Valuing Goods for Customs Purposes

Under WCO rules, one of the basic principles of customs valuation is that the customs value of goods is based on six hierarchical methods. The methods for valuing imported goods must be applied in turn and, once a customs value can be arrived at under a particular method, no further consideration of any of the other methods is needed (although rules 4 and 5 are interchangeable). The six methods in order are:

1. transaction or sale value
2. the value of identical goods imported within a reasonable time limit of other goods imported under a transaction value
3. the value of similar goods imported within a reasonable time limit to other goods imported at a transaction value
4. the selling price in the UK less certain deductions
5. the built up price
6. a fallback rule applying the above methods flexibly.

While most goods are declared under method 1, customs valuation is clearly not a simple matter. It is complicated by issues such as:

• royalties or licence fees that are payable for the goods;
• materials, components and tooling supplied free of charge or at a reduced cost to the overseas manufacturer;
• commissions and profit sharing;
• related party transactions and transfer pricing.

There are costs that can be excluded from the customs value such as buying commissions, discounts and interest charges but international transport costs are dutiable and must be accounted for properly. When valuing goods for customs purposes, it is necessary to consider each case on its own merits taking individual circumstances into account.

Transfer pricing and the value of goods for customs purposes

Customs duty is generally determined as a percentage of the value of the goods. The rate to be applied depends on the detailed description of the goods (see Classification). The customs value is based on the CIF (cost, insurance and freight) value of the goods and the sale to be declared at import must be the transaction that took place immediately prior to import. Transactions between related, or even associated, companies may be investigated by the customs authorities. If transfer pricing means that the customs value of the goods may change retrospectively, eg with an annual adjustment, it may not be possible to declare the sales value of the goods (method 1) and an alternative method of valuation may need to be considered.

Internet sales

The value for customs purposes is based on the sale occurring immediately prior to import which means that, if goods are sold directly from a supplier overseas to an end customer in the UK, the duty and VAT will be assessed on that sales price.