Are you doing cross-border trade with a non-EU country, or are you planning to do cross-border trade with a non-EU country in that case this blog may be of great interest to you. In this blog, I will discuss customs valuation. This will cover the following aspects: - customs value in general; - the methods for calculating the customs value; - The most common method; - The importance of a correct customs value. The customs value in general The customs value is important in calculating the amount of customs duties - consisting of export and import duties - that will be levied on export (in practice, in principle, not) and import respectively. Because the amount of customs duty that is due depends on the value of the goods - namely through customs value - it is also referred to as an 'ad valorem' tax. In other words, a tax based on the value of the goods. Besides the customs value, the percentage of the customs duty is also important, so this percentage has to be multiplied by the customs value to arrive at the amount that will eventually be levied. The percentage to be multiplied by the customs value depends, among other things, on the classification of the product. In this blog, the customs value is primarily important. To calculate it, there are six different methods.
The six methods for calculating customs value
As I mentioned above, there are six different methods for determining customs value. These six methods are laid down in the GATT code of the General Agreement on Tariffs and Trade - being an international trade treaty with an informal organisation around it - which today is part of the WTO, the World Trade Organisation. The six different methods of customs valuation are as follows: - transaction value of the imported goods; - transaction value of identical goods; - transaction value of similar goods; - deductive method; - computed method; and - fall-back method.
For application within the European Union, these methods are elaborated in the Union Customs Code. This entails that the customs valuation rules are directly applicable in all EU Member States. Customs valuation must therefore also be carried out in the same way in all EU Member States. In doing so, the same method applies to about 95% of trade in the EU.
The most commonly used method The most commonly used method for determining the customs value of imported goods is ‘the transaction value of the imported goods’. The UCC phrases it as follows:
The primary basis for the customs value of goods shall be the transaction value, that is the price actually paid or payable for the goods when sold for export to the customs territory of the Union, adjusted, where necessary.
Three elements can be dissected from the text of the UCC:
1. The price actually paid or payable;
2. If they are sold for export to the customs territory of the Union;
3. Necessary adjustments.
The first two elements are fairly straightforward, it concerns the price paid or payable on sale (transaction value) for export to the Union customs territory. It is the third element that can sometimes cause complications, namely 'necessary adjustments'. For instance, after the transaction value is established, there are often a couple of mutations to be taken into account that may cause the final customs value to differ from the transaction value. These mutations can be both increases and decreases. The importance of correct customs valuation An incorrect customs valuation determination may have consequences. If Customs considers that the customs value you have determined is too low, they can send you an additional assessment (UTB), with or without an administrative fine. This should be avoided whenever possible.
Conclusion In this blog, I briefly discussed customs valuation. This covered what the customs value is, what methods there are to determine it, which method is most common and the importance of a correctly determined customs value. To get the customs valuation right and avoid disagreements with Customs, it is best to contact a specialist. At Wolfs Advocaten, we can both advise on determining a correct customs value as well as assist when it has already become known that the customs value has been determined incorrectly.
Want to know more? Do you have questions about customs law or international trade? Or do you have questions about customs value or about what you should do if Customs accuses you of incorrect customs valuation? Please feel free to contact one of our attorneys.