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Compaq must pay extra laptop customs duty, court says

Hewlett-Packard Co.'s Compaq Computer subsidiary may have to pay millions of dollars in extra customs duty on its laptops following a ruling by the European Union's highest court today.

Compaq, which in 2002 was acquired for €14.75 billion ($18.9 billion) by Hewlett-Packard, challenged Dutch customs authorities over whether it underpaid duty on laptops imported into the EU between 1995 and 1997. The European Court of Justice in Luxembourg ruled that Compaq should have included the value of Microsoft Corp.'s Windows software installed on the PCs, backing the Netherlands. The case clarifies when the value of pre-installed software should be included in the final customs value of imported products. While computer imports are now duty-free, the ruling may affect makers of other software-driven devices that still have to pay the levy, such as DVD recorders and digital music players. “The decision opens the question as to whether content of the DVD recorders, for example, should be considered an integral part of the device,” said Miriam Gonzalez, a lawyer at DLA Piper in London. The European Commission has previously argued that “intangible” items shouldn't be considered goods for customs purposes, Gonzalez said. Nathalie Agnew, a spokeswoman for Hewlett-Packard in London, wasn't immediately able to comment when reached by telephone.

A legal adviser to the court said in a January opinion that Compaq should have paid the additional software value, refuting the Houston, Texas-based company's arguments that because the software had been provided for free this shouldn't be the case. Compaq bought the laptops from computer makers in Asia and provided the manufacturers with copies of Windows to install on them. Compaq had bought the software for $31 each from Microsoft, according to today's judgment. Compaq paid a customs duty based on what it had paid the Asian makers for the laptops, which excluded the free software it had provided. Customs officials in Amsterdam held Compaq liable to pay more duty, including the value of the software. “The value of the software must be added to the transaction value of the computers if the value of the software has not been included in the price actually paid or payable for those computers,” the European Court of Justice said today. Customs duty for computers in the two years concerned was on average 3%, according to court documents, which would add as much as about $1 per computer. Today's ruling applies to all 25 EU countries. The case will be referred back to a Dutch court for a decision. (Bloomberg)