Customs Valuation

DEFINITION◦CUSTOMS VALUATION is a customs

procedure applied to determine the customs value of imported goods. If the rate of duty is ad valorem, the customs value is essential to determine the duty to be paid on an imported good.

SPECIFIC and AD VALOREM customs duties

◦SPECIFIC DUTY A concrete sum is charged for a

quatitative description of the good. Customs value of the good does not need

to be determined, as duty is not based on the value of the good but on the other criteria.

SPECIFIC and AD VALOREM customs duties

◦AD VALOREM DUTY depends on the value of a good customs valuation is multiplied by an ad

valorem rate of duty in order to arrive at the amount of duty payable on an imported item

Short Historical OverviewArticle VII GATT

◦It stipulated that the value for customs purposes of imported merchandise should be based on the actual value of the imported merchandise on which duty is assessed, or of like merchandise, and should not be based on the value of merchandise of national origin or on arbitrary or fictitious values.

Short Historical OverviewBrussels definition of value –

1950’s◦Under this method, a normal market

price, defined as “the price that a good would fetch in an open market between a buyer and seller independent of each other,” was determined for each product, according to which the duty was assessed.

Short Historical OverviewTokyo Round Valuation Code -

1979◦Based on the “transaction value”, it was

intended to provide a fair, uniform and neutral system for the valuation of goods for customs purposes, conforming to commercial realities. This differs from the “notional” value used in the Brussels Definition of Value (BVD).

◦As a standalone agreement, the Tokyo Round Valuation Code was signed by more than 40 contracting parties

Short Historical OverviewThe new Agreement

◦ The Tokyo Round Code was replaced by the WTO Agreement on Implementation of Article VII of the GATT 1994 following conclusion of the Uruguay Round.

◦ This Agreement is essentially the same as the Tokyo Round Valuation Code and applies only to the valuation of imported goods for the purpose of levying ad valorem duties on such goods.

◦ It does not contain obligations concerning valuation for purposes of determining export duties or quota administration based on the value of goods, nor does it lay down conditions for the valuation of goods for internal taxation or foreign exchange control.

Basic Principles: Transaction ValueThe agreement stipulates that

customs value shall, except in specified circumstances, be based on the actual price of the goods to be valued, which is generally shown on the invoice.

6 Methods of Customs ValuationFor cases in which there is no

transaction values, or where the transaction value is not acceptable as the customs value because the price has been distorted as a result of certain conditions.

Method 1: Transaction ValuePrice actually paid or payable for

the goods when sold for export to the country of importation, and which shall be adjusted according to Article 8.

Payments made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller.

Method 1: Transaction ValueCONDITIONS TO BE FULFILLED:

◦Evidence of sale There must be evidence of a sale for export

to the country of importation

◦No restriction on the disposition or use Other than restrictions which:

Are imposed or requires by law in the country of importation

Limit the geographic area in which the goods may be resold

Do not substantially affect the value of the goods

Method 1: Transaction Value◦ CONDITIONS TO BE FULFILLED

Not subject to additional conditions The sale or price must not be subject to conditions

or considerations for which a value cannot be determined with respect to the goods being valued

Method 1: Transaction ValueCONDITIONS TO BE FULFILLED:

◦As provided in Article 8, the following shall be added to the price actually paid or payable for the imported goods:

◦The additions are grouped into five categories (i) the following, to the extent that they are

incurred by the buyer and not included in the price actually paid or payable; a) commissions and brokerage, except buying commissions b) the cost of containers which are treated as being one, for

customs purposes, with the goods in question. c) the cost of packing, comprising the cost both of labour

and materials.

Method 1: Transaction ValueCONDITIONS TO BE FULFILLED

(ii) items sometimes known as assists may be supplied, directly or indirectly and free or at a reduced cost, by the buyer for use in the production and sale of the goods. (a) materials, components, parts and similar items

incorporated in the imported goods; (b) tools, dies, moulds and similar items used in the

production of imported goods; (c) materials consumed in the production of the

imported goods; and (d) engineering, development, artwork, design work,

and plans and sketches (other than research and preliminary design sketches) carried out elsewhere than in the Community and necessary for the production of the imported goods.

Method 1: Transaction ValueCONDITIONS TO BE FULFILLED

(iii) royalties and licence fees relating to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued.

(iv) the value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues, directly or indirectly to the seller;

(v) (a) the cost of transport and insurance of the imported goods; and (b) loading and handling charges associated with the transport of the imported goods to the place of introduction of the goods into the customs territory of the Community.

Method 1: Transaction ValueCONDITIONS TO BE FULFILLED:

◦Buyer and Seller not related The buyer and seller are not related, but

even if so, the use of the transaction value is acceptable if the importer demonstrates that: — the relationship did not influence the price, or — the transaction value closely approximates a

test value.

Method 1: Transaction ValueCONDITIONS TO BE FULFILLED:

◦Related Parties — they are officers or directors of one another's

businesses; — they are legally recognized partners in business; — they are employer and employee; — any person directly or indirectly owns, controls

or holds 5 per cent or more of the outstanding voting stock or shares of both of them;

— one of them directly or indirectly controls the — both of them are directly or indirectly controlled

by a third person; or — they are members of the same family.

Method 1: Transaction ValueCASES where customs

administrations have reasons to doubt the truth or accuracy of the declared value◦Customs valuation based on the

transaction value method is largely based on documentary input from the importer

◦Customs may ask the importer to provide further explanation that the declared value represents the total amount actually paid or payable for the imported goods.

Method 1: Transaction ValueX Company in Dayton, Ohio pays $2,000 toY's Toy Factory in Paris, France for a shipmentof toys. The $2,000 consists of $1,850 for thetoys and $150 for ocean freight and insurance.Y's Toy Factory would have charged XCompany $2,200 for the toys; however, sinceY's Toy Factory owed X Company $350, Y'sToy Factory only charged $1,850 for thisparticular shipment of toys. Assuming thetransaction is acceptable, what is thetransaction value?

Method 1: Transaction ValueThe transaction value of the

importedmerchandise is $2,200, that is, the

sum of the $1,850 plus the $350 indirect

payment.Because the transaction value

excludesC.I.F. [Cost Insurance Freight]

charges, the $150 ocean freight and insurance charge is excluded.

Method 1: Transaction ValueHowever, if a buyer performs an

activity on his own account, other than those

listed in the foregoing A through E, then the activity is not considered an indirect

payment to the seller, and is not part of the transaction value. This applies even though

the buyer's activity might be regarded as benefiting the seller. One example of such

activity is advertising.

Method 2: Transaction value of identical goodsTransaction value is calculated in the same

manner on identical goods if the goods are:◦ The same in all respects including physical

characteristics, quality, and reputation◦ Produced in the same country as the goods being

valued◦ and produced by the producer of the goods being

valued.

For this method to be used, the goods must be sold for export to the same country of importation as the goods being valued. The goods must also be exported at or about the same time as the goods being valued.

Method 2: Transaction value of identical goodsEXCEPTIONS:

◦Where there are no identical goods produced by the same person in the country of production of the goods being valued, identical goods produced by a different person in the same country may be taken in to account

◦Minor differences in appearance would not preclude goods which otherwise conform to the definitions from being regarded as identical

Method 2: Transaction value of identical goods

◦Identical refers to goods which are identical n all respects to the goods being valued, including the following features: Physical characteristics Quality Reputation in the market Country of origin Manufacturer

Method 2: Transaction value of identical goodsEXAMPLE:

◦Sony TV Model KV-M2100 is not the same as Sony KV-25R1R, since one of the main parameters of consumer TV sets is the size of the diagonal [from which mainly the price depends]. The first model being 21 inch and the second 25 inch. A Sony TV Model KV-M2100 is not the same as Funai 2100 A MK8, although both are of the same size because Sony and Funai have unequal market reputation.

Method 3: Transaction value of similar goodsTransaction value is calculated in the same

manner on similar goods if:◦ Goods closely resembling the goods being

valued in terms of component materials and characteristics

◦ Goods which are capable of performing the same functions and are commercially interchangeable with the goods being valued

◦ Goods which are produced in the same country as and by the producer of the goods being valued. Goods must be sold to the same country of importation as the goods being valued. The goods must be exported at or about the same time as the goods being valued.

Method 3: Transaction value of similar goodsDetermination

◦Physical Characteristics◦Materials from finished products◦Function and Scope◦Commercial Interchangeability

Method 3: Transaction value of similar goodsEXAMPLE

◦Pepsi Cola and Coca Cola

Methods 2 and 3 are rarely used because:◦Defined by strict requirements for

their use◦For the correct choice of compared

items and suitable adjustments to the declarant and the customs officer requires special knowledge of the goods themselves

◦Must be continuously updated, reliable, comprehensive price base