Customs valuation is the process of working out the value of declared goods when they’re imported to another country. It forms the basis for calculating customs duties, taxes and other charges, and is vital for traders to get right.
Incorrect valuations can harm profits and run the risk of fines for non-compliance, and it isn’t always as straightforward as showing an invoice.
- Transactional value
This is the simplest method: the actual price you paid or agreed to pay for the goods.
It’s also the go-to method for most transactions.
It’s important that this price truly reflects the value of the goods and isn’t influenced by certain factors, like being part of a special deal between related companies that could lower the price artificially. This method isn’t appropriate for every transaction.
If there is an import between two related parties, it’s possible that the price will be less than what unrelated customers pay so the customs authorities will examine such transactions carefully and may challenge the justification for using the transaction method.
- Transaction value of identical goods
Likewise, in some instances, there may not be an obvious transaction value.
If this is the case, then this second method might be used whereby other shipments of the exact same type of product would be looked at.
As the name suggests, the identical goods must be the same in every aspect – the same quality, same brand, same performance and the same physical characteristics.
- Transaction value of similar goods
If identical goods cannot be found, then a third method will be used, using the transaction value of similar goods that were exported to the same country.
Similar goods are defined as goods that, while not identical, have like characteristics.
They might not be the exact same brand, or have minor differences, but they serve the same purpose and are commercially interchangeable.
Even if there is no match, this valuation would look at a sufficiently similar good that has the same purpose and use it to find a reasonable valuation.
- Deductive value
The fourth method applies if the previous three methods weren’t appropriate. The exporter should work backwards from the selling price of the goods, or similar goods, in the country where they are imported to.
For example, you might be importing electronics and planning to sell them in the UK.
If you are selling these goods at £200 each in the UK, the deductive method would start with this selling price and deduct certain costs such as transport, marketing and other similar business costs.
An example of when this method would be used is when the importer is a distributor that sells the goods to a domestic purchaser.
- Computed value
The fifth method burrows into the cost, rebuilding the value “from the ground up.”
It looks at the cost of production, plus an amount for profit and general expenses.
If you’re importing furniture, the computed value might include the combined cost of wood, labour, manufacturing overheads and a certain amount of profits.
This method can only be used if detailed cost data is available, and it’s not always easy to get, especially if your supplier isn’t keen on sharing their internal costs. But you can still get a certification or undertaking from them, affirming the profit margin from the sale.
The computed value method aligns closely with the real costs of production, as well as a reasonable margin, and can be a very transparent way of determining the value.
- Fallback Method
The sixth method is the safety net of customs valuation. It is normally only used when all other methods fail.
This would occur if there is no identical or similar good that could be used instead and you’re unable to get a supplier to write a declaration.
This allows customs authorities to use ‘any reasonable means’ to determine the value, as long as it aligns with the general principles of the World Trade Organization.
Perhaps none of the other methods work because the goods are entirely unique and there’s no available market in data.
Customs might look at industry standards or modified versions of earlier methods to come up with a fair value, so they can determine what method they want to apply.