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The Transaction Value Blues

When shipping goods internationally, one of the most common mistakes is the inaccurate valuation of goods. Valuation is the appraisement of a product for duty estimates. Improper valuation can result in the under or over payment of duties and taxes. The impact on duties and taxes makes valuation a high priority for Customs, which means that it is extremely regulated and has high visibility. Customs uses a series of methods to monitor and assess whether or not prices are being established compliantly.

6 Methods for Determining the Transaction Value of a Good

The Trade Agreement of 1979 provides for six methods for product appraisal. These methods are the following:

  • Transaction Value
  • Transaction Value of Identical Merchandise
  • Transaction Value of Similar Merchandise
  • Deductive Value
  • Computed Value
  • Values if other Values Cannot be Determined

The above mentioned methods are to be utilized in descending order. If an importer is unable to compliantly utilize one method, the importer is to move on to the next valuation method on the list until compliant valuation of the good is achieved.

Transaction Value Method

The transaction value method is the preferred method for appraising goods. Customs defines this as the price paid or payable. There are several additions that impact the transaction value, or the price paid or payable. These factors are items that are not obviously included in the transaction value and are often omitted. These include the following:

  • Direct/Indirect Payments
  • Selling Commissions
  • Royalties/ Licenses
  • Proceeds from subsequent sale
  • Packing
  • Assists

Additions to the Price Paid or Payable

Indirect payments are adjustments to the credit balance. If the seller owes the buyer from a previous transaction, and adjusts the invoice accordingly, this amount must be added back to the transaction value of the good. Adding this price back allows for a more accurate portrayal of the worth of the good. 

Selling commissions are funds paid to an agent that either works for or on the behalf of the manufacturer or the seller. 

Royalties and licensing fees are moneys paid for the use of certain types of goods or services e.g. patents, designs, artworks, etc. Royalties and Licenses may or may not be dutiable. This is dictated by the condition of the sale and the type of good.

Proceeds from a subsequent sale occur when the seller offers the buyer a reduced price on the merchandise with the expectation that they will receive a portion of the profits from the subsequent sale after importation.

Packing is literally expenditures associated with the proper packing of the goods, it is typically something that is already included in the price.

Assists occur when a buyer outsources goods or services to a seller in order to bypass extra expenditures associated with the final cost of the merchandise. Assists essentially are items that have value, are given at free or reduced cost, and must be essential to the product that it is being an assist of.

The above mentioned items are mandatory in the development of the transaction value. Adding these values is only one part of the equation. There are items that must be deducted if included.

Exclusionary items

The following items must be excluded from the transaction value:

  • US Customs Duties
  • Transportation costs of the product (International freight and insurance and Freight after Importation).
  • Costs associated with- erection, construction, assembly, maintenance, or technical assistance for goods after imports.

The Transaction Value Method is very straight forward, and as a result of its many steps and the information that it requires there are times when its use is impractical.

When is the Transaction Value Method NOT used?

The transaction method is not used when there are restrictions on the placement or use of the merchandise, situations where value cannot be resolved, additional proceeds cannot be determined, and unacceptable related party transactions. Under these situations Transaction method isn’t permitted.

The declared Customs value of a transaction is an extremely complicated and complex equation. Contact our knowledgeable trade analysts at Sales@allyntinl.com for valuation assistance.

 

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