Customs Valuation

Determining the customs value of your products

The application of import duty is based on the customs value of the goods involved, and this is calculated by combining the invoice price with all freight, insurance and certain other costs incurred up to the point of import. This is called the Transaction Value method.

The costs that must be included are commissions and brokerage, except buying commissions; packing and container costs and charges; assists such as tools and dies and graphics and artwork used in the production that has taken place outside the EU; royalties and licence fees payable to any company as part of the sale; the cost of transport, insurance and related charges up to the point of importation.

This means that the transport of goods incurred for moving goods from one EU member to another following import is not included in the value for customs purposes.

 

Example using the Transaction Value method:
Irish Importers Ltd is importing 20 pallets of plastic bottle caps from China.
Irish Importers Ltd is responsible for all charges including duty.
Invoice Value: €60,500.00
Cost of Freight to the point of import into EU: €3,400.00
Cost of Insurance to the point of import into the EU: €550.00
Value = Invoice Value + Cost of Freight + Cost of Insurance
= €60,500 + €3,400 + €550
= €64,450

 

Alternative Methods of Valuation

There are cases where there is no invoice price, however, and a number of alternative methods have been developed for calculating the value of goods in these circumstances. This may arise where goods are being shipped from a subsidiary located outside the EU or which have been manufactured by an outsourcing partner outside the EU for subsequent sale in the EU.

Even if invoices exist in these cases, the transaction may not necessarily have taken place on an arm’s length basis and if the invoice price is not an arm’s length price, it will not be accepted as the basis for valuation for customs purposes.

The first alternative method of valuation is the Transaction Value of Identical Goods. This is obtained by finding the value of identical goods which have been declared recently.

If it is not possible to find identical goods, it is acceptable to use the Transaction Value of Similar Goods – not exactly the same, but similar enough to offer a good benchmark.

The next method is known as Deductive Value and, as the name suggests, involves taking the sale price of the goods in the EU and deducting the transport and other costs incurred within the EU post-import.

 

The Computed Value

The next method is possibly the most complex. It is known as Computed Value and determines the customs value on the basis of the cost of production of the goods being valued, plus an amount for profit and general expenses usually reflected in sales from the country of export to the country of import of goods of the same class or kind. In other words, it requires research into the cost of production of similar goods in the country of origin and the application of overheads associated with exports from that country.

 

 

The Derivative Method

Should all these methods fail, the Derivative Method is used. This sees the customs authority in the country of import determine a value “using reasonable means consistent with the principles and general provisions of the Agreement and of Article VII of GATT, and on the basis of data available in the country of import”. The valuation is usually based on previous experience of similar cases.

In the very rare cases that none of these methods work, the World Trade Organization (WTO) provides other ways of calculating a valuation.


Getting Your Valuation Right

Clearly, the most straightforward way of calculating valuation is the first method – the price on the invoice and all of the costs involved in getting the goods to the EU. There can be some confusion in relation to this method, however, and importers should ensure that they include all insurance and transport costs.

For example, there can be a mistaken belief that because insurance continues within the EU following import, the cost should not apply – this is not the case. There can also be issues relating to e-commerce, where the full postage or freight costs are not included in the value of the goods ordered from outside the EU. These issues can result in surcharges and costly and frustrating delays, and importers should do their best to avoid them.

Please note that the customs value can never be zero.

 

If you would like to learn more about valuation, register for the Customs Insights Course. Further information can also be found on Revenue or the European Commission websites.

 

Country of Origin

 

Customs: What is the country of origin of your products?

When it comes to customs, the country of origin of a product is critically important. And to all intents and purposes, the world is divided in three – EU member states and preferential and non-preferential countries.

 

 

Preferential Countries

Goods of EU origin travel freely within the EU, with no customs to deal with. Preferential countries are those with trade agreements with the EU, and all other countries fall into the non-preferential category.

 

Exports to and from preferential countries are subject to the rules of the trade agreement. For Irish exporters, this means proving that the goods involved are of EU origin. Importers must establish that the goods are of preferential origin, i.e. that they came from the country with the trade agreement.

 

Non-Preferential Countries

Normal WTO rules apply to non-preferential countries. This means first establishing the origin of the goods in question and then looking up the EU TARIC site to get the code for the goods and finding the relevant tariffs and other rules such as anti-dumping or quota restrictions which might apply.

Origin is essentially the economic nationality of the goods being traded. In some cases, this is easily established. These are instances where products are what is known as wholly obtained in a country. This means they have been entirely produced in that country without any goods from other countries being utilised in the end product.

 

Value-Added Rule

This would normally apply to fruit or vegetable products or basic cuts of meat. Spanish strawberries or Dutch tomatoes would be examples.

Things get a little more complicated with prepared consumer foods like frozen pizzas or other ready meal products like lasagne. The increasingly complex and globalised supply chains involved in the manufacture of such products can call into doubt their country of origin. So, a pizza manufactured in the EU, but with many of its ingredients sourced from countries outside the EU, could present an interesting case.

Origin in these cases is determined by where what is known as substantial transformation has taken place. This is decided by the value-added rule which, broadly speaking, means where most value has been added. In the case of the Irish manufactured pizza or ready meal, if the value of the finished product is significantly greater than the sum of its third country ingredients, it is deemed to be of EU origin.

Certificates of Origin

Certificates of Origin are required for goods being exported to countries with trade agreements with the EU. Certificates may also be required for other countries depending on the destination e.g. certain Arabic countries. Many large exporting companies have an Approved Exporter for Simplified Origin Procedure status with Revenue, and this allows them to self-certify their exports to countries with EU preferential origin status.

Companies without this Approved Exporter status have to apply for a EUR 1 certificate from Revenue for each consignment of goods to preferential countries. For newer preferential agreements with Japan and Canada, EU exporters can simply register in the REX system, without applying to Revenue for Approved Exporter status. They can then declare their exports to Japan and Canada as having EU preferential origin by means of a statement on origin placed on an invoice or other commercial document.

Where the goods are destined for a non-preferential country, a Certificate of Origin can be obtained through Chambers Ireland or one of its members.

 

For further information, go to a customs broker for advice or to your local chamber of commerce. If you are still in doubt after that, you will find further information on the Origin section of Revenue’s website or contact the Revenue Commissioner’s Origin and Valuation Unit.

To understand how origin fits into the overall customs process and documentation, register for the online Customs Insights Course.

Inward & Outward Processing

Managing Brexit Challenges through Inward & Outward Processing

Aviation and aerospace companies in Ireland export 60 per cent of their products to the UK, and 40 per cent of that to Northern Ireland, where there is a dynamic industry featuring well-known names such as Bombardier, Takumi, and DPF Engineering. The Emerald Aero Group comprises 14 Irish companies in this sector.

The supply and production chains of aerospace companies can involve multiple movements of parts across borders.

At the ‘Get set for UK customs’ event, David Lucey of Enterprise Ireland introduced Terry Madden, a consultant with LBS Partners, to explain how it had managed to prepare Emerald Aero Group companies for post-Brexit conditions.

This was to help business understand challenges associated with both inward processing and outward processing (IP/OP) in the near future.

  • Inward processing allows companies to obtain VAT and Duty relief on goods moving cross-border.
  • Outward processing allows businesses to temporarily export outside the EU, for processing or repairs.

 

VAT and SAD are the main issues

The main concern for the Emerald Aero Group was VAT, and Customs transactions (SAD) and how it they would be administered and/or charged when third parties were involved.

LBS and the Emerald Aero Group worked on how best to achieve efficient IP/OP after Brexit. Madden gave an example of how some aviation components shuttle back and forth across the Republic/NI border several times during their creation.

“We get the raw material in from the UK or Northern Ireland, then it’s machined – then sent back to the UK or NI for painting, back to Limerick for sub-assembly, and then to Northern Ireland, or the landbridge, the UK. So we needed to know the best solution, when you are crossing the border multiple times.” Terry Madden discussing the processes used by the Emerald Aero Group.

Madden told the audience that a Comprehensive Guarantee (CCG) must be in place, presented to the customs authorities, to protect against defaults.

 

SAD can be good

As part of the process, the aerospace cluster will be submitting their own customs declarations also known as SADs. This declaration is used by EU members for trade with non-EU countries. It states:

  • What goods are
  • Commodity code
  • Customs procedure code

Although the SAD is the simple route, there are still 54 sections to be filled in, unless you employ a software company to create a web service that makes things much simpler.

He also noted that the Comprehensive Guarantee can take eight weeks to set up, and advises not to leave it too late. Madden stressed the importance of this, as it underpins the customs process around inward/ outward processing.

As part of the process to get Inward/ Outward Processing authorisation, an audit is completed by Revenue. Some of the questions included “what is your yield rate?” This could apply, he said, if you manufacture a part from a bar of steel. “What do you do with your scrap? Is it going back to NI or the UK to be scrapped?” All these things have to be considered.

Whatever happens, Emerald Aero Group can rest assured that it is ready for anything now, as Enterprise Ireland hopes all Irish companies could be. “Our SADs are ready, and when Brexit happens we will upload them on 1 January” Madden said.

Understand how inward and outward processing can make customs processes more efficient with Enterprise Ireland’s Brexit: Act On Initiative.