Customs valuation is a procedure to determine the customs value of imported goods. The customs value is essential to calculate the total duty to be paid on an imported good and the United States currently maintains and enforces a rigorous valuation system.
Importers are Responsible for Valuations
Customs and Border Protection (CBP) hold the importer of record (IOR) responsible for the accuracy of the declared value. Similar to paying taxes, the onus is on the IOR to know how much to pay, and the the IOR for reporting an incorrect value.
To put it into the words of CBP there’s a “shared responsibility” where the IOR is responsible to know and understand the applicable rules and regulations (and to review CBP’s “informed compliance” publications) and as a result value their imported goods properly. Valuation is part of an importer’s duty to exercise “reasonable care.”
Ensuring the value reported to CBP is accurate is important not just for CBP compliance but also for Census trade data. Valuation information submitted to CBP is utilized by the U.S. Census Bureau to compile trade statistics. Businesses and policymakers rely on this data to make critical business and trade policy decisions.
For more information on U.S. trade data, check out our Introduction to U.S. Trade Databases article.
In practice, 90%+ of imports use the transaction value valuation method. The transaction value is “the price actually paid or payable for imported merchandise when sold for exportation to the United States” and certain statutory or dutiable additions. The “price actually paid or payable” refers to the “total payment made or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.”
However, if for some reason your imports cannot be valued under “transaction value”, you move on to the next of the six total valuation methods. Failing that, onto the next, and so forth, until you run out of methods. The only exception to this sequential evaluation requirement is when evaluating between deductive value and computed value – an importer may choose to use the computed value before deductive value.
The six valuation methods are:
- Transaction Value
- Transaction Value of Identical Merchandise
- Transaction Value of Similar Merchandise
- Deductive Value
- Computed Value
- Values if Other Values Cannot be Determined
If the value of your goods cannot be easily determined, it is best to seek expert legal counsel and together determine whether to submit a Binding Ruling with CBP prior to importing.
What is Included in the Transaction Value?
The price paid or payable includes more than the sticker price. Statutory additions to the price actually paid or payable include:
- Packing costs incurred
- Selling commissions incurred by the buyer
- The value of an assist
- Royalties and licensing fees paid as a condition of the sale
- Proceeds of any subsequent resale that accrue to the seller
The best source for valuation information, including statutory additions is the Customs Valuation Encyclopedia.
What is Not Included in the Transaction Value?
Overvaluing goods can mean paying significantly more in duties, so it is equally important to consider what can be excluded from transaction value.
The amounts to be excluded from transaction value are:
- The cost, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the goods from the country of exportation to the place of importation in the United States. If identified separately, any reasonable cost or charge incurred for:
- Constructing, erecting, assembling, maintaining, or providing technical assistance with respect to the goods after importation into the United States, or
- Transporting the goods after importation.
- The customs duties and other Federal taxes, including any Federal excise tax for which sellers in the United States are ordinarily liable.
For a more comprehensive overview of the valuation methods, see Valuation 101.
Selling to Related Parties
- Members of the same family, including brothers and sisters, spouse, ancestors, and lineal descendants;
- Any officer or director of an organization and such organization;
- An office or director of an organization and an officer or director of another organization, if each such individual is also an officer or director in the other organization;
- Partners, employer and employee;
- Any person directly or indirectly owning, controlling, or holding with power to vote, 5 percent or more of the outstanding voting stock or shares of any organization and such organization; and
- Two or more persons directly or indirectly controlling, controlled by, or under common control with, any person.
Generally, the transaction value method cannot be used to value goods in a sale between related parties unless the importation meets one of two tests:
- “Circumstances of Sale” Test – the transaction value between a related buyer and seller is acceptable if an examination of the circumstances of the sale of the imported merchandise indicates that the relationship between the buyer and the seller did not influence the price actually paid or payable.
- “Test Values” – demonstrate that the transaction value closely approximates certain test values pertaining to identical or similar goods exported at or about the same time as the imported merchandise under review. Each of these tests has several sub-elements and CBP has issued a number of rulings on the application of these tests, so it is important to consult with a customs expert before attempting to value your goods under this method.
Undervaluing is a Crime
As is the case with many aspects of the law, there are those who don’t comply. There have been numerous high-profile incidents of importations being undervalued to purposefully reduce the amount of overall duties paid. In these cases, typically, the supplier provides two sets of invoices; one for purposes of receiving payment from the buyer, and one for CBP (i.e., for reporting the “transaction value”). Two sets of invoices is considered fraud and can result in both criminal (imprisonment/fines) and civil penalties.
What Importers Should Do
All importers should have robust compliance measures in place to ensure they are valuing imports properly. The process should be periodically re-evaluated to ensure it is up to date with the latest CBP rulings and guidance. Specifically, importers should:
- Evaluate your valuation practices – It is always a good idea to take the opportunity to evaluate which of the above valuation methodologies you use to report your import value to CBP. Taking a closer look at your valuation practices can provide opportunities for duty savings and also alert you if you have been inadvertently violating Customs law (and determine whether filing a Prior Disclosure with CBP is the best option for you to limit potential future liability).
- Understand the impact of your related party relationships – If you, as the importer, are purchasing merchandise from a related party, then you have additional valuation-related responsibilities. If you determine that your relationship is, in fact, a related party relationship, then you must report the related party relationship on your entry summary. Furthermore, you must evaluate whether transaction value may still be used when parties are related.
- Ensure you are correctly classifying your imports – It is important that you appropriately classify your import based upon the Harmonized Tariff Schedule of the United States (“HTSUS”). Properly classifying your import has important implications because your duty rate will differ based on which HTSUS you are declaring.
A Customs Attorney Can Help Implement Compliant Valuation Practices
Valuing imported goods properly can be a challenge, even in seemingly straightforward cases. A customs attorney can help you value specific goods, but also help you set up a system to ensure compliance going forward.
Diaz Trade Law has significant experience in a broad range of import compliance matters, including customs valuation. Contact us at email@example.com or call us at 305-456-3830.
Want to learn more?
- Basics on Tariff Classification
- Introduction to Importing
- Building and Maintaining an Effective Import Compliance Program
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