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3D printing may be subject to customs tax

The technology of 3D printing can simplify a supply chain to two entities: a designer preparing the blueprint and the printer at the other end.

By Donald Thomson, Associate Partner, Indirect Tax, Sze Xin Mok, Senior Manager, Indirect Tax, Asia-Pacific Tax Center

Indirect tax and 3D printing — will customs start taxing technology?

The advancement of 3D printing has been heralded as one of the major disruptive trends affecting industries such as automotive, medicine and even film. With more 3D printing application in the manufacturing sector, the potential ripple effects on the supply chain are now starting to emerge and gain greater notice.

Impact of 3D printing on the supply chain

3D printing refers to a manufacturing process whereby a product is assembled by layering materials under programmed commands. Products can be of almost any structure or geometry and are produced from digital data blueprints.

Pushing this technology to the maximum extent, it has been and can be postulated that 3D printing can simplify a supply chain to just two entities or people — a designer at one end preparing the blueprint, and the printer or “manufacturer” at the other, preparing the final product using a 3D printing device. Intermediaries in the supply chain will most likely be the suppliers of raw materials required to produce the product.

This means an elimination of multiple supply chain stages, thereby providing lower production costs, reduction of finished goods inventory levels; greater levels of product customization available for customers; faster speed to market and first-entrant advantage; and overall improvements in customer service. There will be a redefinition of lean manufacturing and noticeably less cross-border physical trade flows.

Impact of less cross-border physical trade flows

The decrease of physical trade flows can be another additional source of cost reduction for companies — lower customs duty, import tariffs and excise duty payments, as well as reduced administrative burden in terms of license, permit applications and standards confirmation.

While companies may rejoice, customs authorities may not. Particularly in Asian and other less developed countries e.g., the Philippines, where customs authorities (and the government) often depend on customs and value-added tax (VAT) earnings for their wages and bonuses, this trend is unlikely to pass unnoticed.

As noticed in the parallel development of Base Erosion Profit Shifting (BEPS), and in times of economic austerity, governments are cognizant of reducing tax bases and will carry out actions to shore them up. Similarly, it is not inconceivable that customs authorities and governments will take note of their dwindling revenue and turn their attention inward.

The issue with 3D printing is that while there would be less cross-border flows of tangible goods (with only raw materials or components required for use in 3D printers), technological intangible products (in this case the blueprint of the product to be printed) would have to cross borders from where they were designed to the multiple locations where they would be printed.

Is technology part of the value of a product?

With a flat supply chain, the digital data blueprint will thus increasingly take up a greater portion of the value of a product, which in the past would be fully taxed by customs when passed through the border as a physical product.

As a result, local tax and customs authorities may look to replace lost tax revenue by taxing the digital or intangible service flow and put such companies utilizing 3D printing supply chains (and those of similar working nature) under greater scrutiny.

Would imported technology thus be subjected to taxes and regulations?

Some countries have already quietly begun this process. In February 2018, Indonesia issued a regular amendment providing for a new addition of Chapter 99 to the Indonesian tariff system. Chapter 99 covers intangible products including software and other digital goods transmitted electronically not related to machines or devices to be imported.

These digital goods include operating system software, application software and multimedia, etc. Currently the tariffs on these Chapter 99 products are 0%. However, there is always the possibility that the tariffs could increase.

In January 2019, Argentina imposed export duties on exports of services at a rate of 12% with a maximum limit of four Argentina pesos per US dollar of the amount arising from the invoice or an equivalent document. This duty will be in effect until 31 December 2020. The government had introduced these duties due to the need for greater tax collection and the significant increase in exchange rate of the US dollar vis-à-vis the Argentine peso during 2018.

How long would it take for more countries to decide that customs taxation is relevant on the intangible technology being imported into the country?

We believe that this is a matter of time, especially looking at the current focus of the international tax and customs community. Driven by the Organisation for Economic Co-operation and Development, more than 100 countries are embarking on implementing the BEPS Action Plan, including Action 8, transfer pricing on intangibles.
Given the long-term discussion on the relationship between customs valuation and transfer pricing over the last few years, with the business community advocating that customs consider the impact of transfer pricing adjustments on the customs value of imported products, it is likely that the conclusion of Action 8 implementation by the various countries will lead to commensurate changes in the business communities’ customs and VAT strategies, as well as the corresponding regulations by both national and international governments.

Given these likely future developments, governments and companies must keep abreast of technology trends, as well as changing direct and indirect tax regimes, to navigate the unknown. Critically, the ability to take a wider, holistic and integrated view of cross-disciplinary functions of transfer pricing, tax, indirect tax and supply chain will be vital when charting a company’s journey to growth in the near and medium-term future.


Donald M Thomson
Associate Partner, Indirect Tax, Asia-Pacific Tax Center
+65 6309 8636


Sze Xin Mok
Senior Manager, Indirect Tax, Asia-Pacific Tax Center
+65 6309 8636

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