Customs valuation and the hierarchy of methods

One preferred method and an ordered set of fallbacks

The primary basis is the price actually paid or payable for the goods when sold for export to the country of import, adjusted as prescribed. Where that cannot be used, the framework moves through the value of identical goods, then similar goods, then a deductive method working back from the resale price in the importing country, then a computed method built up from production costs, and finally a flexible method applied reasonably and consistently with the earlier ones. The order is not a menu, and skipping down it because a later method gives a friendlier answer is not permitted.

Additions the price does not always show

Commissions other than buying commissions, the cost of containers and packing, materials, tools, dies and moulds supplied by the buyer free or at reduced cost, design and development work done outside the country of import, royalties and licence fees related to the goods where payment is a condition of sale, and any proceeds of resale accruing to the seller. These are the classic omissions. They are frequently paid by a different department, under a different contract, to a different entity, which is exactly why nobody connects them to the import.

Costs that may be excluded

Where they are distinguished from the price paid, charges for transport and related costs after arrival, installation and assembly carried out after import, buying commissions, and the duty and taxes of the importing country itself are generally excluded. The condition is that they can be identified separately and evidenced. A single all-inclusive delivered price with nothing broken out gives the declarant nothing to deduct, so the invoice format directly affects the amount of duty paid.

Related parties and the price influence question

A sale between connected companies is not disqualified from the primary method, but the administration may examine whether the relationship influenced the price. Traders can support the price by showing it closely approximates values in comparable transactions or by demonstrating it is settled in a way consistent with normal industry pricing. Because transfer pricing adjustments are made after the year in question, they can require corrections to values already declared, and the mechanism for that has to be agreed with the authority rather than assumed.

Where valuation reviews focus

Assist arrangements, royalty streams, retrospective rebates, freight allocation on delivered terms, and free-of-charge replacements declared at nil value. An examiner looks at the trader's ledgers rather than the customs file, because the missing elements are visible in payments to suppliers that never appeared on any invoice presented at import.

Frequently asked questions

Is the customs value the same as the invoice total?

Sometimes, but only by coincidence of what the invoice happens to include. The value is a defined construct: the price paid or payable adjusted by prescribed additions and permitted deductions, brought to the point the importing country's rules specify. Any of those adjustments can move it away from the invoice total.

How are goods valued when there is no sale?

Free samples, replacements, transfers between branches and goods on consignment have no transaction to value, so the primary method is unavailable and the ordered fallbacks apply. Declaring such goods at nil or at a nominal figure is a misdeclaration even though no money changed hands.

Do freight and insurance form part of the value?

That depends on the valuation basis the importing country applies, since some include transport and insurance to the frontier and others do not. It is a national choice within the international framework, so it must be confirmed for each territory rather than assumed from practice elsewhere.