The Supreme Court (SC) has upheld a P39.37-million assessment in deficiency customs duties, value-added tax (VAT), and surcharge against Colgate-Palmolive Philippines, Inc. (CPPI) arising from royalty payments and charges tied to its importations.

In a decision promulgated on April 30, 2026, and released on Monday, the SC’s Third Division denied CPPI’s petition challenging a Court of Tax Appeals (CTA) ruling that royalties it paid to Colgate-Palmolive Co. (CPC) formed part of the dutiable value of its imported goods.

CPPI paid royalties to CPC, its parent company, for the use of CPC’s intellectual property in the Philippines.

The ruling underscores how royalty arrangements tied to imported goods can affect customs valuation, particularly when the payment is linked to the right to sell branded products in the local market. The high court also affirmed the imposition of VAT on arrastre and wharfage fees, which are charges for cargo handling and the use of port facilities, and it ruled that CPPI is liable for deficiency and delinquency interest on the resulting deficiency VAT.

The CTA had ordered CPPI to pay the Bureau of Customs (BoC) P39.37 million, broken down into P34.53 million in deficiency customs duties, P3.62 million in VAT on the duties, P251,045.87 in deficiency VAT on arrastre and wharfage fees, and a 25% surcharge of P968,433.92.

The SC said CPPI’s royalty payments satisfied the three requirements for dutiability under Section 201 of the Tariff and Customs Code of the Philippines: the royalties must be related to the imported goods, paid directly or indirectly by the buyer, and constitute a condition of sale.

Under the licensing agreement, CPPI paid CPC royalties equivalent to 5% of its total net sales of licensed products, whether the products were imported or locally manufactured.

“Thus, the royalties that CPPI is required to pay to CPC also include the use of intellectual property associated with or related to the imported goods,” the decision, penned by Associate Justice Maria Filomena D. Singh, said.

The court also found that the royalty requirement met the condition-of-sale test.

“The Court thus agrees with the CTA Division and En Banc that payment of the stipulated royalty is inseparable from the purchase of CPC’s goods,” it said.

The high court upheld the exclusion of royalties attributable to locally manufactured products, saying these are not subject to customs duties.

It said the dutiable royalty base amounted to P690.63 million, which resulted in P34.53 million in deficiency customs duties and P3.62 million in VAT.

The SC also sustained the VAT assessment on arrastre and wharfage fees, ruling that these qualify as “other charges” included in the VAT base for imported goods under Section 107 of the National Internal Revenue Code.

“Both wharfage and arrastre fees are charges necessary to bring the imported goods out of the vessel and into possession of the consignee prior to their release from customs custody,” it said.

CPPI argued that taxing the fees amounted to double taxation because it had already paid them to the Philippine Ports Authority and International Container Terminal Services, Inc.

“The incidence and subject of tax are different, precluding any finding of double taxation,” the court said.

The Supreme Court modified the CTA ruling by holding CPPI liable for deficiency interest on P4.84 million in deficiency VAT.

The CTA had declined to impose deficiency interest, saying Section 249(B) of the tax code applied only to deficiency income, estate, and donor’s taxes.

The high court rejected that reading, saying the tax code does not limit deficiency interest to those taxes and that interest applies to all internal revenue taxes, including VAT.

“Section 249(A) expressly provides that interest shall be assessed and collected on ‘any unpaid amount of tax’ from the date prescribed for payment until full payment,” the court said.

CPPI was ordered to pay deficiency interest on P4.84 million in deficiency VAT at 20% per annum from the date prescribed for payment, or from the time the BoC released the subject importations in October 2003, until Dec. 31, 2017.

It was also ordered to pay delinquency interest on the same deficiency VAT at 20% per annum from June 9, 2008, when notice and demand was made, until Dec. 31, 2017.

Deficiency and delinquency interest applied simultaneously from June 9, 2008, to Dec. 31, 2017.

From Jan. 1, 2018, only delinquency interest applies at 12% per annum until full payment. — Mark Joseph M. Sanchez