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
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.