Harley-Davidson relocation of production is avoidance of customs duty

A few days after the EU imposed countervailing duties on US motorbikes, Harley-Davidson publicly announced in a Form 8-K to its shareholders that it would move a portion of its production to Thailand to avoid EU tariffs.

After the Belgian customs authorities initially confirmed Thailand origin of the motorbikes, the European Commission took the stance that the relocation was not economically justified and that the origin was therefore still the US.

The CJEU on 21 November 2024 dismissed Harley-Davidson’s appeal. It found that the relocation was mainly motivated by the intent to avoid tariffs and not by economic motives. Determining such motivation can only be based on objective evidence, the ECJ states in that respect:

• there needs to be prima facie objective evidence available for the national customs authority/European Commission to conclude that the primary purpose of the relocation of a supply chain was a circumvention of trade rules;
• if there is no such evidence available, the regulator cannot subjectively come to that conclusion, and;
• if there is available evidence of circumvention, it then falls on the applicant to demonstrate that the primary purpose of the relocation was not circumvention.

The CJEU found that Harley-Davidson’s announcement to its shareholders constituted such objective evidence and that it did not demonstrate any other grounds behind its relocation.

Key takeaway 

In a world where customs and countervailing duties seem to be on the rise again, it is important to assess any customs implications on proposed supply chain changes and production relocations. Any such changes should be carefully considered up front and motivated by economic grounds. If the business had genuinely set up production in Thailand from the outset, it would have been far less provocative to the tax authorities, underlining the message that changes to structures need to have commercial rationale and risk challenge if they are motivated by tax considerations. 

Reference

ECJ C-297/23 P Harley-Davidson Europe and Neovia Logistics Services International v Commission.