CUSTOMS VALUATION
Table of Contents
1. Introduction ...................................................................................................................
1.1 Objectives ...............................................................................................................
1.2 Purpose...................................................................................................................
1.3 Scope ......................................................................................................................
2. Organizational Responsibilities .....................................................................................
2.1 The Role of the Business Unit.................................................................................
2.2 The Role of CI/EC ...................................................................................................
3. Valuation Methods.........................................................................................................
4. Transaction Value .........................................................................................................
4.1 General Definition - Price Paid or Payable ..............................................................
4.2 Finance/Interest Charges payable UNLESS: ..........................................................
4.3 Additions to Price Paid or Payable ..........................................................................
4.3.1 Packing Costs ..................................................................................................
4.3.2 Selling Commissions .......................................................................................
4.3.2.1 Selling Commission: .............................................................................
4.3.2.2 Buying Commission .............................................................................
4.3.3. Assists ............................................................................................................
4.3.3.1 Introduction: .........................................................................................
4.3.3.2 Definition: .............................................................................................
4.4 Royalties or License Fees .......................................................................................
5. Proceeds of Subsequent Resale, Disposal, or Use .......................................................
5.1 Assembled Merchandise .........................................................................................
5.2 Deductions from Price Paid or Payable ..................................................................
5.3 Limitations on Transaction Value ............................................................................
6. Other Types of Valuation...............................................................................................
6.1 Computed Value .....................................................................................................
6.2 Deductive Value and Derivative Value ....................................................................
7. General Process for Valuation and Appraisement ........................................................
1. Introduction
A value must be stated for all merchandise imported into the U.S. Since the duty
is usually a percentage of the value, determining the value is an essential step in
the calculation of duty owed. Valuation of imported articles is governed by the
valuation statute, which provides for five different methods of appraising imported
goods.
This process document describes the two methods used most frequently by
COMPANY, transaction value and computed value. The other three methods of
valuation are only briefly described.
NOTE: This document assumes that you have a Corporate Import/Export
Compliance (CI/EC) department. If you do not have one, then you should
utilize an outsourced consultant or service.
1.1 Objectives
This process sets forth the U.S. rules proper valuation of imported articles.
1.2 Purpose
To provide COMPANY shipping and procurement organizations with the
requirements for proper valuation goods in order to comply with U.S. Customs
laws.
1.3 Scope
Applicable to all COMPANY Business Units including Customer Service Group
and COMPANY, plants, branch offices and any other location shipping goods
to the US whether on a regular or periodic basis.
2. Organizational Responsibilities
2.1 The Role of the Business Unit
The Business Unit (BU) has the responsibility to:
Identify individuals who will be responsible for ensuring that all articles are
properly valued.
Participate in Corporate Import/Export Compliance (CI/EC) training sessions
on valuation.
Develop and implement specific operating procedures to determine the
value of the articles being imported.
Develop and maintain records to substantiate valuation determinations for
five years from date of entry.
Notify the CI/EC of any changes to the valuation of articles imported, such
as supplemental payments to the vendor.
Consult with the CI/EC before commencing a new project to ensure the
correct valuation method is used.
Examine operating procedures regularly for possible improvement.
Notify CI/EC immediately of any U.S. Customs inquiry.
2.2 The Role of CI/EC
CI/EC has the responsibility to:
Provide training on valuation to BU.
Keep the BUs apprised of changes to U.S. Customs requirements for
valuation.
Assist the BU with analyses as needed.
Respond to all U.S. Customs inquiries regarding valuation determination.
Conduct periodic audits of BU import valuation operating practices.
3. Valuation Methods
Under the valuation statute, there are five different ways to determine the customs
value of an imported article:
1. transaction value of imported merchandise;
2. transaction value of similar or identical merchandise;
3. deductive value
4. computed value; and
5. derivative value
These five methods of valuation must be used in the order shown above, except
that the importer can choose between computed and deductive value. If
applicable, transaction value must be used. The majority of COMPANY imports
are appraised using transaction value. However, there are some limitations on the
use of transaction value. These limitations generally also preclude the use of
transaction value of similar or identical merchandise. When these limitations apply
COMPANY transactions, COMPANY generally uses the computed value method.
In some infrequent instances COMPANY cannot use either transaction value or
computed value and must use deductive value or derivative value.
4. Transaction Value
4.1 General Definition - Price Paid or Payable
Transaction value is the price actually paid or payable for the merchandise
when sold for exportation to the United States, plus any of the following, if
excluded from the price:
a) the packing costs incurred by the buyer;
b) any selling commission incurred by the buyer;
c) the value, apportioned as appropriate, of any assists;
d) any royalty or license fee the buyer is required to pay as a condition of the
sale of the imported merchandise;
e) the proceeds of any subsequent resale, disposal, or use of merchandise
that accrue, directly or indirectly, to the seller.
Note: ALL payments to the vendor should be scrutinized to determine
whether they are part of the price paid or payable. Unless the payment falls
under one of the exclusions (deductions) listed below, it is considered to be a
part of the price paid or payable. Usually, the best time to determine the value
of the imported goods is at the inception of any offshore project-involving
product to be imported into the U.S. However, oftentimes-additional payments
are made which may not have been anticipated at the inception of the project.
Customs generally considers these payments part of the price paid or payable,
and therefore, part of the transaction value.
4.2 Finance/Interest Charges payable UNLESS:
Finance/Interest charges will be considered part of the price paid or payable
unless:
a) the payments are separately identifiable from the price of the goods;
b) the financing agreement is in writing; and
c) upon request by Customs, the buyer is able to prove (i) that the goods
under appraisement are actually sold at the price declared, and /or (ii) that
the amount charged does not exceed the interest fees prevalent at the time
for the given transaction in the country where the financing was provided.
4.3 Additions to Price Paid or Payable
The “price actually paid or payable” means the total payment made, or to be
made, for imported merchandise by the buyer to, or for the benefit of the seller.
The payment can be direct or indirect. Following are costs or values that must
be added to the price paid or payable (if they are not already included therein):
4.3.1 Packing Costs
The packing costs incurred by the buyer must be added to the price paid
or payable. This includes the cost (both labor and materials) of all
containers (exclusive of instruments of international traffic) and coverings
of whatever nature used in placing the merchandise in condition, packed
ready for shipment to the U.S.
4.3.2 Selling Commissions
A commission paid to the seller or the seller's agent (or any other
commission accruing to the benefit of the seller) is added to the price paid
or payable. Note that a buying commission is not dutiable. The following
definitions should help in determining whether a commission payment
qualifies as a selling commission or a buying commission:
4.3.2.1 Selling Commission:
a) party is the exclusive intermediary between seller and buyer;
and
b) party acts on behalf of and subject to control of seller, or acts
itself as a reseller.
4.3.2.2 Buying Commission
a) party acts on behalf of and subject to control of buyer;
b) party is reimbursed by buyer for expenses incurred;
c) party has no power to change terms or conditions of order
without approval of buyer; and
d) party is not related financially to seller.
4.3.3. Assists
4.3.3.1 Introduction:
This addition to price paid or payable is probably the most
important of all five for COMPANY. For this reason, more detail is
included in this section together with six examples.
4.3.3.2 Definition:
An “assist” is any of the following, supplied directly or indirectly, and
free of charge or at a reduced price, by the buyer of imported
merchandise for use in connection with the production of
merchandise imported into the United States:
(a) materials, components, parts and similar items incorporated in
the imported merchandise;
(b) tools, dyes, molds and similar items used in the production of
the imported merchandise;
Note: Articles not used in production are not assists. See Example
4 below.
(c) merchandise consumed in the production of the imported
merchandise;
(d) engineering, development, artwork, design work and plans and
sketches that are undertaken outside of the United States and
which are necessary for the production of the imported
merchandise.
Note: Remember that only work done outside of the U.S. is
considered an assist!
4.4 Royalties or License Fees
Royalty or license fees that a buyer must pay directly or indirectly, as a
condition of the sale of imported merchandise for exportation to the U.S. will be
included in the transaction value. Whether a royalty or license fee is dutiable
will depend on whether the buyer had to pay it as a condition of the sale and to
whom and under what circumstances it was paid. The duty status will have to
be decided on a case-by-case basis. It will require accurate and timely
information presented to the CI/EC for review and determination.
5. Proceeds of Subsequent Resale, Disposal, or Use
Any proceeds resulting from the subsequent resale, disposal, or use of the
imported merchandise that accrue, directly or indirectly, to the seller are dutiable.
These proceeds are added to the price actually paid or payable, if not otherwise
included.
5.1 Assembled Merchandise
The price actually paid or payable may represent an amount for the assembly
of the imported merchandise in which the foreign assembler has no interest
other than as the assembler. In this
situation, the U.S. buyer may be shipping components, subassemblies, tooling
or machinery to the foreign assembler's facility for use in the production of
imported merchandise.
The price actually paid or payable in this case will be calculated by the addition
of the value of the components and other adjustments to the assembly cost to
form the basis for the transaction.
5.2 Deductions from Price Paid or Payable
The following items, if identified and separated out from the price paid or
payable at the time of importation of the merchandise into the United States,
may be excluded from the transaction value:
1. International transportation, Insurance and Related Services
Any costs, charges, or expenses incurred for transportation, insurance, and
related services incident to the international shipment of the merchandise
from the country of exportation to the place of importation in the U.S.
2. Construction, Assembly Maintenance, Technical Assistance
Performed After Importation
Any reasonable cost or charge incurred for constructing, erecting,
assembling, maintaining, or providing technical assistance with respect to
the goods after importation into the U.S. or transporting the goods after
importation.
3. Customs Duties / Federal Excise Tax
The customs duties and other federal taxes currently payable on the
imported merchandise by reason of its importation, and any federal excise
tax on, or measured by the value of, such merchandise for which sellers in
the U.S. are ordinarily liable.
5.3 Limitations on Transaction Value
A number of statutory limitations exist on the use of transaction value. The
following are most likely to impact COMPANY:
1. If the buyer and seller are related (as is the case for COMPANY imports
from non-U.S. manufacturing locations), transaction value can be used only
if the relationship did not influence the price actually paid or payable. In
other words, the price between a related buyer and seller must be that of an
“arms-length” transaction.
2. Transaction value cannot be used if sufficient information is not available,
for any reason, with respect to any component of the transaction value
calculation (i.e., packing costs, selling commissions, assists, royalties, and
proceeds to subsequent resale).
6. Other Types of Valuation
6.1 Computed Value
If COMPANY is not able to use transaction value because of one of the
restrictions discussed above, then computed value will be used.
Computed Value is the sum of:
a) the cost or value of the materials and the fabrication and other processing of
any kind employed in the production of the imported merchandise;
b) an amount for profit and general expenses equal to that usually reflected in
sales and merchandise of the same class or kind as the imported
merchandise that are made by the producers in the country of exportation
for export to the United States;
c) any assist if its value is not included under a) or b); and
d) packing costs.
Following is description of each of these components of computed value:
a) Costs of Material, fabrication and processing
These costs are based on a) information provided by or on behalf of the
producer and b) the commercial accounts of the producer if the accounts
are consistent with generally accepted accounting principles (GAAP)
applied in the country of production of the merchandise. If the country of
exportation imposes an internal tax on the materials or their disposition and
refunds the tax when the merchandise produced from the materials is
exported, then the amount of the internal tax is not included as part of the
cost or value of the materials.
b) Profit and General Expenses
The producer's profit and general expenses are used, provided they are
consistent with the usual profit and general expenses reflected by producers
in the country of exportation in sales of merchandise of the same class or
kind as the imported merchandise. Note the following considerations
pertaining to the profit and general expenses:
1. The amount is determined by information supplied by the producer and
is based on his commercial accounts provided such accounts are
consistent with GAAP in the country of production.
2. The producer's profit and general expenses must be consistent with
those usually reflected in the sale of goods of the same class or kind as
the imported merchandise that are made by producers in the country of
exportation for export to the United States.
3. The amount for profit and general expenses is taken as a whole.
Basically, a producer's profit could be low and his general expenses
high, so that the total amount is consistent with that usually reflected in
the sale of goods of the same class or kind. In such a situation, a
producer's actual profit figures, even if low, will be used provided he has
valid commercial reasons to justify them and his pricing policy reflects
the customary pricing policies of the related industry.
c) Assists
If the value of an assist used in producing the merchandise is not included
as part of the producer's materials, fabrication, other processing, or general
expenses, then the prorated value of the assist will be included in the
computed value. It is important that the value of the assist is not included
elsewhere because no component of computed value should be counted
more than once in determining computed value.
d) Packing Costs
The cost of all containers and coverings of whatever nature, and of packing,
whether for labor or material, used in placing merchandise in condition and
packed ready for shipment to the United States is included in computed
value.
6.2 Deductive Value and Derivative Value
If COMPANY does not have access to the costs needed for computed value,
then it will be necessary to use either Deductive Value or Derivative Value.
Deductive Value is calculated by making certain deductions from the sales
price at which the imported merchandise was sold in the United States.
When a value cannot be determined by using transaction value, transaction
value of similar or identical merchandise, computed value, or deductive value
methods, the merchandise will be appraised on the basis of a value that is
derived from one of those methods, reasonably adjusted.
The importing BU should not use either deductive value or derivative value
without prior approval of the CI/EC.
7. General Process for Valuation and Appraisement
Step 1 Gather all import product related financial and purchasing
information, such as purchase contracts/orders, bill of material
costs, standard/bulletin cost, assist information, packing costs,
royalties, selling commissions, etc.
Step 2 Determine if transaction value is applicable. Remember there are
several limitations on the use of transaction value.
Step 2a Related party test. 1) If the buyer and seller are related (as is often the
case at COMPANY), transaction value can only be used if the
relationship did not influence the price paid or payable. In other words,
the price between a related buyer and seller must be that of an
“arms-length” transaction.
Step 2b Sufficient information test. 2) Transaction value cannot be used if
sufficient information is not available, for any reason, with any
component of the transaction value calculation (i.e. packing costs,
selling commissions, assists, royalties, and proceeds to subsequent
resale).
Step 3 If the transaction value method applies, analyze the cost information
and calculate the price paid or payable for the imported merchandise.
Pay special attention to any additions/deductions.
Step 3a Determine whether additions to the price paid or payable apply.
3a i) packing costs
3a ii) selling commissions
3a iii) assists (see page 4-7)
3a iv) royalties or license fees
3a v) proceeds of subsequent resale, disposal, or use
Step 3b Determine whether deductions from the price paid or payable apply.
3b i) international transportation, insurance and related service
3b ii) construction, assembly maintenance, technical assistance
performed after importation
3b iii) customs duties, federal excise tax
Step 4 If transaction value does not apply, use the computed value method.
4 i) cost of material, fabrication and processing
4 ii) profit and general expenses
4 iii) assists (see page 4-7)
4 iv) packing costs
Step 5 If computed value does not apply, use deductive or derivative value
method. (Need approval of CI/EC)
Step 6 Develop and maintain records to substantiate the value information.