Customs valuation rules require exporters and multinational groups to look beyond headline transaction prices and assess whether group structures affect the integrity of declared customs values.

While Customs Valuation Method 1 is the most common, used in an estimated 90% of cross-border transactions, there are circumstances where Method 1 is not possible. In these instances, the organisation must apply Methods 2 to 6 to establish a defensible customs value.

Application of transaction method 2

The second transaction methodology is based upon the price paid or payable for the customs value of identical goods exported at the same time as the goods to be valued. The goods must be identical in physical characteristics, quality and reputation, and produced in the same country as those being valued. Minor differences in appearance are permitted, and another producer’s goods may be used for comparative purposes.

When Method 2 is used, the customs agent must hold supporting documentation on file that proves that the importation of identical goods occurred within a recent timeframe. If there is more than one value, the lowest may be used. If sales are at different commercial quantities, an appropriate adjustment should be made.

When free of charge goods are sent free of charge alongside identical goods which have been paid for
In circumstances where some of the goods have been sent free of charge, for example, as samples, and they are entered on the same import entry, the value of the identical goods may be used for customs valuation purposes. The value should not be declared as zero, and the customs authorities may request a copy of the producer’s price list where differences in level or quantity occur.

Application of transaction method 3

The third transaction methodology used is based upon the price paid or payable for the customs value of similar goods exported to the destination at or about the same time as the goods to be valued.

These are goods which may differ in certain characteristics from the goods being valued, but adhere to the following. The goods:

• are produced in the same country
• can carry out the same tasks
• are commercially interchangeable

If similar goods are not manufactured by the producer of the goods to be valued, the trader is permitted to use them if they are produced by a different producer.

When Method 3 is used, the customs agent must hold supporting data that proves the importation of identical goods occurred within a recent timeframe. If there is more than one value, the lowest may be used. If sales are at different commercial quantities, an appropriate adjustment should be made.

Application of transaction method 4

The fourth transaction methodology used is based on the sale price of the goods in the importing country. It is also referred to as the “deductive” method. The customs valuation may be based on the price of each item (unit price) at which:

• The imported goods, or
• Identical imported goods; or
• Similar imported goods

They are sold in the condition as imported to customers, unrelated to the seller. Where the goods have been imported in wholesale quantities, the unit price of sales in the greatest aggregate quantity may be used.

From this price, the following deductions may be made:

• Commissions paid or agreed to be paid, or the industry-specific addition usually made for profit and general expenses
• The cost of freight and insurance
• Customs duty and internal taxes

If no sale takes place at the time of importation, the importer may base the transaction value on the unit price of the actual sales of the imported goods, which takes place up to 90 days after importation. In this circumstance, in some instances, a security deposit may be made on the anticipated final value, (for example an auction price) to the customs authorities.

Application of transaction method 5

The fifth transaction methodology used is based on the costs of production of the goods. As precise knowledge supported by documented evidence must be provided, Method 5 is generally used only when the exporter and importer are related, for example, when an interbranch transfer of goods occurs. This method is also referred to as the computed value method. It may be used instead of Method 4, at the discretion of the importer.

The transaction value is a built up value based on the sum of the following:

• The cost or value of materials and fabrication or other processing used in producing the imported goods, including:
  a.  Design work supplied directly or indirectly
  b.  Containers and packaging
  c.  An amount for profit and general expenses
  d. The costs of transport, handling and insurance to the UK border

The importer must be able to provide a data set addressing the cost or value of these items based on the producer’s commercial accounts. The producer’s accounts must follow the general principles of accounting which apply in the country where the goods are produced, and the information about the producer’s profit and general expenses must be accurate and normal for producers in the country of exportation of the goods of the same class or kind.

Application of transaction method 6

The sixth transaction methodology is known as the ‘fallback method’. The importer may adapt Methods 1 to 5 using reasonable means consistent with WTO Valuation principles 1 to 5. On this basis, Methods 1 to 5 may be applied flexibly to accommodate unusual circumstances, for example an adaptation of Methods 2 or 3 could base the customs value on imported goods exported from a country other than that of the country of exportation. Method 4 could be adapted to refer to sales using the export price list held by the producer. Where an alternative valuation method is not possible, Method 6 may also be used to calculate the value of rented or leased goods or used goods in accordance with the general accounting principles for depreciation.

For deeper analysis of customs valuation methods, related party pricing risks, and practical application across jurisdictions, explore the full Exporters Guide here