LCD-Monitors Ruled Duty-Free By ECJ In Landmark Case

by Ulrika Lomas, Tax-News.com, Brussels

20 February 2009

The European Court of Justice (ECJ) has announced its decision in a case concerning the customs duty which applies to imported LCD-monitors.

The judgment of the Court will serve as a basis for the judgments of national courts in the Netherlands and other EU Member States in the many LCD-monitor disputes which are currently pending. The judgment will not only have a significant influence on the policy of the European Commission and the customs authorities but it will also have a direct impact on the import costs of a multitude of companies in the electronics sector.

Since 2004 there has been an ongoing dispute within the European Community concerning how LCD-monitors ought to be classified for customs purposes. The issue of classification is significant because it determines whether a monitor is subject to a 0% or 14% customs duty rate upon importation into the EU. The conflicting ways of applying the relevant duty rates, combined with the potentially high costs involved, have resulted in significant damage and uncertainty for companies. The issue has even resulted in a dispute between (amongst others) the United States and the EU at the World Trade Organisation (WTO).

In its ruling, the European Court of Justice disagreed with the positions of the European Commission and the Dutch government that a monitor cannot be classified as a computer monitor if it can also be connected with devices other than a computer.

The Court further rejected the argument that only the connections of a monitor are determinative of classification for purposes of assessing the appropriate customs duty. Rather, the Court held that all the technical characteristics of a monitor must be considered in determining classification. The technical characteristics to be examined, among others, include, whether or not the monitor is intended to be viewed close-up and whether a television signal can be displayed. The Court of Justice seemed to agree with the interested companies that many more LCD-monitors fall under the customs duty of 0% than the European Commission and Dutch government have, up until now, believed.

The decision, made on February 20, concerns the import of a widescreen LCD-monitor with multiple connection possibilities. In 2004, the Dutch customs authorities determined that the LCD-monitor at issue was to be considered a so-called video monitor and was therefore subject to the 14% customs duty rate. The importer argued that the monitor ought to be classified as a computer monitor, to which a 0% customs duty would apply. The monitor at issue was primarily used as a computer monitor. In the first place, the Amsterdam Court agreed with the view of the importer and held that the 0% duty was applicable. The State Secretary of Finance subsequently appealed to the Dutch Supreme Court, which in turn referred several prejudicial questions to the European Court of Justice. Specifically, the Supreme Court asked the ECJ:

• Whether an LCD-monitor, which can display signals from multiple sources, can be classified as a monitor principally used as a computer monitor.
• Which characteristics must a monitor have in order to be classified as a computer monitor, thereby subject to a 0% customs duty.

The matter which the Supreme Court of the Netherlands referred to the ECJ is only the tip of the iceberg. Many companies in the Netherlands and in other EU-member states have been faced with additional assessments and have been required to pay 14% customs duties for monitors that are actually sold and used as a computer monitor (and should thus be subject to the 0% customs duty rate). Today’s decision by the European Court of Justice is expected to provide the Commission, the customs authorities and the industry essential guidelines to help determine whether a 0% or 14% customs duty is applicable.

Erik de Bie, of Greenberg Traurig LLP who, along with Erik Zietse, assisted the interested companies in the proceedings at the European Court of Justice, explains: “We were glad that the Supreme Court referred the matter to the Court of Justice. This case gave the Court the opportunity to pass judgment regarding the classification of LCD-monitors. In addition, the Court has, in effect, created a level playing field for all companies that import LCD-monitors into the EU. The ruling by the Court is relevant for all 27 EU Member States. The Court of Justice has made it clear that it does not agree with the interpretation of the Commission and the customs authorities. The fact that an LCD-monitor can be connected digitally to a computer, for example by means of a DVI connection, cannot as such result in 14% customs duties. For this reason, the expectation is that the 0% customs duty rate will be applied to many more LCD-monitors than the Commission and customs authorities have permitted to date. The ruling by the Court of Justice provides more than a sufficient starting point to determine the appropriate customs duty of LCD-monitors within the EU.”

According to Erik Zietse, the ruling by the Court of Justice is consistent with the classification legislation that applies to all Member States of the World Trade Organisation. “The ECJ ruling dovetails the existing legislation and criteria, which are already frequently used in the industry. We expect that this latest decision will put an end to the uncertainty surrounding the customs classification of LCD-monitors. It is now up to the national courts to use the ECJ judgment as a guide to resolve similar disputes in their respective Member States. In a number of cases, companies that have already paid duties to the customs authorities may now be eligible for refunds,” concluded Zietse.

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