HMRC vs action figures: the face off

Are the people in Game of Thrones people?

It’s a question most of us probably don’t ever think about, but that might just come up if you’re a judge.

Consider the following paragraph, submitted by a tax tribunal appellant in reference to GoT’s Daenerys Targaryen:

[She] inherited dragon genes which give her extreme heat tolerance, immunity from fire and the ability to communicate with, and control her three dragons. These are not powers which human beings have. Further, the story is set in a mythical world which is not our Earth. In its world there are dragons, zombies and ice creatures which have never existed on Earth. The characters in that world are not indigenous to Earth and are not, therefore, human beings. They are akin to aliens.

Or this, to Scorpion from Mortal Kombat:

The character is non-human as it is a dead ninja warrior, a hell spawned revenant resurrected for the purpose of revenge.

Or this, describing Magneto from the X-Men franchise:

The character is a powerful mutant who is able to control magnetism through which he manipulates metal objects. This is a superpower which human beings do not have. The figure represents a non-human creature.

It was obvious in retrospect that we couldn’t write about the Sensations Poppadoms judgment without accidentally becoming a tax blog.

Still, we were enraptured by case TC09032 between Star-Images Enterprises and HMRC, a decision on which was given on December 22, and from which all those quotes arose. The full judgment is here.

The case concerns a dispute over duties applied to items imported by London-based Star-Images, which describes itself as “the official UK distributors for some of the most creative and innovative manufacturers of collectable figures and toys”.

HMRC, the UK’s tax authority, paid Star-Images a visit in the summer of 2018 to check its records. It determined that an underpayment of £363,087.56 had occurred covering certain items imported between October 2015 and August 2018.

Following a back-and-forth with the company, HMRC eventually levelled two post clearance demand notices in late 2018, demanding about £13k in underpaid duty.

What had gone wrong? The answer is complicated, but quite silly.

Part 1: Call of duty-free

Income duties are levied based on commodity codes assigned to the item being imported. Typically, the onus is on an importer to declare which code applies to their items.

These codes are diverse and specific. For example, there is Commodity 9503002190, which falls within the following hierarchy:

Imports within “95030021 — Dolls representing only human beings and parts and accessories thereof” attract a 4 per cent duty, which appears to have been 4.7 per cent during the period covered by this dispute.

Other items that a lay reader might consider to be ostensibly similar carried different duties at that time:

— 9503 00 70 00 covers “Other toys, put up in sets or outfits”, and attracted a 4.7 per cent duty
— 9503 00 41 covers “Toys representing animals or non-human creatures” that are stuffed, and attracted a 4.7 per cent duty
— 3926 40 covers “Statuettes and other ornamental articles”, and attracted a 6.5 per cent duty [seemingly now 6 per cent]
— 9503 00 49 90 falls within “Toys representing animals or non-human creatures”, and attracted a 0.0 per cent duty
— 9503 00 99 90 falls within “Tricycles, scooters, pedal cars and similar wheeled toys; dolls’ carriages; dolls; other toys; reduced-size (‘scale’) models and similar recreational models, working or not; puzzles of all kinds” and attracted a 0.0 per cent duty

(There will be a test later.)

Naturally, these categories seem conceivably vague, so importers have some incentive to declare that items fall into the latter categories, and therefore attract no duty.

That’s what Francis Melinek, the boss of Star-Images, did: he declared that 189 items imported during the period in question fell within 9503 00 99 90, and carried a 0.0 per cent duty. He claimed this was based on advice given to him during an HMRC audit in 2011.

HMRC (later) disagreed with that classification and said the items should instead be 9503 00 21 90, within “Dolls representing only human beings and parts and accessories thereof”, and hit with duty at 4.7 per cent.

Melinek’s representatives shot back, saying the items were actually 9503 00 99 90 “Toys representing animals or non-human creatures”, but — mostly importantly — still duty-free. They wrote to HMRC:

The company accepts that it is the responsibility of the company to ensure accurate import declarations are submitted. It is highly unlikely that the company would seek advice from a source other than HMRC. I understand that HMRC do offer guidance on classification - why should any company seek further guidance especially when the products imported are of a similar non-human nature?

In conclusion I do not believe your schedule is correct or relates to the products imported as the majority of the products do not represent human beings

HMRC’s charges came in well below the initially amount threatened, and at the time of this hearing, there were 46 items still in dispute.

Part 2: Taxman vs Predator

Here are some of the figure characters Star-Images claimed did not represent humans: Thor, from the Marvel Cinematic Universe; a White Walker, from GoT; Chucky, from the Child’s Play franchise.

Here are some of the figure characters Star-Images also claimed did not represent humans: Batman, from DC Comics; Captain America, from the Marvel Cinematic Universe; Jon Snow, from GoT.

Melinek, arguing against the human nature of these characters, lent on lore. The judgment says:

[Melinek] confirmed that each character has a “backstory” based on the comic-book or the film and television series narrative; that “backstory” may include special characteristics. The special characteristics may include some or all of the following: physical features that are different to those found in human beings (i.e. different flesh colour to human beings); the character depicts or portrays a species from another world (“an alien”) or a God from mythology; has superpowers or special abilities which humans do not have; the character depicts or portrays a doll, the character has features that appear human (“humanoid”) but is a robot or the character was “dead” but has been brought back to “life” as a “zombie”.

Some readers may already have drawn their own conclusions about the validity of these canonical claims, but tax law is more powerful than your puny pop culture knowledge.

Star-Images and HMRC already locked horns in 2019 over duties on a figure of “Ahab Predator”, representing one iteration of the eponymous extraterrestrial hunter from the long-running film franchise. In that instance, a Binding Tariff Information (BTI) decision was issued by HMRC, determining that the figure was non-human, and therefore had a 0 per cent rate of tax.

This case was HMRC vs Predator in rapid-fire mode, with the tribunal panel of Judge Geraint Thomas and John Woodman determining the correct classifications for the items still in dispute, based on images and some sample models.

So, how does one determine what is human? From a tax perspective, it’s all about appearance. The judgment runs through the entire process in detail, but here are a few key statements:

The “backstory” cannot be relevant to the classification of “goods”.

Goods are physical items which must be assessed on importation on the basis of those physical characteristics and we agree with HMRC that dolls that look like and depict or portray only human beings will be properly classified under the Dolls subheading.  In our view, Note D(i) to heading 9503 of the EN to the HS (relied upon by both parties) supports that conclusion. Note D(i) states that the following will be considered non-human:

“(i) Toys representing animals or non-human creatures even if possessing predominantly human physical characteristics (e.g. angels, robots, devils, monsters), including those for use in marionette shows.”

We consider that the use of the words “even if possessing predominantly human physical characteristics” indicates that the predominance of human physical characteristics is the test to be applied to determine whether a toy represents only a human being but the presence of obvious non-human or animal physical appendages or features such as angel wings, a devil’s horns, furred legs with hooved feet, fangs, mechanical robotic parts in place of human body parts etc. would mean that the toy represents an animal or non-human creatures. There is a clear dividing line in the subheading between dolls in human form and toys in non-human form and the Non-human toy classification complements the Dolls heading by classifying separately other articles which do not represent only human beings but represent animals or non-human creatures.

Part 3: A kind of model

We’ve tried our very best to boil this thought process down into a flowchart. In doing so, we’ve had to elide the nuances of the “figures versus set” dispute — it made no difference in these instances, and would have taken this diagram to another level of unreadable:

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Phew.

One thing you may have noticed about this flowchart is that is is absolutely bonkers, which… yeah, it is.

But, having read it, you might be quietly confident that you could do the tribunal’s job here. So we’ve given you a chance to try.

Part 4: Figure it out!

In the quiz below, we’ve gone through every item that the Tribunal offered a ruling on, and provided:

— The tribunal’s observations of the item
— HMRC’s justification for its classification
— Star-Images’ justification for its classification

We’ve also added images where possible, based on our best estimate of which item is being discussed (we really, really tried, but if we’ve got any of these wrong and you know better, please email us).

All you have to do is pick what YOU think is the correct tariff.

When you’re done (or if, justifiably, you can’t be bothered with all 41 questions), just scroll past this box for our analysis of the rulings.

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Part 5: Go figure

Here are some things that appear to now be law, as it pertains to figures, in the United Kingdom:

— If Jason Vorhees’ mask can be removed, he’s human. If not, he is not human.
— If a half-mask covers the top half of a face and the lower half appears human (Batman, Judge Dredd), the figure is human.
— If a half-mask covers the bottom half of a face and the upper half appears human (Scorpion), the figure is non-human.
— When Batman covers his chin, he ceases to be a human.
— Zombies that were people are still human.
— A creepy living doll based on the Wizard of Oz is human if it has human-style eyes, but non-human if its eyes are screws.
— A living doll character that resembles a human that is then made into an actual doll is a human (Chucky) unless it has buttons for eyes (Coraline).
— The mutants in X-Men are, controversially, all humans.

There’s an interesting quirk in the Lady Deadpool section, where the tribunal said:

The figure’s facial features cannot be seen and we have concluded that it should be classified as a Non-human toy. In the absence of any additional information regarding the alternate head we have been unable to provide a definitive classification of the item.

They told HMRC and Star-Images to go figure it out. Based on Alphaville’s research, we’re backing HMRC to win that one:

Concluding, the tribunal ruled:

For all the reasons set out above, the appeal is allowed in part and refused in part to the extent set out above.

Star-Images was given 56 days to appeal.