Customs value
Also known as: import value
The customs value is the amount over which the import duties are calculated. As a rule that is the transaction value: the price paid or payable, increased by the costs up to the external border of the EU.
How do you calculate the customs value?
You start from the transaction value, the price paid for the goods. You add freight and insurance to the place of entry into the EU, plus costs the buyer has borne outside the invoice. The result must be equivalent to a CIF value at the EU border, regardless of the Incoterm on the invoice. Costs after entry may be deducted if they appear separately from the invoice or the contract of carriage. If everything sits in one amount, Customs does not accept the deduction. A DAP price without a split leaves the inland leg in the value. An FOB price without a freight invoice leaves the sea voyage out of the value, until the audit. The Incoterm on the declaration tells which way the correction must go. EXW, FCA, FAS and FOB: add. CFR, CIF, CPT, CIP, DAP, DPU: deduct what sits after entry, if it appears. DDP: duties and VAT off, plus the inland leg. The wrong term on the declaration puts that sum in the wrong direction.
What does and does not count?
Counting are commissions except buying commission, packing, materials the buyer has supplied free, royalties that are a condition of the sale and a part of the proceeds that flows back to the seller. Those items rarely stand on the commercial invoice, because they run through a separate contract, and they do come up at an audit from the records. Not counting are costs of carriage inside the EU, assembly and maintenance after import, import duties and VAT, and buying commission. Discounts that are fixed at the moment of valuation may also come off. A discount that is only fixed later belongs in the value until it is fixed, and then asks for a correction. The most common gap is the freight. A declaration with an estimated freight amount while the actual invoice came out higher produces an assessment over the difference. On regular flows with many shipments that adds up quickly. The second gap is royalties: they belong in it, they are not on the invoice, and Customs finds them in the annual accounts.
What if there is no transaction value?
On consignment, samples, returns or transactions between related parties where the price has been influenced, you use the secondary methods in a fixed order: the transaction value of identical goods, then of similar goods, then the deductive method, then the computed value and finally the fallback method. That order is mandatory. You may not skip a method because a later one comes out better. A pro forma invoice is not a transaction value, it is support for one of the secondary methods. Put a realistic value on that pro forma, not a symbolic euro, because Customs may reject an unrealistic value without more. With related parties Customs may reject the transaction value, unless the importer shows that the relationship has not influenced the price. Transfer pricing documentation is usable for that but not sufficient in itself, because fiscal and customs valuation serve different purposes.
What happens with related parties?
If buyer and seller belong to the same group, the price may have been influenced by the relationship. Customs may then reject the transaction value, unless the importer shows that the relationship has not influenced the price. You supply that proof with a comparison: the price approaches that of identical or similar goods to independent buyers. Or the price has been arrived at by a method that is usual in the trade and that covers all costs plus a normal profit. Transfer pricing documentation is usable for that but not sufficient in itself. Fiscal transfer prices optimise corporation tax; the customs value does not, and may not. An annual correction afterwards on the transfer price asks for a separate arrangement with Customs, otherwise the declared value per shipment never matches. Without that arrangement every IMA of that year is in principle incorrect, and the correction is an assessment or a request for repayment over the whole volume.
How do you support the customs value at an audit?
Customs asks at a later audit for the invoice, the proofs of payment, the contract of carriage and the freight invoice. Those papers together must explain the declared amount. The most common gap is the freight. A declaration with an estimated freight amount while the actual invoice came out higher produces an assessment over the difference. A second gap is royalties and licence fees that are paid as a condition of the sale. Those belong in the customs value but rarely stand on the commercial invoice, because they run through a separate contract. They do come up at an audit from the records. A third gap is a DDP price without a build-up, so duty is calculated on duty. Record per shipment the build-up: invoice price, add-backs, deductions, Incoterm, freight to the border, freight after that. Anyone who only reconstructs that build-up when Customs asks for it reconstructs it from invoices that are no longer there. Keep the freight invoice with the MRN, not in a general purchase folder.
How does the Incoterm feed through into the customs value?
The delivery term on the import declaration is not an extra, it is the signal which costs already sit in the price. E and F terms stop in the country of export, so freight and insurance to the EU border must be added. C and D terms run to a destination, so the part after entry may come off if it appears. FOB is the term under which the add-back is most routine: invoice plus sea freight plus insurance. CIF is the term under which the invoice is often already the basis. DAP and DDP are the terms under which the deduction is most often forgotten, because the invoice names one amount. DDP is extra laborious because duties and VAT must come off. The term on the invoice must be the same as the term on the declaration. EXW Shanghai on the invoice and FCA Rotterdam on the IMA is a build-up that cannot be followed. Customs follows the declaration, and if that does not match the papers, the value is wrong in one of the two directions.
What happens at a value that is too low or too high?
A value that is too low produces an assessment, with interest and possibly a penalty. On structural undervaluation a criminal path can also follow, because it is one of the most audited subjects at a later customs audit. A value that is too high produces duties paid too much, which you only get back if you yourself ask for a review. Free samples without a transaction value you go through the secondary methods, usually the value of identical or similar goods. A pro forma with a realistic value is the supporting paper. A value of one euro on a shipment that is not that is an invitation to a correction. The VAT on import is calculated over the customs value plus the import duties. An error in the value therefore feeds through into two levies. Article 23 shifts the moment of the VAT, not the base. A customs value that is too low under article 23 is still too low, only the tax authority notices it later.