Importance of the 'right transaction'
There are six methods for calculating the customs value. The first three methods are based on the transaction value. Namely, of the imported goods, of identical goods or of similar goods. If these three methods cannot be used, then only the deduction method, the computed value method or, as a last resort, the fallback method, formerly known as the 'reasonable means', can be used.
When the transaction value method is used, it is important that the right transaction is used. Not every transaction is a sale and purchase transaction, but there are more conditions. For example, there may be no sale between related parties, or at least this relationship may have resulted in price influencing. The transaction must also be aimed at 'sale for export to the customs territory of the Union'. In other words, at the time of the sale transaction, it must be determined that the goods were intended for the European Union.
Legislation
Article 70 DWU contains provisions on the transaction value. The transaction value is the price actually paid or payable. Article 128(1) IA UCC states that the starting point for the customs value is the transaction value relating to the sale that took place immediately before the goods were brought into the customs territory. In other words, for the calculation of the customs value, the transaction value of the – in summary – last sale for export applies. In certain cases, this will result in a higher customs value and higher import duties than if an earlier sale can be used.
In addition, Article 128(2) IA UCC contains additional provisions for the situation where the goods have not yet been sold before they are brought in and are then placed in storage (temporary storage, customs warehouse or free zone), under external customs transit, inward processing or temporary import. If the goods are under one of these procedures and a transaction takes place during this procedure, then that transaction can also be taken.
European Commission Guidance Document
Because these provisions led to many questions, the European Commission has drawn up a guidance document. This does not contain any legal provisions, but the guidelines given by the European Commission will in principle be followed by the customs authorities. It followed from the 2016 guidance document that domestic sales were not usable transactions and therefore could not (or did not have to) be used for determining the transaction value. Domestic sales were defined as sales between two parties both established in the EU. This exception is no longer included in the latest guidance documents (since 2020). A domestic sale can now also serve as the basis for determining the customs value.
5-Step Plan
To simplify the process of determining the correct transaction, Customs Knowledge has developed a 5-step plan:
Step 1: Identify potential transactions
Identify all potential transactions that could be used to determine the transaction value. These transactions must be genuine buy-sell transactions, free from any price manipulation. At this stage, the timing of the transaction (before or after entry in the territory of the Union, in a customs warehouse, etc.) is irrelevant.
Any remaining transactions proceed to step 2. If no transactions remain, an alternative method must be used.
Step 2: Identify transactions for export to the Union
For the transactions identified in step 1, determine whether they are intended for "sale for export" to the EU. For example, a transaction for goods shipped from China to Japan, where it was not established that these goods were intended for the European Union, cannot be used. If the goods are shipped directly to the EU but the sale is still between China and Japan, this transaction may still be considered intended for export to the EU.
For the calculation of the customs value, the transaction value of the – summarized – last sale for export is applicable.
Step 3: Identify usable transactions
Once the available usable transactions are identified, determine whether the transaction is also eligible for the determination of the customs value in accordance with Article 128 IA UCC. There are several possible situations:
- There are one or more transactions for entry -> proceed to step 4
- There are no transactions for entry available, but the goods have been placed under one of the special procedures -> proceed to step 5
- There are no transactions that meet the criteria -> the transaction value method cannot be used, and an alternative method must be applied.
Step 4: Identify usable transaction before entry
If there are one or more transactions that meet the conditions, select the last transaction in time if there are multiple transactions. If there is only one transaction, no selection is required. It is important that the transaction has taken place before the goods have entered the territory of the Union.
Step 5: Identify usable transaction during special procedure
If the goods have been placed in storage (temporary storage, customs warehouse or free zone) within the Union under transit, inward processing or temporary import, and a usable buy-sell transaction has taken place during such a special procedure, this transaction can still be used.
If there is still no usable transaction, an alternative method for calculating the customs value must be used.
Additional information
Customs Knowledge is happy to advise and assist you in determining the correct customs value and reducing the risk of irregularities. For questions or comments on this topic, please contact Samantha Zwart-Speelman.