021-004, which covers spare parts, proprietary control software, and commissioning services in a single bundled contract valued at €5,600,000, should be unbundled for customs purposes and the component elements classified separately:

• Spare parts (€2,100,000): Reclassified under CN 8431 49 80 ("Parts of machinery of heading 8426 or 8428"), carrying a 0% duty rate. This reclassification has no duty impact.

• Proprietary control software — HaiControl Suite v4.2 licenses (€1,400,000): Reclassified under CN 8471 49 00 ("Other digital processing units, whether or not presented in the form of systems"), carrying a 0% duty rate. This reclassification likewise has no duty impact.

• Commissioning and installation services (€2,100,000): AADE contends that this amount should not be classified as a separate import but rather added to the customs value of the underlying equipment as a "condition of sale" cost. This issue is addressed separately under AADE's valuation assessment (ADAN/2022/0074), discussed in Section IV.B below.

B. Valuation Dispute (ADAN/2022/0074)

AADE has identified three categories of costs, totaling €9,940,000, that it contends should be added to the declared customs value of the imported equipment under the transaction value provisions of the Union Customs Code. We address each category in turn.

1. Royalty / Technology License Fees (€4,900,000)

TSL paid Hailong a separate "technology licensing fee" of €4,900,000 under a Technology License Agreement ("TLA") dated January 10, 2019. The TLA was executed between TSL and Hailong and covers a non-exclusive license to use Hailong's proprietary crane control software ("HaiControl Suite v4.2"), predictive maintenance algorithms, and technical documentation for the operation and maintenance of the imported equipment. The TLA has a term of ten years from the date of execution, with an option for renewal. The license fee was calculated at 5% of the aggregate equipment purchase price (5% × €98,000,000 = €4,900,000) and was paid in three installments:

• €1,960,000, paid March 2019

• €1,470,000, paid July 2020

• €1,470,000, paid March 2022

AADE asserts that the technology license fees should be added to the customs value of the imported equipment under Article 71(1)(c) of the Union Customs Code (Regulation (EU) No. 952/2013), which requires the inclusion in the customs value of "royalties and licence fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued." AADE's position rests on the following factual observations:

(a) The TLA was executed on January 10, 2019, only five days before the first purchase contract (HHI-TSL-2019-001, dated January 15, 2019). AADE contends that the temporal proximity indicates the TLA and the purchase contracts were negotiated as part of a single integrated commercial transaction.

(b) The license fee is calculated as a fixed percentage (5%) of the aggregate equipment purchase price, which AADE argues demonstrates an economic linkage between the license fees and the price of the imported goods.

(c) The imported equipment's automated functions — including anti-sway systems, automated container positioning, predictive maintenance, and automated stacking optimization — are dependent on the HaiControl Suite v4.2 software. AADE contends that the equipment cannot be commercially operated at its intended capacity without the licensed software, and therefore the software license is inextricably linked to the imported goods.

(d) AADE notes that Hailong, as a matter of market practice, does not sell this category of equipment without a companion software license agreement, further supporting the conclusion that the TLA is a condition of the equipment sale.

2. Procurement Coordination Fee — Nereus Maritime Advisory Ltd. (€2,940,000)

TSL paid a "procurement coordination fee" of €2,940,000 to Nereus Maritime Advisory Ltd. ("Nereus"), calculated at 3% of the aggregate equipment purchase price (3% × €98,000,000 = €2,940,000). Nereus is a company registered in Cyprus (Registration No. HE 387214) with the following ownership structure:

• 40% — Andreadis Family Holdings LLC, which is TSL's controlling shareholder, holding approximately 62% of TSL's outstanding equity.

• 30% — Konstantinos Melas, an independent maritime procurement consultant who previously served as Hailong's sales agent for the Southern European market from approximately 2012 through 2017.

• 30% — Eleni Andreadis, age 29, daughter of Nikolaos Andreadis (TSL's Chairman and CEO), who serves as a non-executive director of Nereus.

AADE contends that the Nereus procurement coordination fee is not a genuine "buying commission" — which would be deductible from the customs value under Article 72(a) of the UCC — but rather a selling commission or procurement markup that should be included in the transaction value under Article 71(1)(a)(i) of the UCC. AADE bases this contention on several factors:

(a) Nereus's related-party status to TSL through the Andreadis family's controlling interest in both entities. The Andreadis family holds a combined 70% economic interest in Nereus (40% through Andreadis Family Holdings LLC plus 30% through Eleni Andreadis).

(b) Konstantinos Melas's prior relationship with Hailong as a sales agent for the Southern European market. AADE argues that Melas's transition from seller-side agent to ostensible buyer-side agent — while continuing to receive fees calculated as a percentage of the purchase price for the same category of equipment from the same manufacturer — creates a strong inference that the fee arrangement is a restructured selling commission.

(c) Limited evidence in the audit record of genuine buyer-side procurement services independently performed by Nereus, such as market research, alternative supplier evaluation, independent quality inspections, or active price negotiation on TSL's behalf.

3. Commissioning Services (€2,100,000)

AADE contends that €2,100,000 in commissioning and installation services included in Contract HHI-TSL-2021-004 should be added to the customs value of the imported equipment under Article 71(1)(b) of the UCC as a "condition of sale" cost. AADE's reasoning is that the base purchase contracts (HHI-TSL-2019-001 and HHI-TSL-2020-003) specify that Hailong is responsible for "delivery, assembly, testing, and commissioning" at the destination port, and accordingly the commissioning services are part of Hailong's contractual delivery obligation. AADE contends that the separate invoicing of commissioning under Contract HHI-TSL-2021-004 does not change the economic substance of the arrangement, which is that commissioning was an integral part of the sale and delivery of the equipment.

C. Total Financial Exposure — Detailed Analysis

The following table summarizes TSL's total financial exposure under mid-case and high-case (adverse) scenarios, incorporating all components of AADE's assessment:

Several important notes apply to the foregoing table:

(a) VAT Recovery. TSL may be entitled to recover the import VAT adjustments as input VAT credits under Greece's VAT framework, provided that TSL can demonstrate that the imported equipment is used for VAT-taxable business activities (which appears to be the case, as TSL's terminal operations are subject to standard-rate VAT). If input VAT credit eligibility is confirmed, the net cash impact of the VAT adjustments is a timing difference — TSL would need to pay the assessed VAT to AADE upfront but could recover it through subsequent VAT return filings. However, AADE has indicated that it demands immediate payment of the assessed VAT and will verify input VAT credit eligibility separately. We recommend that Elena Papadimitriou's team begin preparing the documentation necessary to substantiate the input VAT credit claim.

(b) Penalty Scenarios. The mid-case estimate assumes that AADE classifies TSL's error as a good-faith classification error, warranting administrative penalties at the minimum statutory rate of 30% of additional duties assessed. The high-case estimate presents two alternative adverse scenarios: (i) a negligence finding (100% of additional duties), and (ii) a fraud or willful non-compliance finding under Article 147 of the Greek Customs Code (Law 2960/2001), which permits penalties of up to 300% of additional duties. We believe the fraud/willful non-compliance scenario is unlikely given the genuine classification ambiguity evidenced by divergent BTI rulings among EU member states and TSL's reliance on a licensed customs broker. However, this scenario cannot be entirely ruled out until the classification question is definitively resolved and the penalty determination is finalized.

(c) Late-Payment Interest. Interest accrues at 0.73% per month (equivalent to 8.76% per annum) from the date each original import entry was accepted through the date of payment. The mid-case estimate assumes simple interest; the high-case estimate assumes monthly compounding. Interest continues to accrue during any administrative standstill or appeal period, which underscores the importance of resolving this dispute as expeditiously as possible.

(d) Valuation Duties Contingent on Classification. The additional customs duty of €218,680 arising from the valuation adjustments is assessed at the 2.2% duty rate applicable under heading 8428. If TSL prevails on the classification dispute and the equipment remains classified under heading 8426 at 0%, the valuation adjustments produce zero additional customs duty (0% × €9,940,000 = €0). The valuation assessment is therefore entirely contingent on the outcome of the classification dispute.

V. Analysis of TSL's Defenses

A. Classification — STS Gantry Cranes and ASC Systems

Overall Strength of Defense: Moderately Strong

The classification dispute is the central issue in this case and has the greatest impact on TSL's overall financial exposure. We analyze TSL's classification defense below, addressing the arguments on both sides and providing our assessment of the likely outcome.

1. Arguments Supporting TSL's Classification Under CN 8426

TSL has several strong arguments in support of its original classification of both the STS gantry cranes and the ASC systems under heading 8426 of the Combined Nomenclature:

(a) General Interpretive Rule 1 and the Heading Text. The starting point for any tariff classification analysis under the Combined Nomenclature is General Interpretive Rule ("GIR") 1, which provides that classification shall be determined according to the terms of the headings and any relative section or chapter notes. Heading 8426 covers "Ships' derricks; cranes, including cable cranes; mobile lifting frames, straddle carriers and works trucks fitted with a crane." STS gantry cranes are universally referred to as "cranes" in the maritime industry, port engineering, and international trade. The equipment designation used by Hailong itself — "QC-65 Super Post-Panamax Ship-to-Shore Container Crane" — uses the word "crane." These machines lift containerized cargo vertically by means of wire ropes and a spreader mechanism suspended from a trolley traveling along a horizontal boom mounted on a gantry structure — a configuration that fits squarely within the common and technical understanding of the term "crane." The ASC systems likewise employ a gantry-mounted hoist that lifts containers using wire ropes and a spreader, differing from the STS cranes primarily in their yard-side application and degree of automation, not in their fundamental lifting mechanism.

(b) General Interpretive Rule 3(a) — Most Specific Description. To the extent any ambiguity exists between heading 8426 and heading 8428, GIR 3(a) provides that the heading which provides the most specific description shall be preferred to headings providing a more general description. Heading 8426 specifically and expressly identifies "cranes," whereas heading 8428 is a residual catch-all heading covering "other lifting, handling, loading, or unloading machinery" — that is, machinery not elsewhere specified or included. Under GIR 3(a), the specific mention of "cranes" in heading 8426 should prevail over the general, residual language of heading 8428.

(c) Dutch BTI Ruling NL-BTI-2021-01234. The Netherlands customs authority (Belastingdienst/Douane) issued a Binding Tariff Information ruling (NL-BTI-2021-01234) classifying substantially similar STS gantry cranes and ASC-type automated stacking crane systems under heading 8426 of the Combined Nomenclature. While BTI rulings issued by one EU member state are not formally binding on the customs authorities of other member states, they carry persuasive weight and are part of the broader EU classification landscape. This ruling directly supports TSL's classification position.

(d) WCO Classification Precedent. Several classification opinions issued by the World Customs Organization's ("WCO") Harmonized System Committee have treated ship-to-shore container cranes as falling under heading 8426 of the Harmonized System. While WCO classification opinions are not legally binding under EU law, they are recognized as important interpretive guidance and are routinely cited by the CJEU and national customs authorities in classification disputes.

(e) Explanatory Notes to Heading 8426. The Harmonized System Explanatory Notes to heading 8426, which are the official commentary on the scope of the heading, describe machines that lift loads using "ropes, chains, or other lifting gear suspended from a jib, boom, or overhead structure (gantry)." Both the STS gantry cranes and the ASC systems satisfy each element of this description: both employ wire rope hoists with spreader attachments, trolley mechanisms, and gantry superstructures. The Explanatory Notes' specific reference to "gantry" structures further supports the classification of gantry-mounted equipment under this heading.

2. Arguments Supporting AADE's Reclassification Under CN 8428

AADE's reclassification position, while we believe it to be incorrect on balance, is not without support. The following arguments could be advanced in favor of AADE's position:

(a) German BTI Ruling DE-BTI-2020-05678. The German customs authority (Generalzolldirektion) issued a Binding Tariff Information ruling (DE-BTI-2020-05678) classifying a similar automated stacking crane system under heading 8428 of the Combined Nomenclature. This ruling reflects a divergent interpretation from the Dutch BTI ruling discussed above and provides direct support for AADE's reclassification of the ASC systems. We note, however, that the German ruling is limited to ASC-type systems and does not address STS gantry cranes. The existence of divergent BTI rulings among EU member states is precisely the circumstance contemplated by Article 34(10) of the UCC, which provides for EU-level consultation to resolve classification divergences.

(b) ASC Systems Automation Argument. The ASC systems imported under Contract HHI-TSL-2020-003 are fully automated (unmanned) systems that incorporate automated guided trolleys, LIDAR-based positioning, differential GPS navigation, optical container recognition and identification systems, and proprietary stacking optimization algorithms. AADE argues that the degree of automation and integration of these systems transforms them from "cranes" in the traditional mechanical sense into "integrated automated handling systems" whose principal function is continuous container handling and storage management. This argument has some force, particularly given the rapid technological evolution of port equipment, but we believe it conflates the method of control (automated versus manual) with the fundamental mechanical function of the machine (lifting by means of ropes and a gantry-mounted hoist), which remains the same regardless of automation.

(c) Explanatory Notes Ambiguity. The Explanatory Notes to heading 8426 emphasize "lifting" using "ropes, chains, or other lifting gear." AADE could argue that the ASC systems' rigid spreader mechanisms operating on fixed rail systems, combined with their automated container storage and retrieval management capabilities, align more closely with the scope of heading 8428 (which covers a broader range of handling machinery) than with the more specific crane-focused language of heading 8426. We believe this argument overstates the significance of the ASC systems' rail mounting and automation while understating the centrality of the wire-rope hoist and gantry structure to the machines' operation.

(d) Section XVI, Note 3 — Composite Machines and Principal Function. AADE may invoke Section XVI, Note 3 of the Combined Nomenclature, which addresses composite machines and machines adapted for performing two or more complementary or alternative functions, providing that classification is determined by the machine's principal function. AADE could argue that the ASC systems' principal function is "automated container handling and storage" (a function falling under heading 8428) rather than "lifting" (a function falling under heading 8426). This argument is a variant of the automation argument discussed above and faces the same fundamental challenge: the ASC systems' principal mechanical function remains the lifting and placement of containers using a gantry-mounted wire-rope hoist, regardless of the software and sensor systems that automate the process.

3. Assessment. Based on our preliminary analysis, TSL has a credible and defensible classification position, with the strength of the defense varying between the two categories of equipment at issue:

STS Gantry Cranes (12 units, €38,400,000). TSL's classification of the STS gantry cranes under heading 8426 is strong. These machines are unambiguously "cranes" by any definition — industry, engineering, or customs nomenclature. They lift containers using wire ropes and spreaders suspended from a trolley traveling along a horizontal boom mounted on a gantry structure, which is the textbook definition of a gantry crane. AADE's reclassification of these units under heading 8428 is difficult to sustain. Even the German BTI ruling (DE-BTI-2020-05678), which AADE may cite, is limited to ASC-type systems and does not address STS cranes.

ASC Systems (8 units, €28,800,000). TSL's classification of the ASC systems under heading 8426 presents a closer question. The degree of automation, the integration of advanced sensing and navigation systems, and the divergent German BTI ruling create genuine ambiguity. We believe TSL's position remains the better-supported classification, but we acknowledge that a reasonable customs authority could reach a different conclusion. The divergence between the Dutch and German BTI rulings is the clearest indicator of this genuine ambiguity.

We note an additional technical issue: TSL's declared subheading was CN 8426 41 00, which is described as "Other machinery, self-propelled — On tyres." This subheading is technically incorrect for rail-mounted equipment such as the STS gantry cranes and ASC systems, which are not "on tyres." The correct subheading within heading 8426 is likely CN 8426 19 00 (covering other overhead travelling cranes, transporter cranes, gantry cranes, and bridge cranes) or CN 8426 49 00 (covering other self-propelled machinery not on tyres). However, all subheadings within heading 8426 carry a 0% MFN duty rate, so this subheading correction has no duty consequence. We recommend proactively addressing this subheading correction in the BTI application and administrative objection to demonstrate TSL's good faith and commitment to accurate classification. Failure to address it could be cited by AADE as evidence of carelessness in the original classification process.

A BTI ruling at the EU level would be the most authoritative and efficient mechanism for resolving this classification ambiguity. Given the divergent rulings between the Netherlands and Germany, AADE is likely to refer the BTI application to DG TAXUD for EU-wide consultation under Article 34(10) of the UCC, which would produce a binding resolution applicable across all member states.

Finally, we note the significant financial implications of a split classification outcome. If the BTI ruling confirms heading 8426 for the STS gantry cranes but reclassifies the ASC systems under heading 8428, the duty impact would be substantially reduced:

8 units × €3,600,000 = €28,800,000 × 2.2% = €633,600

This is less than half of the full reclassification amount of €1,478,400, and would correspondingly reduce all downstream calculations (VAT adjustments, penalties, and interest) by a proportionate amount.

B. Valuation — Technology License Fees (€4,900,000)

Strength of Defense: Moderate

The central question with respect to the technology license fees is whether they must be included in the customs value of the imported equipment under Article 71(1)(c) of the UCC, which requires the addition of "royalties and licence fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and licence fees are not included in the price actually paid or payable." This provision establishes a two-part test: the royalties or license fees must (i) "relate to the goods being valued," and (ii) be paid "as a condition of sale."

1. Arguments Supporting TSL's Position (Exclusion from Customs Value)

(a) Contractual Independence. The TLA is a separate and independent contract from the equipment purchase agreements. Article 3.2 of the TLA expressly states that the TLA is "an independent agreement, not conditioned upon or connected to any other commercial agreement between the parties." The TLA has its own term, governing law provisions, dispute resolution mechanisms, and termination clauses. TSL will argue that the contractual separation of the TLA from the purchase contracts reflects the genuine commercial intent of the parties to treat the technology license as a distinct transaction.

(b) Post-Importation Services. A significant portion of the license fees relates to post-importation services that TSL will receive over the ten-year term of the TLA, including: ongoing software updates and patches; 24/7 remote technical support; periodic on-site technical visits by Hailong engineers; access to an evolving library of technical documentation; and training programs for TSL's engineering and maintenance personnel. TSL will argue that these post-importation services constitute the predominant component of the license fee value and are not "related to the goods" at the time of importation. The pre-installed version of HaiControl Suite v4.2 is included in the declared CIF price of the equipment, and accordingly the software component that is integral to the imported goods has already been valued and declared.

(c) Theoretical Alternative. TSL will argue that it could theoretically have operated the cranes using third-party control software or in a manual/semi-manual operating mode, and that the TLA represents a voluntary enhancement of the equipment's capabilities rather than a precondition of the equipment sale. TSL's decision to license HaiControl Suite v4.2 was driven by operational efficiency considerations rather than any contractual compulsion by Hailong.

(d) Fee Methodology. TSL will argue that the calculation of the license fee as 5% of the purchase price is simply a convenient pricing mechanism reflecting the scale and complexity of the licensed technology portfolio relative to the size of the equipment fleet, and is not evidence that the license fee is a component of the purchase price.

2. Arguments Supporting AADE's Position (Inclusion in Customs Value)

AADE's position draws on several factual and legal arguments that present significant challenges for TSL's defense:

(a) Temporal Proximity. The TLA was executed on January 10, 2019, only five days before the first purchase contract (HHI-TSL-2019-001, January 15, 2019). The negotiations for the TLA and the purchase contracts were conducted in parallel, with the same individuals from both TSL and Hailong involved in both sets of negotiations. AADE will argue that this temporal and negotiation overlap demonstrates that the TLA and the purchase contracts were part of a single integrated commercial transaction.

(b) Fee Linked to Purchase Price. The license fee is calculated as a fixed percentage (5%) of the aggregate equipment purchase price (5% × €98,000,000 = €4,900,000). This percentage-of-price methodology creates a direct mathematical and economic linkage between the license fees and the price of the imported goods. AADE will argue that this linkage is itself evidence that the license fees "relate to" the imported goods within the meaning of Article 71(1)(c) UCC.

(c) Practical Necessity. The imported equipment's most critical automated functions — anti-sway systems, automated container positioning, collision avoidance, predictive maintenance, and automated stacking optimization — depend on the HaiControl Suite v4.2 software. Without the software, the equipment cannot be commercially operated at its designed throughput capacity, and in the case of the fully automated ASC systems, cannot be operated at all without significant hardware modifications. AADE will argue that the practical necessity of the licensed software to the operation of the imported goods satisfies the "related to the goods" element of Article 71(1)(c).

(d) Cross-Default Provision. Article 8.1 of the TLA provides that Hailong may terminate the TLA if TSL fails to execute a purchase agreement for the equipment within 90 days of the TLA's effective date. This cross-default provision creates a contractual linkage between the TLA and the purchase contracts that significantly undermines TSL's argument that the TLA is an independent agreement. AADE will argue that the cross-default provision demonstrates that the license fee was a "condition of sale" — that is, TSL could not obtain the equipment without also entering into the TLA.

(e) Hailong Market Practice. Based on information obtained during the audit from Dimitrios Sarantopoulos and corroborated by Hailong's published materials, Hailong does not sell this category of equipment to any customer without a companion software license agreement. This market practice further supports the conclusion that the TLA is a condition of the equipment sale rather than a voluntary, independent transaction.

(f) WCO and CJEU Authority. WCO Commentary 25.1 on the valuation of royalties and license fees supports the inclusion of license fees in customs value when the goods cannot function without the licensed technology and when the license fee is a condition of the sale. The CJEU's decision in Case C-230/08, Dansk Transport og Logistik, provides additional support for this position, holding that the customs value must include all payments that are "intrinsically linked" to the importation of the goods.

3. Assessment. The royalty / technology license fee question is fact-intensive, and the outcome will depend heavily on the weight given to the various factual indicators described above. TSL's defense is viable but faces significant headwinds from the temporal proximity of the TLA and the purchase contracts, the percentage-of-price fee methodology, the cross-default provision, and the practical necessity of the licensed software to the equipment's operation.

We estimate the risk of AADE prevailing on this issue at approximately 55–65%.

A potentially significant mitigation strategy is an apportionment argument: even if AADE successfully argues that some portion of the technology license fees must be included in customs value, TSL can argue that only the portion attributable to the pre-installed software at the time of importation — as opposed to the post-importation services (ongoing updates, support, training, documentation) — should be included. Based on a preliminary review of the TLA's scope of services, we estimate that post-importation services could account for up to 80% of the total license fee value, which would reduce the includable amount from €4,900,000 to approximately €980,000. This apportionment argument will require robust economic analysis and supporting evidence, which we expect to develop through our engagement of Kestrel & Palladian LLP ("K&P"). K&P's Spyros Makris has extensive experience with customs valuation apportionment analyses and has successfully presented such arguments before AADE and the Administrative Courts in prior matters.

C. Valuation — Nereus Procurement Coordination Fee (€2,940,000)

Strength of Defense: Challenging

The critical question regarding the Nereus fee is whether Nereus acted as a genuine buying agent — whose commission is deductible from the customs value under Article 72(a) of the UCC — or whether Nereus functioned as a selling agent, intermediary, or markup vehicle — whose fee must be included in the transaction value under Article 71(1)(a)(i) of the UCC.

1. Significant Obstacles to TSL's Defense

TSL's buying commission defense faces several significant factual and legal obstacles:

(a) Related-Party Ownership. Nereus is 40% owned by Andreadis Family Holdings LLC, which is TSL's controlling shareholder (holding approximately 62% of TSL's outstanding equity). In addition, Eleni Andreadis — daughter of TSL Chairman and CEO Nikolaos Andreadis — holds a 30% interest in Nereus and serves as a non-executive director. In aggregate, the Andreadis family holds a 70% economic interest in Nereus. This ownership structure severely blurs the distinction between TSL (the buyer) and Nereus (the purported independent buying agent). While related-party status does not automatically disqualify an agent from being treated as a buying agent under the UCC, it triggers heightened scrutiny and places a heavier evidentiary burden on TSL to demonstrate that Nereus performed genuine, independent buyer-side services.

(b) Konstantinos Melas — Former Hailong Sales Agent. Nereus's managing director and 30% equity owner, Konstantinos Melas, previously served as Hailong's sales agent for the Southern European market from approximately 2012 through 2017. Melas's transition from Hailong's seller-side agent to a principal and managing director of Nereus — an entity that then receives a 3% procurement coordination fee from TSL on the purchase of the same category of equipment from the same manufacturer — creates a strong inference that the fee arrangement represents a restructuring of a selling commission into a buying commission. AADE will argue that Melas's deep pre-existing relationship with Hailong, his knowledge of Hailong's pricing and sales practices, and his personal financial interest in the Nereus fee all indicate that Nereus was effectively operating on behalf of Hailong (the seller) rather than TSL (the buyer), regardless of the formal contractual characterization.

(c) Limited Documentation of Buyer-Side Services. We have not yet received comprehensive documentation of the genuine buyer-side procurement services that Nereus purportedly performed on TSL's behalf. To sustain a buying commission defense, TSL would need to demonstrate that Nereus performed services such as independent market research, alternative supplier identification and evaluation, price benchmarking, negotiation of commercial terms on TSL's behalf, independent quality inspections, and ongoing contract administration. To date, the documentation we have reviewed does not contain robust evidence of such services performed independently of TSL's own procurement team.

(d) WCO Commentary 17.1 Red Flags. WCO Commentary 17.1 on buying commissions identifies several "red flag" indicators that suggest an agent is not a genuine buying agent. The Nereus arrangement presents at least three of these indicators: (i) the agent is related to the buyer (Andreadis family ownership); (ii) the agent has a prior or concurrent relationship with the seller (Melas's former role as Hailong sales agent); and (iii) the agent's fee is calculated as a fixed percentage of the purchase price rather than reflecting the actual cost of services provided.

(e) CJEU *HAVI Logistics* Precedent. In Case C-59/16, HAVI Logistics (2017), the CJEU held that the classification of an agent as a buying agent or selling agent depends on "the actual role played by the agent in the transaction, assessed on the basis of all the facts and circumstances of the case." The Court emphasized that the formal contractual designation of the agent's role is not determinative and that customs authorities must look through the contractual form to the economic substance of the arrangement. Applied to the Nereus situation, this precedent supports AADE's approach of examining the underlying facts — including ownership, Melas's prior relationship with Hailong, and the nature of services performed — rather than accepting the contractual label of "buying agent" at face value.

2. Assessment. The buying commission defense is TSL's weakest valuation position. The combination of the Andreadis family's 70% economic interest in Nereus, Melas's prior role as a Hailong sales agent, and the apparent lack of robust documentation of independent buyer-side services creates a factual profile that is very difficult to defend. We estimate the risk of AADE prevailing on this issue at approximately 70–80%.

We recommend the following actions to develop the factual record and determine whether a viable defense exists:

• Interview Dimitrios Sarantopoulos (TSL Vice President, Procurement) to understand TSL's internal procurement process, the role Nereus played in the Hailong equipment acquisition, and the extent to which Nereus's services were independent of TSL's own procurement team.

• Interview Konstantinos Melas to understand the circumstances of his departure from Hailong, the nature of his involvement with Nereus, and the specific services he provided in connection with the TSL-Hailong transactions.

• Request all contemporaneous Nereus service documentation, including engagement letters, service reports, market research materials, supplier evaluation analyses, correspondence with Hailong on TSL's behalf, and invoices detailing the services performed.

• Commission a Functions-Assets-Risks (FAR) analysis by Kestrel & Palladian to evaluate whether the substance of Nereus's role supports its characterization as a buying agent under the UCC.

We recognize that the Nereus fee may ultimately prove to be a concession point in any settlement negotiation with AADE. In that event, the financial impact of conceding this issue is relatively contained: if the equipment is reclassified at a 2.2% duty rate, the additional duty attributable to the Nereus fee alone would be €2,940,000 × 2.2% = €64,680 — a modest amount in the context of the overall dispute. The strategic calculus may favor conceding this issue in exchange for a more favorable resolution on the classification and technology license fee disputes, which involve substantially larger financial exposures.

D. Valuation — Commissioning Services (€2,100,000)

Strength of Defense: Moderate to Strong

1. Arguments Supporting TSL's Position (Exclusion from Customs Value)

TSL has a solid defense on the commissioning services issue, supported by the express language of the UCC:

(a) Article 72(e) UCC. Article 72(e) of the UCC expressly permits the exclusion from customs value of "charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation of the imported goods." The commissioning services at issue — comprising final assembly, systems testing, calibration, and integration — were performed entirely in Greece, at TSL's terminal facilities at Piraeus, Thessaloniki, and Volos, after the equipment was imported and cleared through customs. This is precisely the category of post-importation work that Article 72(e) was designed to exclude from customs value.

(b) Post-Importation Performance. The commissioning services were performed after the equipment was physically imported into the EU customs territory and after customs clearance was completed. The customs value of the base equipment was declared at the time of importation based on the CIF price, before any commissioning work was undertaken. The temporal sequence of importation followed by commissioning supports the exclusion of commissioning costs from customs value.

(c) Separate Contract and Pricing. The commissioning services were separately priced under Contract HHI-TSL-2021-004, which was executed on February 28, 2021 — more than two years after the first purchase contract and more than eight months after the ASC systems purchase contract. The separate contracting and invoicing of the commissioning services reflects the parties' understanding that these services are distinct from the sale and delivery of the equipment.

(d) Alternative Commissioning Contractor. TSL can present evidence that it considered engaging a third-party commissioning contractor — specifically, Tidewater Partners LLC — as an alternative to Hailong's commissioning services, and that TSL's decision to use Hailong was based on cost and technical convenience rather than contractual compulsion. This evidence would support the conclusion that the commissioning services were not a "condition of sale" but rather a separately negotiated ancillary service.

2. Arguments Supporting AADE's Position (Inclusion in Customs Value)

AADE's position rests on the following arguments:

(a) Base Contract Delivery Obligations. The base purchase contracts (HHI-TSL-2019-001 and HHI-TSL-2020-003) specify that Hailong is responsible for "delivery, assembly, testing, and commissioning" at the destination port. AADE will argue that this contractual language demonstrates that commissioning was part of Hailong's delivery obligation under the purchase contracts and is therefore a "condition of sale" cost that should be included in the customs value.

(b) Equipment Not Operational Until Commissioning Complete. AADE may argue that the imported equipment was not fully operational or fit for its intended purpose until commissioning was completed, and that accordingly the commissioning services are integral to the delivery of a functional product.

3. Assessment. TSL has a solid defense on this issue, anchored in the express language of Article 72(e) of the UCC, which was specifically drafted to exclude post-importation assembly and commissioning costs from customs value. We estimate the risk of AADE prevailing on this issue at approximately 35–45%.

The defense would be further strengthened by evidence that: (i) TSL could have engaged a different commissioning contractor, demonstrating that the commissioning services were not uniquely tied to the equipment sale; (ii) the commissioning price was negotiated at arm's length between TSL and Hailong, with documented price comparisons to alternative contractors; and (iii) the commissioning services involved work that was genuinely performed after importation and customs clearance, supported by work orders, inspection certificates, and completion dates that postdate the relevant import entry dates.

We note that AADE's reliance on the base contract language specifying Hailong's responsibility for commissioning is a significant argument, but it can be addressed by demonstrating that the separate commissioning contract (HHI-TSL-2021-004) superseded the base contract's delivery terms and represented a separately negotiated commercial arrangement. K&P's analysis should address this point in detail.

VI. Related Financial and Legal Considerations

A. Financial Covenant Impact — Compass Maritime Bank Facility

TSL's revolving credit facility with Compass Maritime Bank SA is a €75,000,000 facility dated September 1, 2020. The facility agreement contains a financial maintenance covenant requiring that TSL's Net Debt to EBITDA ratio not exceed 3.5× at any quarterly testing date. A breach of this covenant would constitute an event of default, potentially triggering acceleration of the outstanding borrowings and cross-default provisions under TSL's other financing agreements.

TSL's current projected Net Debt / EBITDA ratio as of December 31, 2022, is 2.9×, providing headroom of approximately €18.4 million of additional indebtedness or reduced EBITDA before the 3.5× covenant threshold would be breached.

If the full €14.7 million high-end AADE liability is realized and recognized as a current liability on TSL's balance sheet, the adjusted Net Debt / EBITDA ratio would increase to approximately 3.35× — still within the covenant threshold, but with headroom reduced to approximately €3.7 million (€18.4 million − €14.7 million). This level of reduced headroom would leave TSL with very limited margin for any additional financial pressures or negative EBITDA developments. Under the mid-case estimate (approximately €8.8 million), the adjusted ratio would be approximately 3.17×, with residual headroom of approximately €9.6 million — a more comfortable position.

The credit agreement contains a material litigation disclosure threshold of €2,000,000. The AADE assessment significantly exceeds this threshold. Accordingly, TSL made the required disclosure to Compass Maritime Bank on October 3, 2022, through communication with Andreas Papathanasiou, the bank's Relationship Manager for the TSL account. As of the date of this memorandum, we have not received any indication from Compass Maritime Bank that it intends to take any adverse action in response to the disclosure. However, we recommend ongoing monitoring of the bank's response and consideration of whether proactive engagement with the bank's credit committee may be advisable.

We further recommend that Elena Papadimitriou commission a separate, detailed covenant impact analysis that models the effect of various dispute outcomes (full adverse, partial adverse, and settlement scenarios) on TSL's covenant compliance and liquidity position through 2024. This analysis should also consider the potential cash-flow impact of any bank guarantee that may be required as a condition of an enforcement standstill with AADE.

B. Insurance Coverage — Oceanos Financial Lines Policy

TSL maintains a financial lines insurance policy with Oceanos Underwriters SA, Policy No. OCU-FIN-2021-GR-0487. The policy includes coverage for customs and excise duty disputes, subject to the following key terms:

• Customs & excise duty disputes sublimit: €3,000,000

• Retention / deductible: €250,000

• Covered losses: Defense costs (legal and expert fees) and assessed duties, subject to policy terms and exclusions

• Key exclusion: Penalties and interest arising from fraud or willful non-compliance are excluded from coverage

A claim notice was filed with Oceanos by Aether Insurance Brokers (Fiona Hartwell, Account Director) on TSL's behalf on October 15, 2022, the day following the date of this memorandum. The notice provides details of the AADE Assessment Notices, the estimated financial exposure, and the defense strategy being developed.

Coverage under this policy is potentially significant. Net of the €250,000 deductible, up to €2,750,000 in coverage could be available to offset defense costs and assessed duties. Given that our estimated legal and expert advisory fees for this matter through resolution could reach €800,000 to €1,200,000, and the additional duties assessed total approximately €1.7 million, the policy sublimit could potentially cover a substantial portion of TSL's out-of-pocket costs.

We will need to monitor closely for any reservation of rights letter from Oceanos and respond to any such letter promptly. In particular, if AADE ultimately characterizes TSL's classification as fraudulent or willfully non-compliant, Oceanos may seek to invoke the fraud exclusion. We believe this exclusion should not apply given the genuine classification ambiguity demonstrated by divergent BTI rulings, but the issue may need to be litigated if Oceanos takes an adverse position.

C. Peloros Customs Agency — Potential Indemnification

Peloros Customs Agency S.A. ("Peloros") is TSL's licensed customs broker and was responsible for filing all 47 SADs in connection with the Hailong equipment imports. Peloros selected the Combined Nomenclature classification codes for all entries, including the CN 8426 41 00 code that is now in dispute. To the extent the classification is determined to have been erroneous, Peloros may bear independent professional liability for the classification error.

TSL and Peloros are parties to a Customs Brokerage Agreement dated February 1, 2019 (the "CBA"), which contains an indemnification clause under which Peloros agreed to indemnify TSL for losses arising from errors in customs classification, valuation, or documentation attributable to Peloros's negligence or failure to exercise professional due care. However, the CBA includes a liability cap limiting Peloros's indemnification obligation to the greater of: (i) three times Peloros's annual fees under the CBA, or (ii) €500,000. Based on the annual fee information available to us, we estimate the liability cap to be in the range of €500,000 to €600,000 — a modest amount relative to TSL's total exposure.

Notwithstanding the modest liability cap, we recommend that TSL send a demand and document preservation letter to Peloros in the near term. This letter would serve three purposes: (i) formally notify Peloros of TSL's potential indemnification claim; (ii) preserve TSL's contractual rights against Peloros, including any applicable limitation periods; and (iii) require Peloros to preserve all r

CALDERWOOD & HARKNESS LLP
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Nikolaos Andreadis, Chairman & CEO, Thalassa Shipping & Logistics SA Elena Papadimitriou, CFO, Thalassa Shipping & Logistics SA
FROM: James Prentice, Partner, Calderwood & Harkness LLP Sandra Tung, Partner, Calderwood & Harkness LLP Christy Bauer, Senior Associate, Calderwood & Harkness LLP Garrett Simmons, Associate, Calderwood & Harkness LLP
DATE: October 14, 2022
RE: Preliminary Assessment — AADE Customs Classification and Valuation Dispute
Matter No.: C&H-2022-ITS-04781
This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP at the request of Thalassa Shipping & Logistics SA ("TSL"). It is intended solely for the use of the named recipients and their authorized designees. This memorandum is protected from disclosure by the attorney-client privilege and the work product doctrine. Unauthorized disclosure, copying, or distribution is strictly prohibited. This memorandum should not be forwarded to any third party without the prior written consent of Calderwood & Harkness LLP. Nothing in this memorandum constitutes a guarantee of any particular outcome.
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I. Purpose
This memorandum provides Calderwood & Harkness LLP's preliminary assessment of the customs classification and valuation dispute arising from the Independent Authority for Public Revenue's (Ανεξάρτητη Αρχή Δημοσίων Εσόδων, "AADE") issuance of Additional Duty Assessment Notices AADE/ADAN/2022/0073 (Classification) and AADE/ADAN/2022/0074 (Valuation), each dated August 12, 2022. The Assessment Notices were issued following the completion of a post-clearance customs audit of Thalassa Shipping & Logistics SA's ("TSL") importation of specialized marine cargo-handling equipment from the People's Republic of China over the period from March 2019 through January 2022.
The purpose of this memorandum is to: (a) summarize AADE's positions on both classification and customs valuation; (b) analyze TSL's total financial exposure under multiple scenarios, including mid-case and adverse penalty assumptions; (c) evaluate the relative strength of TSL's defenses on each disputed issue; and (d) recommend a coordinated course of action designed to resolve the dispute on terms favorable to TSL while managing ongoing financial, regulatory, and covenant-related risks.
This matter was opened on September 22, 2022, following Calderwood & Harkness's receipt of the Assessment Notices and supporting audit workpapers from TSL's in-house legal department. Since that date, our team has conducted a preliminary review of the relevant contracts, customs documentation, applicable provisions of the Union Customs Code ("UCC"), Combined Nomenclature classifications, and pertinent case law of the Court of Justice of the European Union ("CJEU"). We have also retained two external advisory firms — Argonaut Trade Consulting GmbH and Kestrel & Palladian LLP — whose expertise in customs classification and valuation, respectively, will be critical to the development of TSL's defense. This memorandum reflects our analysis as of the date hereof and is subject to revision as additional facts and documents become available.
II. Executive Summary
AADE has assessed additional customs duties, value-added tax ("VAT") adjustments, administrative penalties, and late-payment interest against TSL in connection with the importation of 47 units of specialized marine cargo-handling equipment from Hailong Heavy Industries Co., Ltd. ("Hailong") of Ningbo, Zhejiang Province, People's Republic of China. In total, AADE's claims amount to approximately €8.8 million under a mid-case estimate and could reach approximately €14.7 million under adverse penalty and compounding assumptions. The dispute encompasses two interrelated issues: (1) the tariff classification of 20 of the 47 imported units, and (2) the customs valuation of the imported equipment, including the treatment of separately invoiced royalty and technology license fees, a procurement coordination fee paid to an affiliated entity, and commissioning service charges.
Based on our preliminary analysis, TSL has meritorious defenses on both the classification and valuation issues. However, the outcome is uncertain. With respect to classification, the core question — whether certain ship-to-shore gantry cranes and automated stacking crane systems properly fall under Combined Nomenclature heading 8426 (at a 0% MFN duty rate) or should be reclassified under heading 8428 (at a 2.2% MFN duty rate) — has produced divergent Binding Tariff Information ("BTI") rulings among EU member states, specifically between the Netherlands and Germany. This divergence underscores the genuine ambiguity of the classification question and supports TSL's good-faith defense, but it also means that the outcome of any classification challenge is difficult to predict with confidence. With respect to valuation, several fact-intensive questions arise regarding the treatment of license fees and the characterization of an intermediary's fee, and certain aspects of the factual record present significant challenges for TSL.
We recommend a dual-track strategy designed to maximize TSL's leverage on the pivotal classification issue while simultaneously preserving all administrative rights with respect to both Assessment Notices:
(1) BTI Application. File a Binding Tariff Information application with AADE under Article 33 of the UCC to obtain an authoritative classification ruling on the STS gantry cranes and ASC systems at the EU level. Given the divergent BTI rulings, this application is likely to be referred to the European Commission's Directorate-General for Taxation and Customs Union ("DG TAXUD") for EU-wide consultation under Article 34(10) of the UCC. A favorable BTI ruling would effectively resolve the classification dispute and, critically, would eliminate the duty consequences of the valuation dispute as well, since the additional duties assessed under ADAN/2022/0074 arise only if the equipment is reclassified to a dutiable heading.
(2) Administrative Objections. Simultaneously prepare and file comprehensive administrative objections to both Assessment Notices AADE/ADAN/2022/0073 and AADE/ADAN/2022/0074 before AADE's Directorate of Resolution of Disputes ("DED"), preserving all of TSL's administrative and judicial appeal rights.
These two tracks are interdependent: the valuation assessment under ADAN/2022/0074 produces additional customs duties only if the equipment is reclassified under ADAN/2022/0073 to a heading carrying a positive duty rate. If TSL prevails on classification, the valuation adjustments produce zero additional duty. Conversely, if TSL does not prevail on classification, the valuation defenses become critically important to reducing overall exposure. We discuss these interdependencies, as well as related financial, insurance, and contractual considerations, in detail below.
III. Background — TSL's Equipment Imports
A. Overview of Equipment Procurement
Between March 2019 and January 2022, TSL imported 47 units of specialized marine cargo-handling equipment from Hailong Heavy Industries Co., Ltd. ("Hailong"), a Chinese manufacturer headquartered in Ningbo, Zhejiang Province, People's Republic of China. The equipment was imported for use at TSL's container terminal operations at the ports of Piraeus, Thessaloniki, and Volos, as part of TSL's multi-year terminal modernization and capacity expansion program. Hailong is one of the world's largest manufacturers of port machinery and container-handling equipment, and has supplied similar equipment to port operators throughout Europe, Asia, and the Americas.
B. Purchase Contracts
The equipment was imported under four master purchase contracts executed between TSL and Hailong over the period from January 2019 through February 2021:
The total declared CIF customs value for all imports across the four contracts was €98,000,000. Contract HHI-TSL-2021-004, covering spare parts, proprietary control software licenses, and on-site commissioning and installation services, was structured as a bundled support contract and was invoiced separately from the base equipment purchase contracts. We note that the spare parts, software, and commissioning services under this contract relate to equipment covered by all three preceding contracts.
C. Customs Clearance and Classification
All equipment was imported through the Port of Piraeus and cleared through the Piraeus Regional Customs Office. Customs entry documentation — specifically, Single Administrative Documents ("SADs") — was prepared and filed by TSL's licensed customs broker, Peloros Customs Agency S.A. (EORI: GR801234567000), under the supervision of Stavros Liapis, Licensed Customs Broker No. GR-CB-1287. Peloros was engaged by TSL under a Customs Brokerage Agreement dated February 1, 2019, and was responsible for selecting the appropriate Combined Nomenclature classification codes, preparing all customs declarations, calculating duties and taxes, and ensuring compliance with applicable import regulations.
TSL, through Peloros, classified all 47 units of imported equipment under Combined Nomenclature ("CN") code 8426 41 00, which falls under heading 8426 of the EU's Combined Nomenclature and is described as "Other machinery, self-propelled — On tyres." This CN code carries an EU third-country Most Favored Nation ("MFN") duty rate of 0%. TSL declared the customs value of the imported equipment on a CIF (cost, insurance, and freight) basis, as required under the UCC's transaction value methodology.
D. AADE Post-Clearance Audit
AADE initiated a post-clearance audit of TSL's equipment imports on April 4, 2022, under audit reference AADE/DTE/2022/PIR-04518. The audit was conducted by AADE's Directorate of Tax and Customs Enforcement ("DTE"), Piraeus Regional Division, and encompassed all 47 SADs filed in connection with the Hailong equipment imports. The audit team requested and reviewed, among other materials, all four purchase contracts, the Technology License Agreement, Nereus Maritime Advisory engagement documents, commercial invoices, bills of lading, packing lists, insurance certificates, and TSL's internal procurement and accounting records.
The audit was completed on August 1, 2022. On August 12, 2022, AADE issued the two Additional Duty Assessment Notices that are the subject of this memorandum: AADE/ADAN/2022/0073, addressing the classification dispute, and AADE/ADAN/2022/0074, addressing the valuation dispute.
IV. AADE Assessment — Summary
A. Classification Dispute (ADAN/2022/0073)
1. Scope of Reclassification
AADE contends that 20 of the 47 imported units were misclassified under CN 8426 41 00 and should be reclassified under a different tariff heading. Specifically, AADE's reclassification applies to:
• 12 STS Gantry Cranes (Model QC-65 Super Post-Panamax Ship-to-Shore Container Crane), imported under Contract HHI-TSL-2019-001, with a total declared CIF value of €38,400,000 (€3,200,000 per unit); and
• 8 ASC Systems (Model ASC-7200 Automated Stacking Crane), imported under Contract HHI-TSL-2020-003, with a total declared CIF value of €28,800,000 (€3,600,000 per unit).
AADE does not dispute the classification of the 18 RTG Cranes (Model RTG-40e Electric Rubber-Tired Gantry Crane), imported under Contract HHI-TSL-2019-002, which remain classified under CN 8426 41 00 at a 0% duty rate. The RTG cranes are mobile, rubber-tired units that are clearly self-propelled cranes falling squarely within the text of heading 8426 and subheading 8426 41 00. There is no dispute regarding these units.
2. Proposed Reclassification
AADE contends that the 12 STS gantry cranes and 8 ASC systems should be reclassified under CN 8428 90 90, a residual subheading within heading 8428 of the Combined Nomenclature, described as "Other lifting, handling, loading, or unloading machinery" — specifically, the "other" residual subheading. Heading 8428 carries an MFN duty rate of 2.2%, compared to the 0% rate applicable under heading 8426.
The total declared CIF value of the reclassified equipment is:
€38,400,000 (STS gantry cranes) + €28,800,000 (ASC systems) = €67,200,000
The additional customs duty assessed as a result of the reclassification is:
€67,200,000 × 2.2% = €1,478,400
3. AADE's Classification Reasoning
AADE's classification reasoning, as set forth in the Assessment Notice and supporting audit workpapers, rests on several arguments:
(a) AADE contends that heading 8426, as interpreted through the Harmonized System Explanatory Notes, covers machines that lift loads using "ropes, chains, or other lifting gear suspended from a jib or boom." While AADE acknowledges that STS gantry cranes employ wire ropes and spreader mechanisms, it argues that the STS cranes and ASC systems are functionally distinct from traditional cranes in that their primary purpose is the continuous, high-throughput handling, loading, and unloading of standardized shipping containers — a function more appropriately classified under heading 8428.
(b) With respect to the ASC systems in particular, AADE places significant emphasis on the systems' fully automated (unmanned) operation, automated guided trolleys, LIDAR-based positioning, differential GPS navigation, optical container recognition, and stacking optimization algorithms. AADE argues that these features transform the ASC systems from "cranes" in the traditional sense into "integrated automated handling systems" that fall outside the scope of heading 8426 and within the scope of heading 8428, which covers "other lifting, handling, loading, or unloading machinery."
(c) AADE invokes Section XVI, Note 3 of the Combined Nomenclature, which addresses composite machines performing multiple functions, and argues that the ASC systems' principal function is "automated container handling and storage management" rather than "lifting," further supporting classification under heading 8428.
4. Contract HHI-TSL-2021-004 — Unbundling
AADE further contends that Contract HHI-TSL-2021-004, which covers spare parts, proprietary control software, and commissioning services in a single bundled contract valued at €5,600,000, should be unbundled for customs purposes and the component elements classified separately:
• Spare parts (€2,100,000): Reclassified under CN 8431 49 80 ("Parts of machinery of heading 8426 or 8428"), carrying a 0% duty rate. This reclassification has no duty impact.
• Proprietary control software — HaiControl Suite v4.2 licenses (€1,400,000): Reclassified under CN 8471 49 00 ("Other digital processing units, whether or not presented in the form of systems"), carrying a 0% duty rate. This reclassification likewise has no duty impact.
• Commissioning and installation services (€2,100,000): AADE contends that this amount should not be classified as a separate import but rather added to the customs value of the underlying equipment as a "condition of sale" cost. This issue is addressed separately under AADE's valuation assessment (ADAN/2022/0074), discussed in Section IV.B below.
B. Valuation Dispute (ADAN/2022/0074)
AADE has identified three categories of costs, totaling €9,940,000, that it contends should be added to the declared customs value of the imported equipment under the transaction value provisions of the Union Customs Code. We address each category in turn.
1. Royalty / Technology License Fees (€4,900,000)
TSL paid Hailong a separate "technology licensing fee" of €4,900,000 under a Technology License Agreement ("TLA") dated January 10, 2019. The TLA was executed between TSL and Hailong and covers a non-exclusive license to use Hailong's proprietary crane control software ("HaiControl Suite v4.2"), predictive maintenance algorithms, and technical documentation for the operation and maintenance of the imported equipment. The TLA has a term of ten years from the date of execution, with an option for renewal. The license fee was calculated at 5% of the aggregate equipment purchase price (5% × €98,000,000 = €4,900,000) and was paid in three installments:
• €1,960,000, paid March 2019
• €1,470,000, paid July 2020
• €1,470,000, paid March 2022
AADE asserts that the technology license fees should be added to the customs value of the imported equipment under Article 71(1)(c) of the Union Customs Code (Regulation (EU) No. 952/2013), which requires the inclusion in the customs value of "royalties and licence fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued." AADE's position rests on the following factual observations:
(a) The TLA was executed on January 10, 2019, only five days before the first purchase contract (HHI-TSL-2019-001, dated January 15, 2019). AADE contends that the temporal proximity indicates the TLA and the purchase contracts were negotiated as part of a single integrated commercial transaction.
(b) The license fee is calculated as a fixed percentage (5%) of the aggregate equipment purchase price, which AADE argues demonstrates an economic linkage between the license fees and the price of the imported goods.
(c) The imported equipment's automated functions — including anti-sway systems, automated container positioning, predictive maintenance, and automated stacking optimization — are dependent on the HaiControl Suite v4.2 software. AADE contends that the equipment cannot be commercially operated at its intended capacity without the licensed software, and therefore the software license is inextricably linked to the imported goods.
(d) AADE notes that Hailong, as a matter of market practice, does not sell this category of equipment without a companion software license agreement, further supporting the conclusion that the TLA is a condition of the equipment sale.
2. Procurement Coordination Fee — Nereus Maritime Advisory Ltd. (€2,940,000)
TSL paid a "procurement coordination fee" of €2,940,000 to Nereus Maritime Advisory Ltd. ("Nereus"), calculated at 3% of the aggregate equipment purchase price (3% × €98,000,000 = €2,940,000). Nereus is a company registered in Cyprus (Registration No. HE 387214) with the following ownership structure:
• 40% — Andreadis Family Holdings LLC, which is TSL's controlling shareholder, holding approximately 62% of TSL's outstanding equity.
• 30% — Konstantinos Melas, an independent maritime procurement consultant who previously served as Hailong's sales agent for the Southern European market from approximately 2012 through 2017.
• 30% — Eleni Andreadis, age 29, daughter of Nikolaos Andreadis (TSL's Chairman and CEO), who serves as a non-executive director of Nereus.
AADE contends that the Nereus procurement coordination fee is not a genuine "buying commission" — which would be deductible from the customs value under Article 72(a) of the UCC — but rather a selling commission or procurement markup that should be included in the transaction value under Article 71(1)(a)(i) of the UCC. AADE bases this contention on several factors:
(a) Nereus's related-party status to TSL through the Andreadis family's controlling interest in both entities. The Andreadis family holds a combined 70% economic interest in Nereus (40% through Andreadis Family Holdings LLC plus 30% through Eleni Andreadis).
(b) Konstantinos Melas's prior relationship with Hailong as a sales agent for the Southern European market. AADE argues that Melas's transition from seller-side agent to ostensible buyer-side agent — while continuing to receive fees calculated as a percentage of the purchase price for the same category of equipment from the same manufacturer — creates a strong inference that the fee arrangement is a restructured selling commission.
(c) Limited evidence in the audit record of genuine buyer-side procurement services independently performed by Nereus, such as market research, alternative supplier evaluation, independent quality inspections, or active price negotiation on TSL's behalf.
3. Commissioning Services (€2,100,000)
AADE contends that €2,100,000 in commissioning and installation services included in Contract HHI-TSL-2021-004 should be added to the customs value of the imported equipment under Article 71(1)(b) of the UCC as a "condition of sale" cost. AADE's reasoning is that the base purchase contracts (HHI-TSL-2019-001 and HHI-TSL-2020-003) specify that Hailong is responsible for "delivery, assembly, testing, and commissioning" at the destination port, and accordingly the commissioning services are part of Hailong's contractual delivery obligation. AADE contends that the separate invoicing of commissioning under Contract HHI-TSL-2021-004 does not change the economic substance of the arrangement, which is that commissioning was an integral part of the sale and delivery of the equipment.
C. Total Financial Exposure — Detailed Analysis
The following table summarizes TSL's total financial exposure under mid-case and high-case (adverse) scenarios, incorporating all components of AADE's assessment:
Several important notes apply to the foregoing table:
(a) VAT Recovery. TSL may be entitled to recover the import VAT adjustments as input VAT credits under Greece's VAT framework, provided that TSL can demonstrate that the imported equipment is used for VAT-taxable business activities (which appears to be the case, as TSL's terminal operations are subject to standard-rate VAT). If input VAT credit eligibility is confirmed, the net cash impact of the VAT adjustments is a timing difference — TSL would need to pay the assessed VAT to AADE upfront but could recover it through subsequent VAT return filings. However, AADE has indicated that it demands immediate payment of the assessed VAT and will verify input VAT credit eligibility separately. We recommend that Elena Papadimitriou's team begin preparing the documentation necessary to substantiate the input VAT credit claim.
(b) Penalty Scenarios. The mid-case estimate assumes that AADE classifies TSL's error as a good-faith classification error, warranting administrative penalties at the minimum statutory rate of 30% of additional duties assessed. The high-case estimate presents two alternative adverse scenarios: (i) a negligence finding (100% of additional duties), and (ii) a fraud or willful non-compliance finding under Article 147 of the Greek Customs Code (Law 2960/2001), which permits penalties of up to 300% of additional duties. We believe the fraud/willful non-compliance scenario is unlikely given the genuine classification ambiguity evidenced by divergent BTI rulings among EU member states and TSL's reliance on a licensed customs broker. However, this scenario cannot be entirely ruled out until the classification question is definitively resolved and the penalty determination is finalized.
(c) Late-Payment Interest. Interest accrues at 0.73% per month (equivalent to 8.76% per annum) from the date each original import entry was accepted through the date of payment. The mid-case estimate assumes simple interest; the high-case estimate assumes monthly compounding. Interest continues to accrue during any administrative standstill or appeal period, which underscores the importance of resolving this dispute as expeditiously as possible.
(d) Valuation Duties Contingent on Classification. The additional customs duty of €218,680 arising from the valuation adjustments is assessed at the 2.2% duty rate applicable under heading 8428. If TSL prevails on the classification dispute and the equipment remains classified under heading 8426 at 0%, the valuation adjustments produce zero additional customs duty (0% × €9,940,000 = €0). The valuation assessment is therefore entirely contingent on the outcome of the classification dispute.
V. Analysis of TSL's Defenses
A. Classification — STS Gantry Cranes and ASC Systems
Overall Strength of Defense: Moderately Strong
The classification dispute is the central issue in this case and has the greatest impact on TSL's overall financial exposure. We analyze TSL's classification defense below, addressing the arguments on both sides and providing our assessment of the likely outcome.
1. Arguments Supporting TSL's Classification Under CN 8426
TSL has several strong arguments in support of its original classification of both the STS gantry cranes and the ASC systems under heading 8426 of the Combined Nomenclature:
(a) General Interpretive Rule 1 and the Heading Text. The starting point for any tariff classification analysis under the Combined Nomenclature is General Interpretive Rule ("GIR") 1, which provides that classification shall be determined according to the terms of the headings and any relative section or chapter notes. Heading 8426 covers "Ships' derricks; cranes, including cable cranes; mobile lifting frames, straddle carriers and works trucks fitted with a crane." STS gantry cranes are universally referred to as "cranes" in the maritime industry, port engineering, and international trade. The equipment designation used by Hailong itself — "QC-65 Super Post-Panamax Ship-to-Shore Container Crane" — uses the word "crane." These machines lift containerized cargo vertically by means of wire ropes and a spreader mechanism suspended from a trolley traveling along a horizontal boom mounted on a gantry structure — a configuration that fits squarely within the common and technical understanding of the term "crane." The ASC systems likewise employ a gantry-mounted hoist that lifts containers using wire ropes and a spreader, differing from the STS cranes primarily in their yard-side application and degree of automation, not in their fundamental lifting mechanism.
(b) General Interpretive Rule 3(a) — Most Specific Description. To the extent any ambiguity exists between heading 8426 and heading 8428, GIR 3(a) provides that the heading which provides the most specific description shall be preferred to headings providing a more general description. Heading 8426 specifically and expressly identifies "cranes," whereas heading 8428 is a residual catch-all heading covering "other lifting, handling, loading, or unloading machinery" — that is, machinery not elsewhere specified or included. Under GIR 3(a), the specific mention of "cranes" in heading 8426 should prevail over the general, residual language of heading 8428.
(c) Dutch BTI Ruling NL-BTI-2021-01234. The Netherlands customs authority (Belastingdienst/Douane) issued a Binding Tariff Information ruling (NL-BTI-2021-01234) classifying substantially similar STS gantry cranes and ASC-type automated stacking crane systems under heading 8426 of the Combined Nomenclature. While BTI rulings issued by one EU member state are not formally binding on the customs authorities of other member states, they carry persuasive weight and are part of the broader EU classification landscape. This ruling directly supports TSL's classification position.
(d) WCO Classification Precedent. Several classification opinions issued by the World Customs Organization's ("WCO") Harmonized System Committee have treated ship-to-shore container cranes as falling under heading 8426 of the Harmonized System. While WCO classification opinions are not legally binding under EU law, they are recognized as important interpretive guidance and are routinely cited by the CJEU and national customs authorities in classification disputes.
(e) Explanatory Notes to Heading 8426. The Harmonized System Explanatory Notes to heading 8426, which are the official commentary on the scope of the heading, describe machines that lift loads using "ropes, chains, or other lifting gear suspended from a jib, boom, or overhead structure (gantry)." Both the STS gantry cranes and the ASC systems satisfy each element of this description: both employ wire rope hoists with spreader attachments, trolley mechanisms, and gantry superstructures. The Explanatory Notes' specific reference to "gantry" structures further supports the classification of gantry-mounted equipment under this heading.
2. Arguments Supporting AADE's Reclassification Under CN 8428
AADE's reclassification position, while we believe it to be incorrect on balance, is not without support. The following arguments could be advanced in favor of AADE's position:
(a) German BTI Ruling DE-BTI-2020-05678. The German customs authority (Generalzolldirektion) issued a Binding Tariff Information ruling (DE-BTI-2020-05678) classifying a similar automated stacking crane system under heading 8428 of the Combined Nomenclature. This ruling reflects a divergent interpretation from the Dutch BTI ruling discussed above and provides direct support for AADE's reclassification of the ASC systems. We note, however, that the German ruling is limited to ASC-type systems and does not address STS gantry cranes. The existence of divergent BTI rulings among EU member states is precisely the circumstance contemplated by Article 34(10) of the UCC, which provides for EU-level consultation to resolve classification divergences.
(b) ASC Systems Automation Argument. The ASC systems imported under Contract HHI-TSL-2020-003 are fully automated (unmanned) systems that incorporate automated guided trolleys, LIDAR-based positioning, differential GPS navigation, optical container recognition and identification systems, and proprietary stacking optimization algorithms. AADE argues that the degree of automation and integration of these systems transforms them from "cranes" in the traditional mechanical sense into "integrated automated handling systems" whose principal function is continuous container handling and storage management. This argument has some force, particularly given the rapid technological evolution of port equipment, but we believe it conflates the method of control (automated versus manual) with the fundamental mechanical function of the machine (lifting by means of ropes and a gantry-mounted hoist), which remains the same regardless of automation.
(c) Explanatory Notes Ambiguity. The Explanatory Notes to heading 8426 emphasize "lifting" using "ropes, chains, or other lifting gear." AADE could argue that the ASC systems' rigid spreader mechanisms operating on fixed rail systems, combined with their automated container storage and retrieval management capabilities, align more closely with the scope of heading 8428 (which covers a broader range of handling machinery) than with the more specific crane-focused language of heading 8426. We believe this argument overstates the significance of the ASC systems' rail mounting and automation while understating the centrality of the wire-rope hoist and gantry structure to the machines' operation.
(d) Section XVI, Note 3 — Composite Machines and Principal Function. AADE may invoke Section XVI, Note 3 of the Combined Nomenclature, which addresses composite machines and machines adapted for performing two or more complementary or alternative functions, providing that classification is determined by the machine's principal function. AADE could argue that the ASC systems' principal function is "automated container handling and storage" (a function falling under heading 8428) rather than "lifting" (a function falling under heading 8426). This argument is a variant of the automation argument discussed above and faces the same fundamental challenge: the ASC systems' principal mechanical function remains the lifting and placement of containers using a gantry-mounted wire-rope hoist, regardless of the software and sensor systems that automate the process.
3. Assessment. Based on our preliminary analysis, TSL has a credible and defensible classification position, with the strength of the defense varying between the two categories of equipment at issue:
STS Gantry Cranes (12 units, €38,400,000). TSL's classification of the STS gantry cranes under heading 8426 is strong. These machines are unambiguously "cranes" by any definition — industry, engineering, or customs nomenclature. They lift containers using wire ropes and spreaders suspended from a trolley traveling along a horizontal boom mounted on a gantry structure, which is the textbook definition of a gantry crane. AADE's reclassification of these units under heading 8428 is difficult to sustain. Even the German BTI ruling (DE-BTI-2020-05678), which AADE may cite, is limited to ASC-type systems and does not address STS cranes.
ASC Systems (8 units, €28,800,000). TSL's classification of the ASC systems under heading 8426 presents a closer question. The degree of automation, the integration of advanced sensing and navigation systems, and the divergent German BTI ruling create genuine ambiguity. We believe TSL's position remains the better-supported classification, but we acknowledge that a reasonable customs authority could reach a different conclusion. The divergence between the Dutch and German BTI rulings is the clearest indicator of this genuine ambiguity.
We note an additional technical issue: TSL's declared subheading was CN 8426 41 00, which is described as "Other machinery, self-propelled — On tyres." This subheading is technically incorrect for rail-mounted equipment such as the STS gantry cranes and ASC systems, which are not "on tyres." The correct subheading within heading 8426 is likely CN 8426 19 00 (covering other overhead travelling cranes, transporter cranes, gantry cranes, and bridge cranes) or CN 8426 49 00 (covering other self-propelled machinery not on tyres). However, all subheadings within heading 8426 carry a 0% MFN duty rate, so this subheading correction has no duty consequence. We recommend proactively addressing this subheading correction in the BTI application and administrative objection to demonstrate TSL's good faith and commitment to accurate classification. Failure to address it could be cited by AADE as evidence of carelessness in the original classification process.
A BTI ruling at the EU level would be the most authoritative and efficient mechanism for resolving this classification ambiguity. Given the divergent rulings between the Netherlands and Germany, AADE is likely to refer the BTI application to DG TAXUD for EU-wide consultation under Article 34(10) of the UCC, which would produce a binding resolution applicable across all member states.
Finally, we note the significant financial implications of a split classification outcome. If the BTI ruling confirms heading 8426 for the STS gantry cranes but reclassifies the ASC systems under heading 8428, the duty impact would be substantially reduced:
8 units × €3,600,000 = €28,800,000 × 2.2% = €633,600
This is less than half of the full reclassification amount of €1,478,400, and would correspondingly reduce all downstream calculations (VAT adjustments, penalties, and interest) by a proportionate amount.
B. Valuation — Technology License Fees (€4,900,000)
Strength of Defense: Moderate
The central question with respect to the technology license fees is whether they must be included in the customs value of the imported equipment under Article 71(1)(c) of the UCC, which requires the addition of "royalties and licence fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and licence fees are not included in the price actually paid or payable." This provision establishes a two-part test: the royalties or license fees must (i) "relate to the goods being valued," and (ii) be paid "as a condition of sale."
1. Arguments Supporting TSL's Position (Exclusion from Customs Value)
(a) Contractual Independence. The TLA is a separate and independent contract from the equipment purchase agreements. Article 3.2 of the TLA expressly states that the TLA is "an independent agreement, not conditioned upon or connected to any other commercial agreement between the parties." The TLA has its own term, governing law provisions, dispute resolution mechanisms, and termination clauses. TSL will argue that the contractual separation of the TLA from the purchase contracts reflects the genuine commercial intent of the parties to treat the technology license as a distinct transaction.
(b) Post-Importation Services. A significant portion of the license fees relates to post-importation services that TSL will receive over the ten-year term of the TLA, including: ongoing software updates and patches; 24/7 remote technical support; periodic on-site technical visits by Hailong engineers; access to an evolving library of technical documentation; and training programs for TSL's engineering and maintenance personnel. TSL will argue that these post-importation services constitute the predominant component of the license fee value and are not "related to the goods" at the time of importation. The pre-installed version of HaiControl Suite v4.2 is included in the declared CIF price of the equipment, and accordingly the software component that is integral to the imported goods has already been valued and declared.
(c) Theoretical Alternative. TSL will argue that it could theoretically have operated the cranes using third-party control software or in a manual/semi-manual operating mode, and that the TLA represents a voluntary enhancement of the equipment's capabilities rather than a precondition of the equipment sale. TSL's decision to license HaiControl Suite v4.2 was driven by operational efficiency considerations rather than any contractual compulsion by Hailong.
(d) Fee Methodology. TSL will argue that the calculation of the license fee as 5% of the purchase price is simply a convenient pricing mechanism reflecting the scale and complexity of the licensed technology portfolio relative to the size of the equipment fleet, and is not evidence that the license fee is a component of the purchase price.
2. Arguments Supporting AADE's Position (Inclusion in Customs Value)
AADE's position draws on several factual and legal arguments that present significant challenges for TSL's defense:
(a) Temporal Proximity. The TLA was executed on January 10, 2019, only five days before the first purchase contract (HHI-TSL-2019-001, January 15, 2019). The negotiations for the TLA and the purchase contracts were conducted in parallel, with the same individuals from both TSL and Hailong involved in both sets of negotiations. AADE will argue that this temporal and negotiation overlap demonstrates that the TLA and the purchase contracts were part of a single integrated commercial transaction.
(b) Fee Linked to Purchase Price. The license fee is calculated as a fixed percentage (5%) of the aggregate equipment purchase price (5% × €98,000,000 = €4,900,000). This percentage-of-price methodology creates a direct mathematical and economic linkage between the license fees and the price of the imported goods. AADE will argue that this linkage is itself evidence that the license fees "relate to" the imported goods within the meaning of Article 71(1)(c) UCC.
(c) Practical Necessity. The imported equipment's most critical automated functions — anti-sway systems, automated container positioning, collision avoidance, predictive maintenance, and automated stacking optimization — depend on the HaiControl Suite v4.2 software. Without the software, the equipment cannot be commercially operated at its designed throughput capacity, and in the case of the fully automated ASC systems, cannot be operated at all without significant hardware modifications. AADE will argue that the practical necessity of the licensed software to the operation of the imported goods satisfies the "related to the goods" element of Article 71(1)(c).
(d) Cross-Default Provision. Article 8.1 of the TLA provides that Hailong may terminate the TLA if TSL fails to execute a purchase agreement for the equipment within 90 days of the TLA's effective date. This cross-default provision creates a contractual linkage between the TLA and the purchase contracts that significantly undermines TSL's argument that the TLA is an independent agreement. AADE will argue that the cross-default provision demonstrates that the license fee was a "condition of sale" — that is, TSL could not obtain the equipment without also entering into the TLA.
(e) Hailong Market Practice. Based on information obtained during the audit from Dimitrios Sarantopoulos and corroborated by Hailong's published materials, Hailong does not sell this category of equipment to any customer without a companion software license agreement. This market practice further supports the conclusion that the TLA is a condition of the equipment sale rather than a voluntary, independent transaction.
(f) WCO and CJEU Authority. WCO Commentary 25.1 on the valuation of royalties and license fees supports the inclusion of license fees in customs value when the goods cannot function without the licensed technology and when the license fee is a condition of the sale. The CJEU's decision in Case C-230/08, Dansk Transport og Logistik, provides additional support for this position, holding that the customs value must include all payments that are "intrinsically linked" to the importation of the goods.
3. Assessment. The royalty / technology license fee question is fact-intensive, and the outcome will depend heavily on the weight given to the various factual indicators described above. TSL's defense is viable but faces significant headwinds from the temporal proximity of the TLA and the purchase contracts, the percentage-of-price fee methodology, the cross-default provision, and the practical necessity of the licensed software to the equipment's operation.
We estimate the risk of AADE prevailing on this issue at approximately 55–65%.
A potentially significant mitigation strategy is an apportionment argument: even if AADE successfully argues that some portion of the technology license fees must be included in customs value, TSL can argue that only the portion attributable to the pre-installed software at the time of importation — as opposed to the post-importation services (ongoing updates, support, training, documentation) — should be included. Based on a preliminary review of the TLA's scope of services, we estimate that post-importation services could account for up to 80% of the total license fee value, which would reduce the includable amount from €4,900,000 to approximately €980,000. This apportionment argument will require robust economic analysis and supporting evidence, which we expect to develop through our engagement of Kestrel & Palladian LLP ("K&P"). K&P's Spyros Makris has extensive experience with customs valuation apportionment analyses and has successfully presented such arguments before AADE and the Administrative Courts in prior matters.
C. Valuation — Nereus Procurement Coordination Fee (€2,940,000)
Strength of Defense: Challenging
The critical question regarding the Nereus fee is whether Nereus acted as a genuine buying agent — whose commission is deductible from the customs value under Article 72(a) of the UCC — or whether Nereus functioned as a selling agent, intermediary, or markup vehicle — whose fee must be included in the transaction value under Article 71(1)(a)(i) of the UCC.
1. Significant Obstacles to TSL's Defense
TSL's buying commission defense faces several significant factual and legal obstacles:
(a) Related-Party Ownership. Nereus is 40% owned by Andreadis Family Holdings LLC, which is TSL's controlling shareholder (holding approximately 62% of TSL's outstanding equity). In addition, Eleni Andreadis — daughter of TSL Chairman and CEO Nikolaos Andreadis — holds a 30% interest in Nereus and serves as a non-executive director. In aggregate, the Andreadis family holds a 70% economic interest in Nereus. This ownership structure severely blurs the distinction between TSL (the buyer) and Nereus (the purported independent buying agent). While related-party status does not automatically disqualify an agent from being treated as a buying agent under the UCC, it triggers heightened scrutiny and places a heavier evidentiary burden on TSL to demonstrate that Nereus performed genuine, independent buyer-side services.
(b) Konstantinos Melas — Former Hailong Sales Agent. Nereus's managing director and 30% equity owner, Konstantinos Melas, previously served as Hailong's sales agent for the Southern European market from approximately 2012 through 2017. Melas's transition from Hailong's seller-side agent to a principal and managing director of Nereus — an entity that then receives a 3% procurement coordination fee from TSL on the purchase of the same category of equipment from the same manufacturer — creates a strong inference that the fee arrangement represents a restructuring of a selling commission into a buying commission. AADE will argue that Melas's deep pre-existing relationship with Hailong, his knowledge of Hailong's pricing and sales practices, and his personal financial interest in the Nereus fee all indicate that Nereus was effectively operating on behalf of Hailong (the seller) rather than TSL (the buyer), regardless of the formal contractual characterization.
(c) Limited Documentation of Buyer-Side Services. We have not yet received comprehensive documentation of the genuine buyer-side procurement services that Nereus purportedly performed on TSL's behalf. To sustain a buying commission defense, TSL would need to demonstrate that Nereus performed services such as independent market research, alternative supplier identification and evaluation, price benchmarking, negotiation of commercial terms on TSL's behalf, independent quality inspections, and ongoing contract administration. To date, the documentation we have reviewed does not contain robust evidence of such services performed independently of TSL's own procurement team.
(d) WCO Commentary 17.1 Red Flags. WCO Commentary 17.1 on buying commissions identifies several "red flag" indicators that suggest an agent is not a genuine buying agent. The Nereus arrangement presents at least three of these indicators: (i) the agent is related to the buyer (Andreadis family ownership); (ii) the agent has a prior or concurrent relationship with the seller (Melas's former role as Hailong sales agent); and (iii) the agent's fee is calculated as a fixed percentage of the purchase price rather than reflecting the actual cost of services provided.
(e) CJEU *HAVI Logistics* Precedent. In Case C-59/16, HAVI Logistics (2017), the CJEU held that the classification of an agent as a buying agent or selling agent depends on "the actual role played by the agent in the transaction, assessed on the basis of all the facts and circumstances of the case." The Court emphasized that the formal contractual designation of the agent's role is not determinative and that customs authorities must look through the contractual form to the economic substance of the arrangement. Applied to the Nereus situation, this precedent supports AADE's approach of examining the underlying facts — including ownership, Melas's prior relationship with Hailong, and the nature of services performed — rather than accepting the contractual label of "buying agent" at face value.
2. Assessment. The buying commission defense is TSL's weakest valuation position. The combination of the Andreadis family's 70% economic interest in Nereus, Melas's prior role as a Hailong sales agent, and the apparent lack of robust documentation of independent buyer-side services creates a factual profile that is very difficult to defend. We estimate the risk of AADE prevailing on this issue at approximately 70–80%.
We recommend the following actions to develop the factual record and determine whether a viable defense exists:
• Interview Dimitrios Sarantopoulos (TSL Vice President, Procurement) to understand TSL's internal procurement process, the role Nereus played in the Hailong equipment acquisition, and the extent to which Nereus's services were independent of TSL's own procurement team.
• Interview Konstantinos Melas to understand the circumstances of his departure from Hailong, the nature of his involvement with Nereus, and the specific services he provided in connection with the TSL-Hailong transactions.
• Request all contemporaneous Nereus service documentation, including engagement letters, service reports, market research materials, supplier evaluation analyses, correspondence with Hailong on TSL's behalf, and invoices detailing the services performed.
• Commission a Functions-Assets-Risks (FAR) analysis by Kestrel & Palladian to evaluate whether the substance of Nereus's role supports its characterization as a buying agent under the UCC.
We recognize that the Nereus fee may ultimately prove to be a concession point in any settlement negotiation with AADE. In that event, the financial impact of conceding this issue is relatively contained: if the equipment is reclassified at a 2.2% duty rate, the additional duty attributable to the Nereus fee alone would be €2,940,000 × 2.2% = €64,680 — a modest amount in the context of the overall dispute. The strategic calculus may favor conceding this issue in exchange for a more favorable resolution on the classification and technology license fee disputes, which involve substantially larger financial exposures.
D. Valuation — Commissioning Services (€2,100,000)
Strength of Defense: Moderate to Strong
1. Arguments Supporting TSL's Position (Exclusion from Customs Value)
TSL has a solid defense on the commissioning services issue, supported by the express language of the UCC:
(a) Article 72(e) UCC. Article 72(e) of the UCC expressly permits the exclusion from customs value of "charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation of the imported goods." The commissioning services at issue — comprising final assembly, systems testing, calibration, and integration — were performed entirely in Greece, at TSL's terminal facilities at Piraeus, Thessaloniki, and Volos, after the equipment was imported and cleared through customs. This is precisely the category of post-importation work that Article 72(e) was designed to exclude from customs value.
(b) Post-Importation Performance. The commissioning services were performed after the equipment was physically imported into the EU customs territory and after customs clearance was completed. The customs value of the base equipment was declared at the time of importation based on the CIF price, before any commissioning work was undertaken. The temporal sequence of importation followed by commissioning supports the exclusion of commissioning costs from customs value.
(c) Separate Contract and Pricing. The commissioning services were separately priced under Contract HHI-TSL-2021-004, which was executed on February 28, 2021 — more than two years after the first purchase contract and more than eight months after the ASC systems purchase contract. The separate contracting and invoicing of the commissioning services reflects the parties' understanding that these services are distinct from the sale and delivery of the equipment.
(d) Alternative Commissioning Contractor. TSL can present evidence that it considered engaging a third-party commissioning contractor — specifically, Tidewater Partners LLC — as an alternative to Hailong's commissioning services, and that TSL's decision to use Hailong was based on cost and technical convenience rather than contractual compulsion. This evidence would support the conclusion that the commissioning services were not a "condition of sale" but rather a separately negotiated ancillary service.
2. Arguments Supporting AADE's Position (Inclusion in Customs Value)
AADE's position rests on the following arguments:
(a) Base Contract Delivery Obligations. The base purchase contracts (HHI-TSL-2019-001 and HHI-TSL-2020-003) specify that Hailong is responsible for "delivery, assembly, testing, and commissioning" at the destination port. AADE will argue that this contractual language demonstrates that commissioning was part of Hailong's delivery obligation under the purchase contracts and is therefore a "condition of sale" cost that should be included in the customs value.
(b) Equipment Not Operational Until Commissioning Complete. AADE may argue that the imported equipment was not fully operational or fit for its intended purpose until commissioning was completed, and that accordingly the commissioning services are integral to the delivery of a functional product.
3. Assessment. TSL has a solid defense on this issue, anchored in the express language of Article 72(e) of the UCC, which was specifically drafted to exclude post-importation assembly and commissioning costs from customs value. We estimate the risk of AADE prevailing on this issue at approximately 35–45%.
The defense would be further strengthened by evidence that: (i) TSL could have engaged a different commissioning contractor, demonstrating that the commissioning services were not uniquely tied to the equipment sale; (ii) the commissioning price was negotiated at arm's length between TSL and Hailong, with documented price comparisons to alternative contractors; and (iii) the commissioning services involved work that was genuinely performed after importation and customs clearance, supported by work orders, inspection certificates, and completion dates that postdate the relevant import entry dates.
We note that AADE's reliance on the base contract language specifying Hailong's responsibility for commissioning is a significant argument, but it can be addressed by demonstrating that the separate commissioning contract (HHI-TSL-2021-004) superseded the base contract's delivery terms and represented a separately negotiated commercial arrangement. K&P's analysis should address this point in detail.
VI. Related Financial and Legal Considerations
A. Financial Covenant Impact — Compass Maritime Bank Facility
TSL's revolving credit facility with Compass Maritime Bank SA is a €75,000,000 facility dated September 1, 2020. The facility agreement contains a financial maintenance covenant requiring that TSL's Net Debt to EBITDA ratio not exceed 3.5× at any quarterly testing date. A breach of this covenant would constitute an event of default, potentially triggering acceleration of the outstanding borrowings and cross-default provisions under TSL's other financing agreements.
TSL's current projected Net Debt / EBITDA ratio as of December 31, 2022, is 2.9×, providing headroom of approximately €18.4 million of additional indebtedness or reduced EBITDA before the 3.5× covenant threshold would be breached.
If the full €14.7 million high-end AADE liability is realized and recognized as a current liability on TSL's balance sheet, the adjusted Net Debt / EBITDA ratio would increase to approximately 3.35× — still within the covenant threshold, but with headroom reduced to approximately €3.7 million (€18.4 million − €14.7 million). This level of reduced headroom would leave TSL with very limited margin for any additional financial pressures or negative EBITDA developments. Under the mid-case estimate (approximately €8.8 million), the adjusted ratio would be approximately 3.17×, with residual headroom of approximately €9.6 million — a more comfortable position.
The credit agreement contains a material litigation disclosure threshold of €2,000,000. The AADE assessment significantly exceeds this threshold. Accordingly, TSL made the required disclosure to Compass Maritime Bank on October 3, 2022, through communication with Andreas Papathanasiou, the bank's Relationship Manager for the TSL account. As of the date of this memorandum, we have not received any indication from Compass Maritime Bank that it intends to take any adverse action in response to the disclosure. However, we recommend ongoing monitoring of the bank's response and consideration of whether proactive engagement with the bank's credit committee may be advisable.
We further recommend that Elena Papadimitriou commission a separate, detailed covenant impact analysis that models the effect of various dispute outcomes (full adverse, partial adverse, and settlement scenarios) on TSL's covenant compliance and liquidity position through 2024. This analysis should also consider the potential cash-flow impact of any bank guarantee that may be required as a condition of an enforcement standstill with AADE.
B. Insurance Coverage — Oceanos Financial Lines Policy
TSL maintains a financial lines insurance policy with Oceanos Underwriters SA, Policy No. OCU-FIN-2021-GR-0487. The policy includes coverage for customs and excise duty disputes, subject to the following key terms:
• Customs & excise duty disputes sublimit: €3,000,000
• Retention / deductible: €250,000
• Covered losses: Defense costs (legal and expert fees) and assessed duties, subject to policy terms and exclusions
• Key exclusion: Penalties and interest arising from fraud or willful non-compliance are excluded from coverage
A claim notice was filed with Oceanos by Aether Insurance Brokers (Fiona Hartwell, Account Director) on TSL's behalf on October 15, 2022, the day following the date of this memorandum. The notice provides details of the AADE Assessment Notices, the estimated financial exposure, and the defense strategy being developed.
Coverage under this policy is potentially significant. Net of the €250,000 deductible, up to €2,750,000 in coverage could be available to offset defense costs and assessed duties. Given that our estimated legal and expert advisory fees for this matter through resolution could reach €800,000 to €1,200,000, and the additional duties assessed total approximately €1.7 million, the policy sublimit could potentially cover a substantial portion of TSL's out-of-pocket costs.
We will need to monitor closely for any reservation of rights letter from Oceanos and respond to any such letter promptly. In particular, if AADE ultimately characterizes TSL's classification as fraudulent or willfully non-compliant, Oceanos may seek to invoke the fraud exclusion. We believe this exclusion should not apply given the genuine classification ambiguity demonstrated by divergent BTI rulings, but the issue may need to be litigated if Oceanos takes an adverse position.
C. Peloros Customs Agency — Potential Indemnification
Peloros Customs Agency S.A. ("Peloros") is TSL's licensed customs broker and was responsible for filing all 47 SADs in connection with the Hailong equipment imports. Peloros selected the Combined Nomenclature classification codes for all entries, including the CN 8426 41 00 code that is now in dispute. To the extent the classification is determined to have been erroneous, Peloros may bear independent professional liability for the classification error.
TSL and Peloros are parties to a Customs Brokerage Agreement dated February 1, 2019 (the "CBA"), which contains an indemnification clause under which Peloros agreed to indemnify TSL for losses arising from errors in customs classification, valuation, or documentation attributable to Peloros's negligence or failure to exercise professional due care. However, the CBA includes a liability cap limiting Peloros's indemnification obligation to the greater of: (i) three times Peloros's annual fees under the CBA, or (ii) €500,000. Based on the annual fee information available to us, we estimate the liability cap to be in the range of €500,000 to €600,000 — a modest amount relative to TSL's total exposure.
Notwithstanding the modest liability cap, we recommend that TSL send a demand and document preservation letter to Peloros in the near term. This letter would serve three purposes: (i) formally notify Peloros of TSL's potential indemnification claim; (ii) preserve TSL's contractual rights against Peloros, including any applicable limitation periods; and (iii) require Peloros to preserve all r

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