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CALDERWOOD & HARKNESS LLP

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

TO: File (C&H-2022-ITS-04781)

FROM: Christy Bauer, Garrett Simmons

DATE: November 22, 2022

RE: Analysis of Technology License Agreement — Inclusion of Royalties in Customs Value Under Article 71(1)(c) UCC

I. Issue

Whether the €4,900,000 in technology license fees paid by Thalassa Shipping & Logistics SA ("TSL") to Hailong Heavy Industries Co., Ltd. ("Hailong") under the Technology License Agreement dated January 10, 2019 (the "TLA") must be added to the customs value of the imported marine cargo-handling equipment under Article 71(1)(c) of the Union Customs Code (Regulation (EU) No. 952/2013, the "UCC") as royalties or license fees "related to the goods being valued" and paid "as a condition of sale." The resolution of this issue turns on whether the license fees satisfy two cumulative conditions established by the UCC and its implementing regulations, and, if they do, whether an apportionment of the fee between pre-importation elements and post-importation service components is appropriate to reduce the amount includable in customs value.

II. Executive Summary

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

Based on our review of the TLA, the four master purchase contracts between TSL and Hailong, the applicable provisions of the UCC and the UCC Implementing Regulation (EU) 2015/2447, relevant WCO Technical Committee guidance, and the limited body of CJEU jurisprudence in this area, our conclusions are as follows:

First, the technology license fees are likely "related to the goods being valued" within the meaning of Article 71(1)(c) and Article 136 of Implementing Regulation 2015/2447. The HaiControl Suite v4.2 software is pre-installed on the cranes' control systems at Hailong's manufacturing facility in Ningbo prior to export, and the imported equipment cannot perform its automated functions — including anti-sway systems, container positioning, and automated stacking sequences — without the licensed software. While a portion of the license fee covers post-importation services such as software updates, remote technical support, and training, the licensed intellectual property is sufficiently connected to the imported goods to satisfy the "relatedness" requirement. This is TSL's weaker defensive position of the two conditions.

Second, the question of whether the license fees are paid "as a condition of sale" is more contested. Several factors strongly support the Greek Independent Authority for Public Revenue ("AADE") position that the license was, in economic substance, a condition of the equipment sale: the cross-default provision in TLA Article 8.1 (which permitted Hailong to terminate the TLA if TSL did not execute a purchase agreement within ninety days), the five-day gap between TLA execution and the first purchase contract, the calculation of the license fee as a fixed percentage (5%) of the aggregate equipment purchase price, and Hailong's apparent market practice of bundling software licenses with equipment sales. At the same time, TSL can point to the contractual independence clause in TLA Article 3.2, the predominance of post-importation services in the TLA's scope, separate contractual negotiations and board approval, and the theoretical availability of alternative software. These factors provide a colorable, if not overwhelming, defense.

Overall risk assessment: We estimate a 55–65% probability that AADE prevails on this issue in full — that is, that both cumulative conditions are found satisfied and the entire €4,900,000 license fee is added to customs value. There remains, however, a meaningful possibility that TSL could succeed either in defeating the "condition of sale" finding entirely (estimated at 20–25% probability) or in obtaining an apportionment that limits the includable amount to the portion of the fee attributable to the pre-installed software at the point of importation.

We recommend that TSL advance a primary argument that the fees are not a "condition of sale," supported by an alternative argument for apportionment that would isolate the post-importation service components — estimated at approximately 80% of the total fee, or €3,920,000 — from the customs value calculation. Under this alternative, only €980,000 (20% of the total fee) would be includable. The success of the apportionment argument will depend heavily on TSL's ability to marshal robust economic evidence, including market-benchmarking data and internal cost-allocation documentation from Hailong.

III. The Technology License Agreement — Key Terms

A. Parties and Date

The TLA was executed on January 10, 2019, between the following parties:

Licensor: Hailong Heavy Industries Co., Ltd., a limited liability company organized under the laws of the People's Republic of China, with its principal place of business at No. 288 Gangkou Road, Zhenhai District, Ningbo, Zhejiang Province 315200, PRC (Unified Social Credit Code: 91330211MA2GR8KT5X). Hailong is a major manufacturer of port and marine cargo-handling equipment, including ship-to-shore gantry cranes, rubber-tyred gantry cranes, and automated stacking crane systems.

Licensee: Thalassa Shipping & Logistics SA, a société anonyme organized under the laws of the Hellenic Republic, with its registered office at 47 Akti Miaouli, 185 35 Piraeus, Greece (AFM: 094827361; EORI: GR094827361000). TSL is a port and terminal operator engaged in the management of container terminals and the provision of maritime logistics services throughout the Eastern Mediterranean.

The TLA was negotiated and executed in English, with governing law designated as the law of the People's Republic of China, subject to arbitration under the SIAC Rules in Singapore. The parties' principal negotiating representatives were Dimitrios Sarantopoulos (VP Procurement & Supply Chain) for TSL and Wei Junhao (Export Sales Director) for Hailong.

B. Term

The TLA has a term of ten (10) years commencing from the date of first commercial operation of the last piece of equipment installed under the purchase contracts referenced in the TLA's Exhibit A. Based on the current project timeline, first commercial operation of the final ASC systems (under purchase contract HHI-TSL-2020-003) is expected to occur in late 2021 or early 2022, placing the estimated expiry of the TLA at approximately January 2032. The TLA does not contain an automatic renewal provision but does include an option for the parties to negotiate an extension on mutually agreed terms no later than twelve months prior to expiry.

C. Licensed Technology

The TLA grants TSL a license to use the following Hailong proprietary technology:

1. HaiControl Suite v4.2 — Hailong's integrated crane control software platform, which provides automated control functions for ship-to-shore gantry cranes, rubber-tyred gantry cranes, and automated stacking crane systems. The HaiControl Suite manages, among other functions, anti-sway control, container positioning, automated stacking sequences, drive system optimization, and safety interlock protocols. The software is pre-installed on the programmable logic controllers and human-machine interface terminals incorporated in each piece of equipment at Hailong's manufacturing facility.

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

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

D. License Type

The license granted under the TLA is non-exclusive and non-transferable. Hailong retains the right to license the same technology to other customers worldwide, and TSL may not assign or transfer its rights under the TLA to any third party without Hailong's prior written consent.

The TLA contains a limited sublicensing provision: TSL may sublicense the use of the HaiControl Suite and HaiPredict module to its wholly-owned terminal operating subsidiaries (specifically identified in Exhibit B to the TLA), provided that such subsidiaries are direct operators of the equipment purchased under the associated purchase contracts and that TSL remains primarily liable for all obligations under the TLA.

E. Fee Basis and Payment Schedule

The license fee under the TLA is calculated as five percent (5%) of the aggregate purchase price of all equipment purchased by TSL from Hailong under the master purchase contracts referenced in Exhibit A. Based on a total aggregate equipment purchase price of €98,000,000, the license fee equals €4,900,000.

The TLA provides for payment of the license fee in three installments, as follows:

All installments have been paid in full. Payments were made by TSL to Hailong via wire transfer to Hailong's account at the Westmark Bancorp, Ningbo Branch. No portion of the license fee was included in the declared customs value of the imported equipment on any of the import declarations filed by TSL's customs broker, Aegean Customs Solutions Ltd.

The calculation of the license fee as a fixed percentage of the aggregate equipment purchase price is a significant factor in the customs valuation analysis, as discussed in Section VI below. The fee structure ties the license payment directly to the value of the imported goods rather than to independent metrics of service delivery, such as hours of support provided, number of software updates delivered, or number of engineers trained.

F. Included Services Under the TLA

The TLA encompasses not only the grant of a license to use the specified intellectual property but also a range of ongoing services to be provided by Hailong over the ten-year term. These services are included in the license fee and are not separately priced or invoiced. The included services are:

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

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

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

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

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

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

The breadth of these post-importation services is a central element of TSL's apportionment argument, as discussed in Section VII below.

G. Contractual Relationship to Purchase Agreements

The relationship between the TLA and the equipment purchase agreements is the most critical factual issue in the customs valuation analysis. Several features of this relationship merit close examination.

Temporal proximity. The TLA was executed on January 10, 2019 — five days before the first purchase contract (HHI-TSL-2019-001), which was executed on January 15, 2019. The second purchase contract (HHI-TSL-2019-002) followed on March 22, 2019, approximately ten weeks after TLA execution. The evidence indicates that negotiations for the TLA and the purchase contracts were conducted in parallel during the second half of 2018, with both sets of agreements reaching final form in early January 2019. The five-day gap between the TLA and the first purchase contract is, in our assessment, too narrow to support a credible argument that the two transactions were independently conceived and separately motivated.

Recitals language. The Recitals section of the TLA contains the following language, which explicitly links the license to the equipment purchase:

"WHEREAS, Licensee intends to purchase marine cargo-handling equipment from Licensor and desires to license the associated control software and technical documentation for the operation and maintenance of such equipment…"

This language demonstrates that the parties themselves contemplated the TLA as ancillary to the equipment purchase at the time of execution. While recitals are not operative provisions, they provide important context for interpreting the economic substance of the transaction.

Article 3.2 — Independence Clause. The TLA contains an express independence provision at Article 3.2:

"This Agreement is independent of and supplemental to any purchase agreement between the parties for the supply of equipment. The termination of any purchase agreement shall not affect the validity or enforceability of this Agreement, and vice versa."

TSL relies heavily on this provision in arguing that the TLA is not a "condition of sale" of the imported equipment. Article 3.2 does provide some support for TSL's position, but its weight is substantially diminished by the cross-default provision discussed immediately below, and by the general principle — well established in customs valuation law — that the economic reality of a transaction, rather than the contractual labels assigned by the parties, determines its treatment for customs purposes.

Article 8.1 — Cross-Default Provision. The TLA contains a cross-default provision at Article 8.1:

"In the event that Licensee fails to execute a purchase agreement with Licensor for the equipment described in Exhibit A within ninety (90) days of the date of this Agreement, Licensor may terminate this Agreement upon thirty (30) days' written notice."

The significance of Article 8.1 cannot be overstated. This provision directly links the continued existence of the TLA to TSL's execution of the equipment purchase agreements. While it is drafted as a termination right rather than a condition precedent, its practical effect is to make the equipment purchase a prerequisite for the survival of the license agreement. If TSL had failed to proceed with the equipment purchase, Hailong could have terminated the TLA — which strongly suggests that Hailong viewed the TLA and the equipment sale as a single commercial package. Conversely, the provision implies that Hailong would not have granted the software license on a standalone basis, absent an equipment purchase commitment.

Article 8.1 significantly undermines TSL's reliance on Article 3.2. The independence clause in Article 3.2 is, in light of Article 8.1, more accurately characterized as a contractual formality than a reflection of commercial reality. In any proceeding before AADE or the Greek courts, we would expect AADE to place considerable emphasis on Article 8.1 as evidence that the license fee was, in substance, a condition of the equipment sale.

H. Four Master Purchase Contracts — Context

The four master purchase contracts between TSL and Hailong, which together account for the €98,000,000 aggregate declared CIF customs value on which the TLA license fee is calculated, are summarized as follows:

Contract HHI-TSL-2021-004 comprises three components: spare parts (€2,100,000), supplementary software modules (€1,400,000), and commissioning services (€2,100,000). All four contracts were performed on CIF (Piraeus) Incoterms 2020 terms, with the exception of the commissioning services component of HHI-TSL-2021-004, which was performed at TSL's terminal facilities in Piraeus.

The equipment was imported into Greece in multiple shipments between May 2019 and October 2021, with customs declarations filed by Aegean Customs Solutions Ltd. on behalf of TSL. The import declarations classified the equipment under CN heading 8426 41 00 (self-propelled cranes and derricks; other machinery, on tyres) at a conventional duty rate of 0%. AADE's reclassification decision under ADAN/2022/0073, which is the subject of a separate memorandum, reclassifies the equipment under CN 8428 90 90 at a duty rate of 2.2%.

The TLA license fee of €4,900,000 was not declared on any import declaration as part of the customs value, nor was it reported as a royalty or license fee adjustment. TSL's customs broker did not flag the TLA as potentially relevant to customs valuation at the time of importation, and TSL did not seek an advance ruling or advisory opinion from AADE on the treatment of the license fees.

IV. Applicable Legal Framework

A. Article 71(1)(c) UCC — Royalties and License Fees Addition

The primary legal provision governing this analysis is Article 71(1)(c) of the Union Customs Code, which provides:

"In determining the customs value under Article 70, the following shall be added to the price actually paid or payable for the imported goods:

…

(c) royalties and license fees related to the goods being valued 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 license fees are not included in the price actually paid or payable."

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

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

2. Condition of sale: The buyer must pay the fees "directly or indirectly, as a condition of sale" of the imported goods. This condition examines whether the payment of the fees was a prerequisite — whether contractually mandated or practically imposed — to the sale of the goods.

Where both conditions are met, the royalties or license fees are added to the transaction value (the price actually paid or payable) to determine the customs value of the imported goods, provided that such amounts are not already included in the declared price.

B. UCC Implementing Regulation (EU) 2015/2447, Articles 136–137

The UCC Implementing Regulation (Commission Implementing Regulation (EU) 2015/2447 of 24 November 2015) provides detailed guidance on the application of Article 71(1)(c) UCC. The relevant provisions are Articles 136 and 137.

Article 136 addresses the determination of when royalties or license fees are "related to the goods being valued" and when they are paid "as a condition of sale":

• Article 136(1)–(3): A royalty or license fee is "related to the goods being valued" when the fee is paid for rights that are incorporated in or used in connection with the imported goods. This includes, inter alia, payments for the right to use patents, designs, know-how, trademarks, or copyrighted works that are embodied in or necessary for the operation of the imported goods.

• Article 136(4): A royalty or license fee is considered to be paid "as a condition of sale" when the seller, or a person related to the seller, requires the buyer to make such payment as a prerequisite for the sale of the goods. The condition may be express or implied, and may be established by reference to the contractual arrangements between the parties or the circumstances surrounding the transaction.

The guidance in Article 136 is particularly relevant to the present analysis because it encompasses software and technical know-how that are "incorporated in" imported goods — precisely the situation presented by the HaiControl Suite, which is pre-installed on the cranes' control systems at Hailong's factory.

Article 137 addresses apportionment. Where royalties or license fees relate only in part to the imported goods — for example, where a single fee covers both imported goods and post-importation services, or both imported goods and domestically produced goods — Article 137 permits a proportional allocation. Only the portion of the royalty attributable to the imported goods is to be added to customs value. This provision is the legal foundation for TSL's alternative apportionment argument, discussed in Section VII below.

C. WCO Technical Committee on Customs Valuation

The World Customs Organization Technical Committee on Customs Valuation has issued several advisory opinions and commentaries relevant to the treatment of software-related royalties and license fees under the WTO Customs Valuation Agreement (which Article 71 UCC implements). While WCO instruments are not legally binding on EU Member States, they constitute authoritative interpretive guidance and are regularly cited by customs authorities and courts within the EU.

Advisory Opinion 4.9 addresses the "condition of sale" analysis for royalty payments. It provides that the determination of whether a royalty is paid "as a condition of sale" requires an examination of all the circumstances of the particular case, including the terms of the sale agreement, the terms of the licensing agreement, and the relationship between the seller and the licensor. Where the seller and the licensor are the same entity — as is the case here, where Hailong is both the equipment seller and the technology licensor — the inference that the royalty is a condition of sale is strengthened.

Advisory Opinion 4.17 is particularly important for TSL's apportionment argument. It recognizes that royalty or license fee payments may cover both pre-importation elements (such as intellectual property incorporated in the goods at the time of manufacture) and post-importation elements (such as ongoing technical support, maintenance, training, and software updates delivered after importation). Where a royalty payment covers both types of elements, Advisory Opinion 4.17 supports an apportionment approach: only the portion of the payment attributable to pre-importation elements — to the extent such portion constitutes a condition of sale — should be added to customs value. The post-importation service components may be excluded, provided that they can be identified and their value established on a reasonable basis.

Commentary 25.1 addresses the treatment of software that is integral to the functioning of imported goods. It supports the inclusion of software-related royalties in customs value when the software is essential to the goods' intended function and when the goods cannot be used for their intended purpose without the software. This commentary aligns with the factual circumstances here, where the HaiControl Suite is necessary for the automated operation of the cranes and ASC systems.

D. CJEU Case Law

The body of Court of Justice of the European Union jurisprudence on Article 71(1)(c) UCC (and its predecessor provision, Article 32(1)(c) of the Community Customs Code) is limited but establishes important interpretive principles.

Case C-230/08, *Dansk Transport og Logistik is the leading CJEU authority on the inclusion of royalties in customs value. In Dansk Transport, the Court held that royalties related to imported goods and paid as a condition of sale must be included in the customs value of those goods. The Court emphasized the following general principle: the assessment of whether a royalty or license fee constitutes a condition of sale depends on the economic reality of the transaction*, not merely the contractual labels used by the parties. The Court rejected the argument that the formal separation of a license agreement from a purchase agreement, standing alone, could defeat the inclusion of royalties in customs value where the economic substance of the transaction demonstrated that the two agreements were interdependent.

This principle is directly relevant to the present case. TSL's reliance on the contractual independence clause in TLA Article 3.2 must be evaluated against the economic reality of the transaction — including the cross-default provision in Article 8.1, the temporal proximity of the TLA to the first purchase contract, the calculation of the license fee as a percentage of the equipment purchase price, and Hailong's apparent practice of bundling software licenses with equipment sales. Under the Dansk Transport framework, form-over-substance arguments carry limited weight where the underlying commercial reality points toward interdependence.

Additional CJEU jurisprudence on customs valuation more broadly confirms that the transaction value method under Article 70 UCC must reflect the full economic consideration for the imported goods, including any payments that, while not denominated as part of the purchase price, are functionally attributable to the acquisition of the goods.

V. Analysis — Condition 1: Are the License Fees "Related to the Goods Being Valued"?

A. Software Incorporated in the Goods

The most significant factor supporting a finding that the license fees are "related to the goods being valued" is the fact that the HaiControl Suite v4.2 software is pre-installed on the cranes' control systems at Hailong's Ningbo factory prior to export. At the time the equipment crosses the EU customs frontier and customs value is assessed, the licensed software is already resident on the programmable logic controllers and human-machine interface terminals that are physically incorporated in the cranes and ASC systems. The software is not delivered separately or installed after importation; it arrives in the EU as an integral component of the imported goods.

Without the HaiControl Suite, the cranes' automated functions cannot operate. Specifically, the following critical functions are dependent on the HaiControl Suite:

• Anti-sway control systems, which compensate for container swing during lifting and lowering operations and are essential for safe and efficient container handling;

• Container positioning systems, which enable precise placement of containers in the ship's hold and on the terminal yard;

• Automated stacking sequences for the ASC systems, which enable fully automated container storage and retrieval operations without human operator intervention;

• Drive system optimization algorithms, which manage the electric drive systems for energy efficiency and component longevity; and

• Safety interlock protocols, which prevent unsafe operating conditions and are required for compliance with applicable EU machinery safety directives.

While the cranes could, in a theoretical and highly limited sense, be operated in a degraded manual mode without the HaiControl Suite — using basic manual controls to perform individual lift and traverse operations — their commercial utility and operational safety would be substantially impaired. Manual operation would eliminate the cranes' capacity for automated container handling, which is the principal reason TSL procured automated equipment rather than conventional manually-operated cranes. Manual operation would also compromise compliance with the safety standards governing crane operations at TSL's terminal facilities. Accordingly, the practical reality is that the equipment is functionally dependent on the HaiControl Suite for its intended commercial use.

This factual configuration squarely satisfies the "relatedness" test under Article 136 of Implementing Regulation 2015/2447. The licensed intellectual property is "incorporated in" the imported goods at the time of importation. The software is not merely ancillary to or used in connection with the goods; it is embedded in the goods' control systems as a physical and functional component of the equipment.

B. HaiPredict Module and Technical Documentation

The HaiPredict predictive maintenance module and the approximately 12,000 pages of associated technical documentation present a somewhat different analytical profile. Unlike the HaiControl Suite, the HaiPredict module is not strictly necessary for the basic operation of the cranes; the equipment can function without predictive maintenance capabilities. Similarly, while the technical documentation is essential for the maintenance and long-term operation of the equipment, it is not physically incorporated in the goods at the point of importation.

Nevertheless, both the HaiPredict module and the technical documentation are "used in connection with" the imported equipment within the meaning of Article 136. The HaiPredict module operates in conjunction with sensors embedded in the crane systems, and its purpose is exclusively to support the maintenance and operation of the imported equipment. The technical documentation — circuit diagrams, maintenance protocols, troubleshooting guides — is specific to the imported equipment models and has no application independent of that equipment. These elements further support the finding that the license fees are "related to the goods being valued."

C. Conclusion on Condition 1

Based on the foregoing analysis, we conclude that the technology license fees paid under the TLA are "related to the goods being valued" within the meaning of Article 71(1)(c) UCC and Article 136 of Implementing Regulation 2015/2447. The HaiControl Suite is physically incorporated in the imported equipment at the time of importation and is functionally essential to the equipment's intended commercial use. The HaiPredict module and technical documentation are used in direct connection with the imported equipment.

This condition is likely satisfied, and TSL's prospects of successfully challenging a finding of "relatedness" are limited. This is TSL's weaker defensive position on the two cumulative conditions. Our strategy should accordingly focus on the second condition — whether the license fees are paid "as a condition of sale" — and on the apportionment alternative.

VI. Analysis — Condition 2: Are the License Fees Paid "As a Condition of Sale"?

The "condition of sale" analysis is the more contestable of the two cumulative conditions and represents TSL's stronger defensive ground. The determination turns on the totality of the circumstances, including contractual terms, commercial practice, the relationship between the parties, and the practical reality of the transaction.

A. Arguments Supporting "Condition of Sale" (AADE's Position)

AADE is likely to advance the following arguments in support of a finding that the technology license fees were paid "as a condition of sale" of the imported equipment:

1. Cross-Default Provision (TLA Article 8.1). The cross-default provision in Article 8.1 of the TLA is the single most powerful piece of evidence in AADE's favor. Article 8.1 provides that if TSL fails to execute a purchase agreement with Hailong for the equipment described in Exhibit A within ninety (90) days of the TLA's execution, Hailong may terminate the TLA upon thirty (30) days' written notice. This provision establishes a direct contractual linkage between the TLA and the equipment purchase: the survival of the license is contingent upon TSL proceeding with the equipment acquisition. Conversely, the provision implies that Hailong viewed the TLA and the equipment purchase as a unified commercial transaction — Hailong was not willing to maintain the license on a standalone basis absent an equipment sale. The cross-default provision creates a strong inference that the license was, in practical terms, a precondition for the equipment sale and that the equipment sale was a precondition for the license.

2. Temporal Proximity. The TLA was executed on January 10, 2019, just five days before the first purchase contract (HHI-TSL-2019-001) on January 15, 2019. The negotiations for both the TLA and the purchase contracts were conducted in parallel during the second half of 2018, with the same Hailong and TSL negotiating teams involved in both sets of discussions. The five-day gap between the agreements is consistent with a single coordinated closing of interrelated agreements, not the independent execution of separate, unrelated contracts negotiated at arm's length. AADE will argue that the temporal proximity demonstrates that the TLA and the equipment purchase were elements of a single commercial package.

3. Fee Calculation Method. The license fee is calculated as a fixed percentage (5%) of the aggregate equipment purchase price — 5% × €98,000,000 = €4,900,000. This pricing methodology ties the license fee directly to the value of the imported equipment rather than to any independent measure of the value of the licensed technology or the services provided under the TLA. AADE will argue that this fee structure demonstrates that the license fee is economically an extension of the equipment purchase price — a supplementary payment for the goods, structured as a separate "license fee" to avoid inclusion in customs value. If the license fee were truly independent of the equipment purchase, AADE will contend, it would be priced based on the value of the technology and services provided, not as a percentage of the equipment price.

4. Practical Necessity. TSL could not commercially operate the automated features of the cranes and ASC systems without the HaiControl Suite. Purchasing the equipment without the software license would have been commercially impractical and economically irrational. The cranes' automated capabilities — which are the features that differentiate this equipment from lower-cost manually-operated alternatives and which justified TSL's €98,000,000 investment — are entirely dependent on the licensed software. AADE will argue that this practical dependency means the license was, in substance, a necessary component of the equipment acquisition, not an optional supplementary service.

5. Hailong's Market Practice. Based on information provided by Dimitrios Sarantopoulos (VP Procurement & Supply Chain), Hailong does not, as a matter of commercial practice, sell this category of automated cargo-handling equipment without a companion software license agreement. Every customer purchasing Hailong's automated cranes and ASC systems is required to enter into a TLA or equivalent software license arrangement. This market practice confirms that the license is, in practical terms, inseparable from the equipment sale — a customer cannot acquire the equipment without also acquiring the license. AADE will point to this practice as evidence that the license is a de facto condition of sale, regardless of the formal contractual structure.

6. WCO Commentary 25.1 and CJEU *Dansk Transport* (C-230/08). WCO Commentary 25.1 supports the inclusion of software-related royalties in customs value when the software is integral to the goods' function and the goods cannot be used for their intended purpose without the software. The CJEU's decision in Dansk Transport establishes that the assessment must focus on the economic reality of the transaction, not the contractual labels, and that royalties related to goods and paid as a condition of sale must be included in customs value. Both authorities reinforce AADE's position that the formal separation of the TLA from the purchase contracts should not defeat inclusion where the economic substance indicates interdependence.

B. Arguments Against "Condition of Sale" (TSL's Defense)

TSL can advance the following arguments in defense of its position that the license fees are not a "condition of sale":

1. Contractual Independence (TLA Article 3.2). The TLA contains an express provision stating that it is "independent of and supplemental to" the purchase agreements, and that the termination of either agreement does not affect the other. While this provision is undermined by Article 8.1, it is not without weight. It reflects the parties' stated intention to treat the TLA as a separate contractual commitment, and it establishes at least a formal basis for arguing that the license was not a contractual prerequisite to the equipment sale. Moreover, TSL will note that Article 8.1 is a termination right — not a condition precedent — and that it operates in one direction only: Hailong may terminate the TLA if TSL does not purchase equipment, but neither provision conditions the equipment sale on TLA execution.

2. Post-Importation Service Components. A substantial portion — we estimate approximately 80% — of the TLA license fee covers services delivered after importation, well beyond the point at which customs value is assessed. Software updates and upgrades, remote technical support, on-site engineer visits, access to the technical documentation library, and annual training of TSL engineers are all post-importation services that will be delivered over the ten-year term of the TLA. TSL will argue that these services are distinct from the goods being valued and that a fee predominantly covering post-sale services cannot properly be characterized as a "condition of sale" of the goods.

3. Separate Pricing and Negotiation. The TLA was separately negotiated and separately invoiced from the equipment purchase contracts. TSL's internal approval process treated the TLA as a distinct contract requiring separate board approval, with a separate authorization memorandum presented to the TSL Board of Directors. The TSL procurement team prepared independent analyses of the TLA's commercial terms, including comparisons to software license arrangements with other equipment manufacturers. This separate treatment supports the characterization of the TLA as an independent agreement, not a component of the equipment purchase price.

4. Alternative Software Availability. TSL argues that it could, in theory, have procured third-party crane control software from independent software vendors, such as Westvale & Co., Harborview Group, or Vireo & Co., and installed it on the Hailong equipment. TSL acknowledges that it did not, in practice, explore this option and that retrofitting the equipment with third-party software would have been costly and technically complex, potentially requiring hardware modifications to the cranes' control systems. Nevertheless, the theoretical availability of alternatives suggests that the Hailong license was not the only means by which TSL could have obtained the software necessary to operate the equipment, and therefore that the TLA was not, in a strict sense, a "condition" of the equipment sale.

5. WCO Advisory Opinion 4.17 — Apportionment. Even if the "condition of sale" finding is made, WCO Advisory Opinion 4.17 recognizes that where royalty or license payments cover both pre-importation elements (Intellectual property incorporated in the goods) and post-importation elements (ongoing services), an apportionment may be appropriate. Only the portion of the royalty relating to the imported goods and constituting a condition of sale should be added to customs value. TSL will argue in the alternative that, at a minimum, the post-importation service components of the TLA fee should be excluded from any customs value adjustment.

C. Factor-by-Factor Assessment

The following table summarizes our assessment of each relevant factor:

D. Overall Assessment on Condition 2

On balance, the "condition of sale" analysis is contestable, but the weight of the evidence favors AADE. The cross-default provision in TLA Article 8.1, the temporal proximity of the TLA to the purchase contracts, the fee calculation methodology, and Hailong's market practice of bundling software licenses with equipment sales collectively create a strong factual basis for AADE's position that the license fee was, in economic substance, a condition of the equipment sale. TSL's defense rests primarily on contractual formalities (Article 3.2), the post-importation service components, and the theoretical availability of alternative software — arguments that, while not frivolous, face significant headwinds under the Dansk Transport economic-reality framework.

Risk assessment: We estimate a 55–65% probability that AADE prevails on this issue in full — that is, that both cumulative conditions are found satisfied and the entirety of the €4,900,000 license fee is held to be includable in customs value. There is a 20–25% probability that TSL prevails entirely on the "condition of sale" issue and achieves full exclusion, and a 20–25% probability that some form of apportionment is applied.

VII. Apportionment Analysis — Alternative Argument

A. Legal Basis for Apportionment

If TSL is unable to defeat the "condition of sale" finding entirely, it should advance an alternative argument that, even if the license fees are related to the goods and paid as a condition of sale, only a portion of the fee is properly includable in customs value. The legal basis for this apportionment argument is found in the following authorities:

WCO Advisory Opinion 4.17 expressly recognizes that where a single royalty or license fee payment covers both pre-importation elements (Intellectual property incorporated in the goods at the time of manufacture) and post-importation elements (ongoing services, support, and maintenance delivered after importation), it is appropriate to apportion the payment and include only the pre-importation portion in customs value. The Advisory Opinion provides that the allocation should be based on objective and quantifiable data, such as the relative value of each component.

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

The apportionment argument is structured as follows: if the "condition of sale" finding is made, only the portion of the TLA fee attributable to the right to use the pre-installed software (HaiControl Suite v4.2) at the point of importation should be added to customs value. The portions of the fee attributable to post-importation services — software updates and upgrades, remote technical support, on-site technical visits, access to the technical documentation library, and training — should be excluded as post-sale service costs that are not properly part of the customs value of the imported goods.

B. Identifying the Post-Importation Service Components — Allocation Table

We have prepared the following preliminary allocation of the TLA fee between pre-importation and post-importation components:

Under this allocation, only €980,000 (20% of the total license fee) would be includable in the customs value of the imported equipment. This amount represents the value attributable to the right to use the HaiControl Suite as pre-installed on the equipment at the time of importation — the only portion of the licensed technology that is "incorporated in" the goods at the point where customs value is assessed.

The remaining €3,920,000 (80% of the total license fee) would be attributable to post-importation services — software updates, technical support, engineer visits, documentation access, and training — that are delivered over the ten-year term of the TLA and do not form part of the value of the goods at the point of importation. These services are excluded from customs value under Article 71(2) UCC, which provides that the customs value shall not include charges for post-importation activities, and under the apportionment principles of Article 137 of the Implementing Regulation and WCO Advisory Opinion 4.17.

We note that the initial software installation and configuration is not separately valued under the TLA because it is included in the equipment delivery scope under the purchase contracts. Accordingly, the cost of initial installation is already embedded in the declared CIF customs value of the equipment, and no additional amount is attributable to this component under the TLA.

C. Evidentiary Requirements to Support Apportionment

The success of the apportionment argument depends critically on TSL's ability to present robust economic evidence supporting the allocation of the TLA fee between pre-importation and post-importation components. AADE is likely to challenge any apportionment as arbitrary or self-serving unless it is supported by objective, independently verifiable data. The following categories of evidence should be developed:

Economic evidence from Kestrel & Palladian LLP (Spyros Makris). TSL should commission a comparable-pricing analysis from Kestrel & Palladian LLP, the forensic accounting firm already engaged on the broader customs valuation matter. The analysis should benchmark the cost of each TLA service component against market rates for similar services from independent providers — for example, the cost of annual software maintenance and support agreements for comparable industrial control software, the cost of independent technical support and helpdesk services for port equipment, the daily rate for on-site engineering visits, and the cost of specialized crane operator and engineer training programs. Spyros Makris has indicated a preliminary willingness to undertake this analysis, but it will require access to TSL's internal records and, ideally, cost-allocation data from Hailong.

Hailong cost-breakdown data. If obtainable, internal Hailong documentation showing how Hailong priced the individual components of the TLA fee would be highly probative. Such documentation might include internal cost estimates, margin analyses, or transfer pricing studies prepared by Hailong's finance department in connection with the TLA. We recommend that TSL request this information from Hailong through Wei Junhao (Export Sales Director), with whom TSL maintains a cooperative commercial relationship. We recognize, however, that Hailong may be reluctant to disclose internal pricing data, and that the data, if produced, may not support the allocation percentages proposed above.

TSL internal records. TSL's internal procurement files, board minutes, and commercial analyses relating to the TLA should be reviewed for any contemporaneous documentation reflecting TSL's assessment of the relative value of the TLA's component services. Any internal memoranda, budget analyses, or cost-benefit assessments prepared by the procurement team in connection with the TLA negotiation would be relevant. Particular attention should be given to any documentation comparing the cost of the TLA's services to alternative providers or internal estimates of what each service component would cost on a standalone basis.

Importance of evidentiary quality. Without robust supporting evidence, AADE is likely to challenge any apportionment as arbitrary and argue for the full inclusion of the €4,900,000 license fee in customs value. The burden of proof in customs valuation matters generally falls on the importer to justify any claimed adjustment or exclusion. TSL must be prepared to demonstrate, with specific and credible evidence, that the proposed allocation reflects a reasonable approximation of the actual value of each component, not a post-hoc reconstruction designed to minimize customs liability.

D. Risk Assessment on Apportionment — Scenario Table

The following table presents four possible outcomes, together with our estimated probabilities and the associated additional duty exposure. The duty calculations assume that AADE's reclassification under ADAN/2022/0073 is upheld and the equipment is subject to a conventional duty rate of 2.2% under CN 8428 90 90.

Using the midpoints of the probability ranges (22.5% for each of the first three scenarios and 32.5% for the fourth), the probability-weighted expected additional duty exposure on the technology license fees is calculated as follows:

(€0 × 22.5%) + (€21,560 × 22.5%) + (€53,900 × 22.5%) + (€107,800 × 32.5%) = approximately €52,014

This calculation assumes that the equipment is reclassified at the 2.2% duty rate under ADAN/2022/0073. As discussed in Section VIII below, if TSL prevails on the classification issue and the equipment remains at 0% under CN heading 8426, the valuation adjustments produce no additional customs duty regardless of the outcome on the TLA issue. However, as further discussed in Section VIII, the valuation issue would still affect the import VAT base.

VIII. Interplay with Classification Dispute

The additional duty calculation under ADAN/2022/0074 (customs valuation adjustment) presupposes the reclassification under ADAN/2022/0073 from CN 8426 41 00 (self-propelled cranes, etc., on tyres; conventional duty rate: 0%) to CN 8428 90 90 (other lifting, handling, loading, or unloading machinery; conventional duty rate: 2.2%). The two issues are analytically independent but economically interrelated: the valuation adjustment has no customs duty consequence unless the reclassification is upheld.

If TSL prevails on the classification issue — which is currently the subject of BTI Application BTI-GR-2022-003847, referred to DG TAXUD for consultation under Article 34(10) UCC as of February 7, 2023 — the equipment remains classified under CN 8426 41 00 at a 0% duty rate. In that event, the valuation adjustments produce zero additional customs duty: 0% × €4,900,000 = €0.

However, even if the classification dispute is resolved in TSL's favor, the valuation issue retains practical significance because of its impact on the import VAT base. Under Greek law, the taxable amount for import VAT purposes is the customs value of the imported goods, plus any customs duties and other charges. Any amount added to the customs value — including royalties or license fees — is subject to Greek VAT at the standard rate of 24%, regardless of the applicable customs duty rate.

The potential VAT impact of full inclusion of the TLA license fee in customs value is:

€4,900,000 × 24% = €1,176,000

TSL may recover this amount as input VAT to the extent it is attributable to taxable economic activities, which is likely given the nature of TSL's terminal operations. However, recovery would depend on TSL's overall VAT position and would create a timing difference — TSL would be required to pay the additional import VAT at the time of assessment and recover it through subsequent VAT returns. The timing cost is not negligible, particularly if the assessment is contested and collection enforcement proceedings are initiated before the dispute is resolved.

Accordingly, even in the most favorable classification scenario, TSL has a financial interest in defeating or limiting the customs valuation adjustment on the TLA license fees.

IX. Recommendations

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

1. Primary Argument

TSL should argue that the technology license fees paid under the TLA are not a "condition of sale" of the imported equipment within the meaning of Article 71(1)(c) UCC. The primary argument should emphasize the following points:

• The TLA is contractually independent of the purchase agreements, as expressly stated in Article 3.2, and the termination of one does not affect the other.

• The TLA covers predominantly post-importation services — software updates, technical support, on-site engineer visits, technical documentation access, and training — over a ten-year term that extends far beyond the importation period. The license fee is primarily consideration for these ongoing services, not for the right to import the equipment.

• TSL had the theoretical option of procuring alternative crane control software from third-party vendors, and its decision to license the HaiControl Suite from Hailong was a commercial choice, not a contractual compulsion.

• The TLA was separately negotiated, separately invoiced, and separately approved by the TSL Board of Directors, reflecting a distinct decision-making process.

We recognize that this argument faces significant headwinds, particularly from the cross-default provision in Article 8.1 and the fee calculation methodology, but it represents TSL's best available primary defense and should be advanced vigorously.

2. Alternative Argument (Apportionment)

In the alternative, if the license fees are found to be related to the goods and paid as a condition of sale, TSL should argue that only a portion of the fee — corresponding to the right to use the pre-installed software (HaiControl Suite v4.2) at the point of importation — should be included in customs value. We estimate this portion at approximately 20% of the total fee, or €980,000.

The remaining 80% of the fee — estimated at €3,920,000 — should be excluded from customs value as attributable to post-importation services (software updates, remote technical support, on-site engineer visits, technical documentation library access, and training) that are properly characterized as post-sale service costs outside the scope of customs valuation.

The apportionment argument is supported by WCO Advisory Opinion 4.17 and Article 137 of Implementing Regulation (EU) 2015/2447, but its success depends on the quality of the economic evidence TSL is able to present. We recommend the evidentiary development steps described below.

3. Evidentiary Development

The following evidence should be developed to support both the primary and alternative arguments:

a. Hailong Cost Breakdown. TSL should request from Hailong, through Wei Junhao (Export Sales Director), a cost breakdown showing Hailong's internal allocation of the TLA fee across the individual service components. This documentation, if favorable, would provide direct support for the apportionment argument and demonstrate that a substantial portion of the fee was attributed by Hailong itself to post-importation services. The request should be framed as a routine request for supporting documentation in connection with a customs audit, to avoid alerting Hailong to the adversarial posture of the dispute.

b. Kestrel & Palladian Market Benchmarking. TSL should commission Kestrel & Palladian LLP (Spyros Makris) to perform a market-benchmarking analysis of the value of each post-importation service component under the TLA. The analysis should identify comparable service pricing from independent providers for: (i) annual software maintenance and support agreements for industrial control software; (ii) 24/7 technical support helpdesk services for port equipment; (iii) on-site engineering consulting at daily or hourly rates; (iv) online technical documentation and knowledge management services; and (v) specialized technical training programs for crane operators and maintenance engineers. This analysis will be essential to demonstrating that the proposed 80/20 allocation is consistent with market pricing and is not an artificial construct.

c. Hailong Written Statement. TSL should obtain a written statement from Hailong, through Wei Junhao, confirming that Hailong would have been willing to sell the equipment to TSL without the TLA. Even if this statement does not fully reflect the commercial expectation in practice — and we recognize that Hailong's actual practice is to bundle the license with the equipment — a written statement to this effect would provide useful defensive evidence against the "condition of sale" finding. The statement should be carefully drafted to avoid misleading representations while maximizing its evidentiary value.

d. TSL Board Minutes. TSL's board minutes for the meeting(s) at which the TLA was approved should be reviewed and, if supportive, submitted as evidence that TSL treated the TLA as a distinct contractual commitment requiring separate governance approval. The minutes should document that the board considered the TLA on its own merits, including its commercial terms, pricing, and relationship (or lack thereof) to the equipment purchase contracts.

e. Dimitrios Sarantopoulos Interview. We recommend a detailed interview with Dimitrios Sarantopoulos (VP Procurement & Supply Chain) regarding the negotiation history of the TLA and the purchase contracts. The interview should cover the following topics: (i) whether TSL considered alternative software providers for crane control software during the procurement process; (ii) whether Hailong explicitly conditioned the equipment sale on TLA execution, or whether the two agreements were presented as separate commercial proposals; (iii) how the 5% fee was negotiated and what pricing alternatives were discussed; (iv) whether TSL's negotiating team viewed the TLA as a required component of the equipment purchase or as an optional supplementary service; and (v) any communications with Hailong in which the interdependence (or independence) of the TLA and the purchase contracts was discussed.

4. Strategic Note — Future Contract Structuring

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

• Avoid cross-default provisions between equipment purchase agreements and related license agreements. Cross-default provisions create a strong inference that the license and the equipment sale are interdependent and that the license fee is a condition of sale. If cross-default provisions are commercially necessary, they should be structured to minimize their evidentiary impact — for example, by imposing mutual obligations rather than one-way termination rights tied to equipment purchase.

• Price license fees independently. Future technology license fees should be based on independent service-value benchmark

CALDERWOOD & HARKNESS LLP
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: File (C&H-2022-ITS-04781)
FROM: Christy Bauer, Garrett Simmons
DATE: November 22, 2022
RE: Analysis of Technology License Agreement — Inclusion of Royalties in Customs Value Under Article 71(1)(c) UCC
I. Issue
Whether the €4,900,000 in technology license fees paid by Thalassa Shipping & Logistics SA ("TSL") to Hailong Heavy Industries Co., Ltd. ("Hailong") under the Technology License Agreement dated January 10, 2019 (the "TLA") must be added to the customs value of the imported marine cargo-handling equipment under Article 71(1)(c) of the Union Customs Code (Regulation (EU) No. 952/2013, the "UCC") as royalties or license fees "related to the goods being valued" and paid "as a condition of sale." The resolution of this issue turns on whether the license fees satisfy two cumulative conditions established by the UCC and its implementing regulations, and, if they do, whether an apportionment of the fee between pre-importation elements and post-importation service components is appropriate to reduce the amount includable in customs value.
II. Executive Summary
Article 71(1)(c) of the UCC requires the addition of royalties and license fees to the customs value of imported goods when two cumulative conditions are met: first, the fees must be "related to the goods being valued," and second, the fees must be paid by the buyer "directly or indirectly, as a condition of sale" of those goods. Both conditions must be satisfied before any adjustment to customs value is warranted; the failure of either condition independently defeats the inclusion obligation.
Based on our review of the TLA, the four master purchase contracts between TSL and Hailong, the applicable provisions of the UCC and the UCC Implementing Regulation (EU) 2015/2447, relevant WCO Technical Committee guidance, and the limited body of CJEU jurisprudence in this area, our conclusions are as follows:
First, the technology license fees are likely "related to the goods being valued" within the meaning of Article 71(1)(c) and Article 136 of Implementing Regulation 2015/2447. The HaiControl Suite v4.2 software is pre-installed on the cranes' control systems at Hailong's manufacturing facility in Ningbo prior to export, and the imported equipment cannot perform its automated functions — including anti-sway systems, container positioning, and automated stacking sequences — without the licensed software. While a portion of the license fee covers post-importation services such as software updates, remote technical support, and training, the licensed intellectual property is sufficiently connected to the imported goods to satisfy the "relatedness" requirement. This is TSL's weaker defensive position of the two conditions.
Second, the question of whether the license fees are paid "as a condition of sale" is more contested. Several factors strongly support the Greek Independent Authority for Public Revenue ("AADE") position that the license was, in economic substance, a condition of the equipment sale: the cross-default provision in TLA Article 8.1 (which permitted Hailong to terminate the TLA if TSL did not execute a purchase agreement within ninety days), the five-day gap between TLA execution and the first purchase contract, the calculation of the license fee as a fixed percentage (5%) of the aggregate equipment purchase price, and Hailong's apparent market practice of bundling software licenses with equipment sales. At the same time, TSL can point to the contractual independence clause in TLA Article 3.2, the predominance of post-importation services in the TLA's scope, separate contractual negotiations and board approval, and the theoretical availability of alternative software. These factors provide a colorable, if not overwhelming, defense.
Overall risk assessment: We estimate a 55–65% probability that AADE prevails on this issue in full — that is, that both cumulative conditions are found satisfied and the entire €4,900,000 license fee is added to customs value. There remains, however, a meaningful possibility that TSL could succeed either in defeating the "condition of sale" finding entirely (estimated at 20–25% probability) or in obtaining an apportionment that limits the includable amount to the portion of the fee attributable to the pre-installed software at the point of importation.
We recommend that TSL advance a primary argument that the fees are not a "condition of sale," supported by an alternative argument for apportionment that would isolate the post-importation service components — estimated at approximately 80% of the total fee, or €3,920,000 — from the customs value calculation. Under this alternative, only €980,000 (20% of the total fee) would be includable. The success of the apportionment argument will depend heavily on TSL's ability to marshal robust economic evidence, including market-benchmarking data and internal cost-allocation documentation from Hailong.
III. The Technology License Agreement — Key Terms
A. Parties and Date
The TLA was executed on January 10, 2019, between the following parties:
Licensor: Hailong Heavy Industries Co., Ltd., a limited liability company organized under the laws of the People's Republic of China, with its principal place of business at No. 288 Gangkou Road, Zhenhai District, Ningbo, Zhejiang Province 315200, PRC (Unified Social Credit Code: 91330211MA2GR8KT5X). Hailong is a major manufacturer of port and marine cargo-handling equipment, including ship-to-shore gantry cranes, rubber-tyred gantry cranes, and automated stacking crane systems.
Licensee: Thalassa Shipping & Logistics SA, a société anonyme organized under the laws of the Hellenic Republic, with its registered office at 47 Akti Miaouli, 185 35 Piraeus, Greece (AFM: 094827361; EORI: GR094827361000). TSL is a port and terminal operator engaged in the management of container terminals and the provision of maritime logistics services throughout the Eastern Mediterranean.
The TLA was negotiated and executed in English, with governing law designated as the law of the People's Republic of China, subject to arbitration under the SIAC Rules in Singapore. The parties' principal negotiating representatives were Dimitrios Sarantopoulos (VP Procurement & Supply Chain) for TSL and Wei Junhao (Export Sales Director) for Hailong.
B. Term
The TLA has a term of ten (10) years commencing from the date of first commercial operation of the last piece of equipment installed under the purchase contracts referenced in the TLA's Exhibit A. Based on the current project timeline, first commercial operation of the final ASC systems (under purchase contract HHI-TSL-2020-003) is expected to occur in late 2021 or early 2022, placing the estimated expiry of the TLA at approximately January 2032. The TLA does not contain an automatic renewal provision but does include an option for the parties to negotiate an extension on mutually agreed terms no later than twelve months prior to expiry.
C. Licensed Technology
The TLA grants TSL a license to use the following Hailong proprietary technology:
1. HaiControl Suite v4.2 — Hailong's integrated crane control software platform, which provides automated control functions for ship-to-shore gantry cranes, rubber-tyred gantry cranes, and automated stacking crane systems. The HaiControl Suite manages, among other functions, anti-sway control, container positioning, automated stacking sequences, drive system optimization, and safety interlock protocols. The software is pre-installed on the programmable logic controllers and human-machine interface terminals incorporated in each piece of equipment at Hailong's manufacturing facility.
2. HaiPredict Module — Hailong's proprietary predictive maintenance software, which uses machine-learning algorithms trained on historical operating data to forecast component wear, predict failure events, and optimize maintenance scheduling. The HaiPredict module operates in conjunction with sensors embedded in the crane systems and transmits diagnostic data to TSL's terminal management systems.
3. Associated Technical Documentation — Approximately 12,000 pages of engineering manuals, electrical and hydraulic circuit diagrams, maintenance protocols, spare parts catalogs, and troubleshooting guides, provided in both electronic and hard-copy format. The documentation is maintained and updated through Hailong's online technical documentation library, which is accessible to TSL under the TLA.
D. License Type
The license granted under the TLA is non-exclusive and non-transferable. Hailong retains the right to license the same technology to other customers worldwide, and TSL may not assign or transfer its rights under the TLA to any third party without Hailong's prior written consent.
The TLA contains a limited sublicensing provision: TSL may sublicense the use of the HaiControl Suite and HaiPredict module to its wholly-owned terminal operating subsidiaries (specifically identified in Exhibit B to the TLA), provided that such subsidiaries are direct operators of the equipment purchased under the associated purchase contracts and that TSL remains primarily liable for all obligations under the TLA.
E. Fee Basis and Payment Schedule
The license fee under the TLA is calculated as five percent (5%) of the aggregate purchase price of all equipment purchased by TSL from Hailong under the master purchase contracts referenced in Exhibit A. Based on a total aggregate equipment purchase price of €98,000,000, the license fee equals €4,900,000.
The TLA provides for payment of the license fee in three installments, as follows:
All installments have been paid in full. Payments were made by TSL to Hailong via wire transfer to Hailong's account at the Westmark Bancorp, Ningbo Branch. No portion of the license fee was included in the declared customs value of the imported equipment on any of the import declarations filed by TSL's customs broker, Aegean Customs Solutions Ltd.
The calculation of the license fee as a fixed percentage of the aggregate equipment purchase price is a significant factor in the customs valuation analysis, as discussed in Section VI below. The fee structure ties the license payment directly to the value of the imported goods rather than to independent metrics of service delivery, such as hours of support provided, number of software updates delivered, or number of engineers trained.
F. Included Services Under the TLA
The TLA encompasses not only the grant of a license to use the specified intellectual property but also a range of ongoing services to be provided by Hailong over the ten-year term. These services are included in the license fee and are not separately priced or invoiced. The included services are:
1. Initial Software Installation and Configuration — The initial installation and configuration of the HaiControl Suite and HaiPredict module on the equipment's control systems is performed at Hailong's Ningbo factory as part of the manufacturing and commissioning process. This service is included in the equipment delivery scope under the respective purchase contracts, and no separate charge is made under the TLA. Accordingly, the cost of initial installation is already embedded in the declared CIF customs value of the equipment.
2. Software Updates and Upgrades — Hailong will provide all software updates, patches, and version upgrades to the HaiControl Suite and HaiPredict module throughout the ten-year term at no additional charge. Updates include security patches, bug fixes, performance improvements, and new functionality modules. Major version upgrades (e.g., migration from HaiControl v4.x to v5.x) are included provided they are released during the term.
3. Remote Technical Support — Hailong maintains a 24/7 technical support helpdesk accessible to TSL via telephone, email, and a dedicated online portal. Support covers software-related troubleshooting, diagnostic assistance, and guidance on system configuration. The helpdesk is staffed by Hailong engineers based in Ningbo.
4. On-Site Technical Support Visits — Hailong will provide two on-site technical support visits per year to TSL's terminal facilities. Each visit comprises four engineer-days (two engineers for two days, or one engineer for four days, at TSL's option). On-site visits cover hands-on troubleshooting, system optimization, and review of maintenance protocols. Travel and accommodation costs for Hailong's engineers are borne by Hailong and are included in the license fee.
5. Access to Technical Documentation Library — TSL receives continuous access to Hailong's online technical documentation library, which is updated on an ongoing basis to reflect equipment modifications, software changes, and best-practice maintenance procedures.
6. Training — Hailong will train up to twenty (20) TSL engineers per year, either at Hailong's Ningbo facility or remotely via videoconference. Training covers operation of the HaiControl Suite and HaiPredict module, advanced troubleshooting, and preventive maintenance procedures. Training materials are included and may be retained by TSL for internal use.
The breadth of these post-importation services is a central element of TSL's apportionment argument, as discussed in Section VII below.
G. Contractual Relationship to Purchase Agreements
The relationship between the TLA and the equipment purchase agreements is the most critical factual issue in the customs valuation analysis. Several features of this relationship merit close examination.
Temporal proximity. The TLA was executed on January 10, 2019 — five days before the first purchase contract (HHI-TSL-2019-001), which was executed on January 15, 2019. The second purchase contract (HHI-TSL-2019-002) followed on March 22, 2019, approximately ten weeks after TLA execution. The evidence indicates that negotiations for the TLA and the purchase contracts were conducted in parallel during the second half of 2018, with both sets of agreements reaching final form in early January 2019. The five-day gap between the TLA and the first purchase contract is, in our assessment, too narrow to support a credible argument that the two transactions were independently conceived and separately motivated.
Recitals language. The Recitals section of the TLA contains the following language, which explicitly links the license to the equipment purchase:
"WHEREAS, Licensee intends to purchase marine cargo-handling equipment from Licensor and desires to license the associated control software and technical documentation for the operation and maintenance of such equipment…"
This language demonstrates that the parties themselves contemplated the TLA as ancillary to the equipment purchase at the time of execution. While recitals are not operative provisions, they provide important context for interpreting the economic substance of the transaction.
Article 3.2 — Independence Clause. The TLA contains an express independence provision at Article 3.2:
"This Agreement is independent of and supplemental to any purchase agreement between the parties for the supply of equipment. The termination of any purchase agreement shall not affect the validity or enforceability of this Agreement, and vice versa."
TSL relies heavily on this provision in arguing that the TLA is not a "condition of sale" of the imported equipment. Article 3.2 does provide some support for TSL's position, but its weight is substantially diminished by the cross-default provision discussed immediately below, and by the general principle — well established in customs valuation law — that the economic reality of a transaction, rather than the contractual labels assigned by the parties, determines its treatment for customs purposes.
Article 8.1 — Cross-Default Provision. The TLA contains a cross-default provision at Article 8.1:
"In the event that Licensee fails to execute a purchase agreement with Licensor for the equipment described in Exhibit A within ninety (90) days of the date of this Agreement, Licensor may terminate this Agreement upon thirty (30) days' written notice."
The significance of Article 8.1 cannot be overstated. This provision directly links the continued existence of the TLA to TSL's execution of the equipment purchase agreements. While it is drafted as a termination right rather than a condition precedent, its practical effect is to make the equipment purchase a prerequisite for the survival of the license agreement. If TSL had failed to proceed with the equipment purchase, Hailong could have terminated the TLA — which strongly suggests that Hailong viewed the TLA and the equipment sale as a single commercial package. Conversely, the provision implies that Hailong would not have granted the software license on a standalone basis, absent an equipment purchase commitment.
Article 8.1 significantly undermines TSL's reliance on Article 3.2. The independence clause in Article 3.2 is, in light of Article 8.1, more accurately characterized as a contractual formality than a reflection of commercial reality. In any proceeding before AADE or the Greek courts, we would expect AADE to place considerable emphasis on Article 8.1 as evidence that the license fee was, in substance, a condition of the equipment sale.
H. Four Master Purchase Contracts — Context
The four master purchase contracts between TSL and Hailong, which together account for the €98,000,000 aggregate declared CIF customs value on which the TLA license fee is calculated, are summarized as follows:
Contract HHI-TSL-2021-004 comprises three components: spare parts (€2,100,000), supplementary software modules (€1,400,000), and commissioning services (€2,100,000). All four contracts were performed on CIF (Piraeus) Incoterms 2020 terms, with the exception of the commissioning services component of HHI-TSL-2021-004, which was performed at TSL's terminal facilities in Piraeus.
The equipment was imported into Greece in multiple shipments between May 2019 and October 2021, with customs declarations filed by Aegean Customs Solutions Ltd. on behalf of TSL. The import declarations classified the equipment under CN heading 8426 41 00 (self-propelled cranes and derricks; other machinery, on tyres) at a conventional duty rate of 0%. AADE's reclassification decision under ADAN/2022/0073, which is the subject of a separate memorandum, reclassifies the equipment under CN 8428 90 90 at a duty rate of 2.2%.
The TLA license fee of €4,900,000 was not declared on any import declaration as part of the customs value, nor was it reported as a royalty or license fee adjustment. TSL's customs broker did not flag the TLA as potentially relevant to customs valuation at the time of importation, and TSL did not seek an advance ruling or advisory opinion from AADE on the treatment of the license fees.
IV. Applicable Legal Framework
A. Article 71(1)(c) UCC — Royalties and License Fees Addition
The primary legal provision governing this analysis is Article 71(1)(c) of the Union Customs Code, which provides:
"In determining the customs value under Article 70, the following shall be added to the price actually paid or payable for the imported goods:
…
(c) royalties and license fees related to the goods being valued 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 license fees are not included in the price actually paid or payable."
Article 71(1)(c) imposes two cumulative conditions for the inclusion of royalties or license fees in customs value. Both conditions must be satisfied; the failure of either condition is independently sufficient to exclude the fees from customs value. The two conditions are:
1. Relatedness: The royalties or license fees must be "related to the goods being valued." This condition examines the substantive connection between the licensed intellectual property and the imported goods.
2. Condition of sale: The buyer must pay the fees "directly or indirectly, as a condition of sale" of the imported goods. This condition examines whether the payment of the fees was a prerequisite — whether contractually mandated or practically imposed — to the sale of the goods.
Where both conditions are met, the royalties or license fees are added to the transaction value (the price actually paid or payable) to determine the customs value of the imported goods, provided that such amounts are not already included in the declared price.
B. UCC Implementing Regulation (EU) 2015/2447, Articles 136–137
The UCC Implementing Regulation (Commission Implementing Regulation (EU) 2015/2447 of 24 November 2015) provides detailed guidance on the application of Article 71(1)(c) UCC. The relevant provisions are Articles 136 and 137.
Article 136 addresses the determination of when royalties or license fees are "related to the goods being valued" and when they are paid "as a condition of sale":
• Article 136(1)–(3): A royalty or license fee is "related to the goods being valued" when the fee is paid for rights that are incorporated in or used in connection with the imported goods. This includes, inter alia, payments for the right to use patents, designs, know-how, trademarks, or copyrighted works that are embodied in or necessary for the operation of the imported goods.
• Article 136(4): A royalty or license fee is considered to be paid "as a condition of sale" when the seller, or a person related to the seller, requires the buyer to make such payment as a prerequisite for the sale of the goods. The condition may be express or implied, and may be established by reference to the contractual arrangements between the parties or the circumstances surrounding the transaction.
The guidance in Article 136 is particularly relevant to the present analysis because it encompasses software and technical know-how that are "incorporated in" imported goods — precisely the situation presented by the HaiControl Suite, which is pre-installed on the cranes' control systems at Hailong's factory.
Article 137 addresses apportionment. Where royalties or license fees relate only in part to the imported goods — for example, where a single fee covers both imported goods and post-importation services, or both imported goods and domestically produced goods — Article 137 permits a proportional allocation. Only the portion of the royalty attributable to the imported goods is to be added to customs value. This provision is the legal foundation for TSL's alternative apportionment argument, discussed in Section VII below.
C. WCO Technical Committee on Customs Valuation
The World Customs Organization Technical Committee on Customs Valuation has issued several advisory opinions and commentaries relevant to the treatment of software-related royalties and license fees under the WTO Customs Valuation Agreement (which Article 71 UCC implements). While WCO instruments are not legally binding on EU Member States, they constitute authoritative interpretive guidance and are regularly cited by customs authorities and courts within the EU.
Advisory Opinion 4.9 addresses the "condition of sale" analysis for royalty payments. It provides that the determination of whether a royalty is paid "as a condition of sale" requires an examination of all the circumstances of the particular case, including the terms of the sale agreement, the terms of the licensing agreement, and the relationship between the seller and the licensor. Where the seller and the licensor are the same entity — as is the case here, where Hailong is both the equipment seller and the technology licensor — the inference that the royalty is a condition of sale is strengthened.
Advisory Opinion 4.17 is particularly important for TSL's apportionment argument. It recognizes that royalty or license fee payments may cover both pre-importation elements (such as intellectual property incorporated in the goods at the time of manufacture) and post-importation elements (such as ongoing technical support, maintenance, training, and software updates delivered after importation). Where a royalty payment covers both types of elements, Advisory Opinion 4.17 supports an apportionment approach: only the portion of the payment attributable to pre-importation elements — to the extent such portion constitutes a condition of sale — should be added to customs value. The post-importation service components may be excluded, provided that they can be identified and their value established on a reasonable basis.
Commentary 25.1 addresses the treatment of software that is integral to the functioning of imported goods. It supports the inclusion of software-related royalties in customs value when the software is essential to the goods' intended function and when the goods cannot be used for their intended purpose without the software. This commentary aligns with the factual circumstances here, where the HaiControl Suite is necessary for the automated operation of the cranes and ASC systems.
D. CJEU Case Law
The body of Court of Justice of the European Union jurisprudence on Article 71(1)(c) UCC (and its predecessor provision, Article 32(1)(c) of the Community Customs Code) is limited but establishes important interpretive principles.
Case C-230/08, *Dansk Transport og Logistik is the leading CJEU authority on the inclusion of royalties in customs value. In Dansk Transport, the Court held that royalties related to imported goods and paid as a condition of sale must be included in the customs value of those goods. The Court emphasized the following general principle: the assessment of whether a royalty or license fee constitutes a condition of sale depends on the economic reality of the transaction*, not merely the contractual labels used by the parties. The Court rejected the argument that the formal separation of a license agreement from a purchase agreement, standing alone, could defeat the inclusion of royalties in customs value where the economic substance of the transaction demonstrated that the two agreements were interdependent.
This principle is directly relevant to the present case. TSL's reliance on the contractual independence clause in TLA Article 3.2 must be evaluated against the economic reality of the transaction — including the cross-default provision in Article 8.1, the temporal proximity of the TLA to the first purchase contract, the calculation of the license fee as a percentage of the equipment purchase price, and Hailong's apparent practice of bundling software licenses with equipment sales. Under the Dansk Transport framework, form-over-substance arguments carry limited weight where the underlying commercial reality points toward interdependence.
Additional CJEU jurisprudence on customs valuation more broadly confirms that the transaction value method under Article 70 UCC must reflect the full economic consideration for the imported goods, including any payments that, while not denominated as part of the purchase price, are functionally attributable to the acquisition of the goods.
V. Analysis — Condition 1: Are the License Fees "Related to the Goods Being Valued"?
A. Software Incorporated in the Goods
The most significant factor supporting a finding that the license fees are "related to the goods being valued" is the fact that the HaiControl Suite v4.2 software is pre-installed on the cranes' control systems at Hailong's Ningbo factory prior to export. At the time the equipment crosses the EU customs frontier and customs value is assessed, the licensed software is already resident on the programmable logic controllers and human-machine interface terminals that are physically incorporated in the cranes and ASC systems. The software is not delivered separately or installed after importation; it arrives in the EU as an integral component of the imported goods.
Without the HaiControl Suite, the cranes' automated functions cannot operate. Specifically, the following critical functions are dependent on the HaiControl Suite:
• Anti-sway control systems, which compensate for container swing during lifting and lowering operations and are essential for safe and efficient container handling;
• Container positioning systems, which enable precise placement of containers in the ship's hold and on the terminal yard;
• Automated stacking sequences for the ASC systems, which enable fully automated container storage and retrieval operations without human operator intervention;
• Drive system optimization algorithms, which manage the electric drive systems for energy efficiency and component longevity; and
• Safety interlock protocols, which prevent unsafe operating conditions and are required for compliance with applicable EU machinery safety directives.
While the cranes could, in a theoretical and highly limited sense, be operated in a degraded manual mode without the HaiControl Suite — using basic manual controls to perform individual lift and traverse operations — their commercial utility and operational safety would be substantially impaired. Manual operation would eliminate the cranes' capacity for automated container handling, which is the principal reason TSL procured automated equipment rather than conventional manually-operated cranes. Manual operation would also compromise compliance with the safety standards governing crane operations at TSL's terminal facilities. Accordingly, the practical reality is that the equipment is functionally dependent on the HaiControl Suite for its intended commercial use.
This factual configuration squarely satisfies the "relatedness" test under Article 136 of Implementing Regulation 2015/2447. The licensed intellectual property is "incorporated in" the imported goods at the time of importation. The software is not merely ancillary to or used in connection with the goods; it is embedded in the goods' control systems as a physical and functional component of the equipment.
B. HaiPredict Module and Technical Documentation
The HaiPredict predictive maintenance module and the approximately 12,000 pages of associated technical documentation present a somewhat different analytical profile. Unlike the HaiControl Suite, the HaiPredict module is not strictly necessary for the basic operation of the cranes; the equipment can function without predictive maintenance capabilities. Similarly, while the technical documentation is essential for the maintenance and long-term operation of the equipment, it is not physically incorporated in the goods at the point of importation.
Nevertheless, both the HaiPredict module and the technical documentation are "used in connection with" the imported equipment within the meaning of Article 136. The HaiPredict module operates in conjunction with sensors embedded in the crane systems, and its purpose is exclusively to support the maintenance and operation of the imported equipment. The technical documentation — circuit diagrams, maintenance protocols, troubleshooting guides — is specific to the imported equipment models and has no application independent of that equipment. These elements further support the finding that the license fees are "related to the goods being valued."
C. Conclusion on Condition 1
Based on the foregoing analysis, we conclude that the technology license fees paid under the TLA are "related to the goods being valued" within the meaning of Article 71(1)(c) UCC and Article 136 of Implementing Regulation 2015/2447. The HaiControl Suite is physically incorporated in the imported equipment at the time of importation and is functionally essential to the equipment's intended commercial use. The HaiPredict module and technical documentation are used in direct connection with the imported equipment.
This condition is likely satisfied, and TSL's prospects of successfully challenging a finding of "relatedness" are limited. This is TSL's weaker defensive position on the two cumulative conditions. Our strategy should accordingly focus on the second condition — whether the license fees are paid "as a condition of sale" — and on the apportionment alternative.
VI. Analysis — Condition 2: Are the License Fees Paid "As a Condition of Sale"?
The "condition of sale" analysis is the more contestable of the two cumulative conditions and represents TSL's stronger defensive ground. The determination turns on the totality of the circumstances, including contractual terms, commercial practice, the relationship between the parties, and the practical reality of the transaction.
A. Arguments Supporting "Condition of Sale" (AADE's Position)
AADE is likely to advance the following arguments in support of a finding that the technology license fees were paid "as a condition of sale" of the imported equipment:
1. Cross-Default Provision (TLA Article 8.1). The cross-default provision in Article 8.1 of the TLA is the single most powerful piece of evidence in AADE's favor. Article 8.1 provides that if TSL fails to execute a purchase agreement with Hailong for the equipment described in Exhibit A within ninety (90) days of the TLA's execution, Hailong may terminate the TLA upon thirty (30) days' written notice. This provision establishes a direct contractual linkage between the TLA and the equipment purchase: the survival of the license is contingent upon TSL proceeding with the equipment acquisition. Conversely, the provision implies that Hailong viewed the TLA and the equipment purchase as a unified commercial transaction — Hailong was not willing to maintain the license on a standalone basis absent an equipment sale. The cross-default provision creates a strong inference that the license was, in practical terms, a precondition for the equipment sale and that the equipment sale was a precondition for the license.
2. Temporal Proximity. The TLA was executed on January 10, 2019, just five days before the first purchase contract (HHI-TSL-2019-001) on January 15, 2019. The negotiations for both the TLA and the purchase contracts were conducted in parallel during the second half of 2018, with the same Hailong and TSL negotiating teams involved in both sets of discussions. The five-day gap between the agreements is consistent with a single coordinated closing of interrelated agreements, not the independent execution of separate, unrelated contracts negotiated at arm's length. AADE will argue that the temporal proximity demonstrates that the TLA and the equipment purchase were elements of a single commercial package.
3. Fee Calculation Method. The license fee is calculated as a fixed percentage (5%) of the aggregate equipment purchase price — 5% × €98,000,000 = €4,900,000. This pricing methodology ties the license fee directly to the value of the imported equipment rather than to any independent measure of the value of the licensed technology or the services provided under the TLA. AADE will argue that this fee structure demonstrates that the license fee is economically an extension of the equipment purchase price — a supplementary payment for the goods, structured as a separate "license fee" to avoid inclusion in customs value. If the license fee were truly independent of the equipment purchase, AADE will contend, it would be priced based on the value of the technology and services provided, not as a percentage of the equipment price.
4. Practical Necessity. TSL could not commercially operate the automated features of the cranes and ASC systems without the HaiControl Suite. Purchasing the equipment without the software license would have been commercially impractical and economically irrational. The cranes' automated capabilities — which are the features that differentiate this equipment from lower-cost manually-operated alternatives and which justified TSL's €98,000,000 investment — are entirely dependent on the licensed software. AADE will argue that this practical dependency means the license was, in substance, a necessary component of the equipment acquisition, not an optional supplementary service.
5. Hailong's Market Practice. Based on information provided by Dimitrios Sarantopoulos (VP Procurement & Supply Chain), Hailong does not, as a matter of commercial practice, sell this category of automated cargo-handling equipment without a companion software license agreement. Every customer purchasing Hailong's automated cranes and ASC systems is required to enter into a TLA or equivalent software license arrangement. This market practice confirms that the license is, in practical terms, inseparable from the equipment sale — a customer cannot acquire the equipment without also acquiring the license. AADE will point to this practice as evidence that the license is a de facto condition of sale, regardless of the formal contractual structure.
6. WCO Commentary 25.1 and CJEU *Dansk Transport* (C-230/08). WCO Commentary 25.1 supports the inclusion of software-related royalties in customs value when the software is integral to the goods' function and the goods cannot be used for their intended purpose without the software. The CJEU's decision in Dansk Transport establishes that the assessment must focus on the economic reality of the transaction, not the contractual labels, and that royalties related to goods and paid as a condition of sale must be included in customs value. Both authorities reinforce AADE's position that the formal separation of the TLA from the purchase contracts should not defeat inclusion where the economic substance indicates interdependence.
B. Arguments Against "Condition of Sale" (TSL's Defense)
TSL can advance the following arguments in defense of its position that the license fees are not a "condition of sale":
1. Contractual Independence (TLA Article 3.2). The TLA contains an express provision stating that it is "independent of and supplemental to" the purchase agreements, and that the termination of either agreement does not affect the other. While this provision is undermined by Article 8.1, it is not without weight. It reflects the parties' stated intention to treat the TLA as a separate contractual commitment, and it establishes at least a formal basis for arguing that the license was not a contractual prerequisite to the equipment sale. Moreover, TSL will note that Article 8.1 is a termination right — not a condition precedent — and that it operates in one direction only: Hailong may terminate the TLA if TSL does not purchase equipment, but neither provision conditions the equipment sale on TLA execution.
2. Post-Importation Service Components. A substantial portion — we estimate approximately 80% — of the TLA license fee covers services delivered after importation, well beyond the point at which customs value is assessed. Software updates and upgrades, remote technical support, on-site engineer visits, access to the technical documentation library, and annual training of TSL engineers are all post-importation services that will be delivered over the ten-year term of the TLA. TSL will argue that these services are distinct from the goods being valued and that a fee predominantly covering post-sale services cannot properly be characterized as a "condition of sale" of the goods.
3. Separate Pricing and Negotiation. The TLA was separately negotiated and separately invoiced from the equipment purchase contracts. TSL's internal approval process treated the TLA as a distinct contract requiring separate board approval, with a separate authorization memorandum presented to the TSL Board of Directors. The TSL procurement team prepared independent analyses of the TLA's commercial terms, including comparisons to software license arrangements with other equipment manufacturers. This separate treatment supports the characterization of the TLA as an independent agreement, not a component of the equipment purchase price.
4. Alternative Software Availability. TSL argues that it could, in theory, have procured third-party crane control software from independent software vendors, such as Westvale & Co., Harborview Group, or Vireo & Co., and installed it on the Hailong equipment. TSL acknowledges that it did not, in practice, explore this option and that retrofitting the equipment with third-party software would have been costly and technically complex, potentially requiring hardware modifications to the cranes' control systems. Nevertheless, the theoretical availability of alternatives suggests that the Hailong license was not the only means by which TSL could have obtained the software necessary to operate the equipment, and therefore that the TLA was not, in a strict sense, a "condition" of the equipment sale.
5. WCO Advisory Opinion 4.17 — Apportionment. Even if the "condition of sale" finding is made, WCO Advisory Opinion 4.17 recognizes that where royalty or license payments cover both pre-importation elements (Intellectual property incorporated in the goods) and post-importation elements (ongoing services), an apportionment may be appropriate. Only the portion of the royalty relating to the imported goods and constituting a condition of sale should be added to customs value. TSL will argue in the alternative that, at a minimum, the post-importation service components of the TLA fee should be excluded from any customs value adjustment.
C. Factor-by-Factor Assessment
The following table summarizes our assessment of each relevant factor:
D. Overall Assessment on Condition 2
On balance, the "condition of sale" analysis is contestable, but the weight of the evidence favors AADE. The cross-default provision in TLA Article 8.1, the temporal proximity of the TLA to the purchase contracts, the fee calculation methodology, and Hailong's market practice of bundling software licenses with equipment sales collectively create a strong factual basis for AADE's position that the license fee was, in economic substance, a condition of the equipment sale. TSL's defense rests primarily on contractual formalities (Article 3.2), the post-importation service components, and the theoretical availability of alternative software — arguments that, while not frivolous, face significant headwinds under the Dansk Transport economic-reality framework.
Risk assessment: We estimate a 55–65% probability that AADE prevails on this issue in full — that is, that both cumulative conditions are found satisfied and the entirety of the €4,900,000 license fee is held to be includable in customs value. There is a 20–25% probability that TSL prevails entirely on the "condition of sale" issue and achieves full exclusion, and a 20–25% probability that some form of apportionment is applied.
VII. Apportionment Analysis — Alternative Argument
A. Legal Basis for Apportionment
If TSL is unable to defeat the "condition of sale" finding entirely, it should advance an alternative argument that, even if the license fees are related to the goods and paid as a condition of sale, only a portion of the fee is properly includable in customs value. The legal basis for this apportionment argument is found in the following authorities:
WCO Advisory Opinion 4.17 expressly recognizes that where a single royalty or license fee payment covers both pre-importation elements (Intellectual property incorporated in the goods at the time of manufacture) and post-importation elements (ongoing services, support, and maintenance delivered after importation), it is appropriate to apportion the payment and include only the pre-importation portion in customs value. The Advisory Opinion provides that the allocation should be based on objective and quantifiable data, such as the relative value of each component.
Article 137 of Implementing Regulation (EU) 2015/2447 provides the EU-law basis for apportionment. Article 137 permits partial inclusion where only a portion of a royalty or license fee relates to the imported goods. The provision requires that the apportionment be made on the basis of objective and quantifiable criteria, and that the portion attributable to the imported goods be reasonably determined.
The apportionment argument is structured as follows: if the "condition of sale" finding is made, only the portion of the TLA fee attributable to the right to use the pre-installed software (HaiControl Suite v4.2) at the point of importation should be added to customs value. The portions of the fee attributable to post-importation services — software updates and upgrades, remote technical support, on-site technical visits, access to the technical documentation library, and training — should be excluded as post-sale service costs that are not properly part of the customs value of the imported goods.
B. Identifying the Post-Importation Service Components — Allocation Table
We have prepared the following preliminary allocation of the TLA fee between pre-importation and post-importation components:
Under this allocation, only €980,000 (20% of the total license fee) would be includable in the customs value of the imported equipment. This amount represents the value attributable to the right to use the HaiControl Suite as pre-installed on the equipment at the time of importation — the only portion of the licensed technology that is "incorporated in" the goods at the point where customs value is assessed.
The remaining €3,920,000 (80% of the total license fee) would be attributable to post-importation services — software updates, technical support, engineer visits, documentation access, and training — that are delivered over the ten-year term of the TLA and do not form part of the value of the goods at the point of importation. These services are excluded from customs value under Article 71(2) UCC, which provides that the customs value shall not include charges for post-importation activities, and under the apportionment principles of Article 137 of the Implementing Regulation and WCO Advisory Opinion 4.17.
We note that the initial software installation and configuration is not separately valued under the TLA because it is included in the equipment delivery scope under the purchase contracts. Accordingly, the cost of initial installation is already embedded in the declared CIF customs value of the equipment, and no additional amount is attributable to this component under the TLA.
C. Evidentiary Requirements to Support Apportionment
The success of the apportionment argument depends critically on TSL's ability to present robust economic evidence supporting the allocation of the TLA fee between pre-importation and post-importation components. AADE is likely to challenge any apportionment as arbitrary or self-serving unless it is supported by objective, independently verifiable data. The following categories of evidence should be developed:
Economic evidence from Kestrel & Palladian LLP (Spyros Makris). TSL should commission a comparable-pricing analysis from Kestrel & Palladian LLP, the forensic accounting firm already engaged on the broader customs valuation matter. The analysis should benchmark the cost of each TLA service component against market rates for similar services from independent providers — for example, the cost of annual software maintenance and support agreements for comparable industrial control software, the cost of independent technical support and helpdesk services for port equipment, the daily rate for on-site engineering visits, and the cost of specialized crane operator and engineer training programs. Spyros Makris has indicated a preliminary willingness to undertake this analysis, but it will require access to TSL's internal records and, ideally, cost-allocation data from Hailong.
Hailong cost-breakdown data. If obtainable, internal Hailong documentation showing how Hailong priced the individual components of the TLA fee would be highly probative. Such documentation might include internal cost estimates, margin analyses, or transfer pricing studies prepared by Hailong's finance department in connection with the TLA. We recommend that TSL request this information from Hailong through Wei Junhao (Export Sales Director), with whom TSL maintains a cooperative commercial relationship. We recognize, however, that Hailong may be reluctant to disclose internal pricing data, and that the data, if produced, may not support the allocation percentages proposed above.
TSL internal records. TSL's internal procurement files, board minutes, and commercial analyses relating to the TLA should be reviewed for any contemporaneous documentation reflecting TSL's assessment of the relative value of the TLA's component services. Any internal memoranda, budget analyses, or cost-benefit assessments prepared by the procurement team in connection with the TLA negotiation would be relevant. Particular attention should be given to any documentation comparing the cost of the TLA's services to alternative providers or internal estimates of what each service component would cost on a standalone basis.
Importance of evidentiary quality. Without robust supporting evidence, AADE is likely to challenge any apportionment as arbitrary and argue for the full inclusion of the €4,900,000 license fee in customs value. The burden of proof in customs valuation matters generally falls on the importer to justify any claimed adjustment or exclusion. TSL must be prepared to demonstrate, with specific and credible evidence, that the proposed allocation reflects a reasonable approximation of the actual value of each component, not a post-hoc reconstruction designed to minimize customs liability.
D. Risk Assessment on Apportionment — Scenario Table
The following table presents four possible outcomes, together with our estimated probabilities and the associated additional duty exposure. The duty calculations assume that AADE's reclassification under ADAN/2022/0073 is upheld and the equipment is subject to a conventional duty rate of 2.2% under CN 8428 90 90.
Using the midpoints of the probability ranges (22.5% for each of the first three scenarios and 32.5% for the fourth), the probability-weighted expected additional duty exposure on the technology license fees is calculated as follows:
(€0 × 22.5%) + (€21,560 × 22.5%) + (€53,900 × 22.5%) + (€107,800 × 32.5%) = approximately €52,014
This calculation assumes that the equipment is reclassified at the 2.2% duty rate under ADAN/2022/0073. As discussed in Section VIII below, if TSL prevails on the classification issue and the equipment remains at 0% under CN heading 8426, the valuation adjustments produce no additional customs duty regardless of the outcome on the TLA issue. However, as further discussed in Section VIII, the valuation issue would still affect the import VAT base.
VIII. Interplay with Classification Dispute
The additional duty calculation under ADAN/2022/0074 (customs valuation adjustment) presupposes the reclassification under ADAN/2022/0073 from CN 8426 41 00 (self-propelled cranes, etc., on tyres; conventional duty rate: 0%) to CN 8428 90 90 (other lifting, handling, loading, or unloading machinery; conventional duty rate: 2.2%). The two issues are analytically independent but economically interrelated: the valuation adjustment has no customs duty consequence unless the reclassification is upheld.
If TSL prevails on the classification issue — which is currently the subject of BTI Application BTI-GR-2022-003847, referred to DG TAXUD for consultation under Article 34(10) UCC as of February 7, 2023 — the equipment remains classified under CN 8426 41 00 at a 0% duty rate. In that event, the valuation adjustments produce zero additional customs duty: 0% × €4,900,000 = €0.
However, even if the classification dispute is resolved in TSL's favor, the valuation issue retains practical significance because of its impact on the import VAT base. Under Greek law, the taxable amount for import VAT purposes is the customs value of the imported goods, plus any customs duties and other charges. Any amount added to the customs value — including royalties or license fees — is subject to Greek VAT at the standard rate of 24%, regardless of the applicable customs duty rate.
The potential VAT impact of full inclusion of the TLA license fee in customs value is:
€4,900,000 × 24% = €1,176,000
TSL may recover this amount as input VAT to the extent it is attributable to taxable economic activities, which is likely given the nature of TSL's terminal operations. However, recovery would depend on TSL's overall VAT position and would create a timing difference — TSL would be required to pay the additional import VAT at the time of assessment and recover it through subsequent VAT returns. The timing cost is not negligible, particularly if the assessment is contested and collection enforcement proceedings are initiated before the dispute is resolved.
Accordingly, even in the most favorable classification scenario, TSL has a financial interest in defeating or limiting the customs valuation adjustment on the TLA license fees.
IX. Recommendations
Based on the foregoing analysis, we recommend the following course of action:
1. Primary Argument
TSL should argue that the technology license fees paid under the TLA are not a "condition of sale" of the imported equipment within the meaning of Article 71(1)(c) UCC. The primary argument should emphasize the following points:
• The TLA is contractually independent of the purchase agreements, as expressly stated in Article 3.2, and the termination of one does not affect the other.
• The TLA covers predominantly post-importation services — software updates, technical support, on-site engineer visits, technical documentation access, and training — over a ten-year term that extends far beyond the importation period. The license fee is primarily consideration for these ongoing services, not for the right to import the equipment.
• TSL had the theoretical option of procuring alternative crane control software from third-party vendors, and its decision to license the HaiControl Suite from Hailong was a commercial choice, not a contractual compulsion.
• The TLA was separately negotiated, separately invoiced, and separately approved by the TSL Board of Directors, reflecting a distinct decision-making process.
We recognize that this argument faces significant headwinds, particularly from the cross-default provision in Article 8.1 and the fee calculation methodology, but it represents TSL's best available primary defense and should be advanced vigorously.
2. Alternative Argument (Apportionment)
In the alternative, if the license fees are found to be related to the goods and paid as a condition of sale, TSL should argue that only a portion of the fee — corresponding to the right to use the pre-installed software (HaiControl Suite v4.2) at the point of importation — should be included in customs value. We estimate this portion at approximately 20% of the total fee, or €980,000.
The remaining 80% of the fee — estimated at €3,920,000 — should be excluded from customs value as attributable to post-importation services (software updates, remote technical support, on-site engineer visits, technical documentation library access, and training) that are properly characterized as post-sale service costs outside the scope of customs valuation.
The apportionment argument is supported by WCO Advisory Opinion 4.17 and Article 137 of Implementing Regulation (EU) 2015/2447, but its success depends on the quality of the economic evidence TSL is able to present. We recommend the evidentiary development steps described below.
3. Evidentiary Development
The following evidence should be developed to support both the primary and alternative arguments:
a. Hailong Cost Breakdown. TSL should request from Hailong, through Wei Junhao (Export Sales Director), a cost breakdown showing Hailong's internal allocation of the TLA fee across the individual service components. This documentation, if favorable, would provide direct support for the apportionment argument and demonstrate that a substantial portion of the fee was attributed by Hailong itself to post-importation services. The request should be framed as a routine request for supporting documentation in connection with a customs audit, to avoid alerting Hailong to the adversarial posture of the dispute.
b. Kestrel & Palladian Market Benchmarking. TSL should commission Kestrel & Palladian LLP (Spyros Makris) to perform a market-benchmarking analysis of the value of each post-importation service component under the TLA. The analysis should identify comparable service pricing from independent providers for: (i) annual software maintenance and support agreements for industrial control software; (ii) 24/7 technical support helpdesk services for port equipment; (iii) on-site engineering consulting at daily or hourly rates; (iv) online technical documentation and knowledge management services; and (v) specialized technical training programs for crane operators and maintenance engineers. This analysis will be essential to demonstrating that the proposed 80/20 allocation is consistent with market pricing and is not an artificial construct.
c. Hailong Written Statement. TSL should obtain a written statement from Hailong, through Wei Junhao, confirming that Hailong would have been willing to sell the equipment to TSL without the TLA. Even if this statement does not fully reflect the commercial expectation in practice — and we recognize that Hailong's actual practice is to bundle the license with the equipment — a written statement to this effect would provide useful defensive evidence against the "condition of sale" finding. The statement should be carefully drafted to avoid misleading representations while maximizing its evidentiary value.
d. TSL Board Minutes. TSL's board minutes for the meeting(s) at which the TLA was approved should be reviewed and, if supportive, submitted as evidence that TSL treated the TLA as a distinct contractual commitment requiring separate governance approval. The minutes should document that the board considered the TLA on its own merits, including its commercial terms, pricing, and relationship (or lack thereof) to the equipment purchase contracts.
e. Dimitrios Sarantopoulos Interview. We recommend a detailed interview with Dimitrios Sarantopoulos (VP Procurement & Supply Chain) regarding the negotiation history of the TLA and the purchase contracts. The interview should cover the following topics: (i) whether TSL considered alternative software providers for crane control software during the procurement process; (ii) whether Hailong explicitly conditioned the equipment sale on TLA execution, or whether the two agreements were presented as separate commercial proposals; (iii) how the 5% fee was negotiated and what pricing alternatives were discussed; (iv) whether TSL's negotiating team viewed the TLA as a required component of the equipment purchase or as an optional supplementary service; and (v) any communications with Hailong in which the interdependence (or independence) of the TLA and the purchase contracts was discussed.
4. Strategic Note — Future Contract Structuring
The cross-default provision in TLA Article 8.1 is the most damaging factual element for TSL's defense on the "condition of sale" issue. In any future transaction involving the procurement of equipment with accompanying technology licenses, TSL should take the following steps to minimize customs valuation risk:
• Avoid cross-default provisions between equipment purchase agreements and related license agreements. Cross-default provisions create a strong inference that the license and the equipment sale are interdependent and that the license fee is a condition of sale. If cross-default provisions are commercially necessary, they should be structured to minimize their evidentiary impact — for example, by imposing mutual obligations rather than one-way termination rights tied to equipment purchase.
• Price license fees independently. Future technology license fees should be based on independent service-value benchmark

CALDERWOOD & HARKNESS LLP

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