Proper valuation is invaluable
What exactly does a business pay for goods it imports from outside the EU? In short, this is what the daily practice of the National Valuation Team is all about. And this question is not always easy to answer, according to specialists Ingrid Ramdjiawan and Jan Birkhoff, who are both members of the team. “For what is an acceptable transaction value of a good? Actually, it’s worth whatever you can get for it. Yet it is always a challenge to determine a real amount.”
Value is a key concept in the work that Customs does. In addition to Origin and Tariff, it is one of the pillars on which the levy of customs duties is based. It is therefore very important for Customs to have an insight into the correct transaction value of goods, so as to ensure that the taxes that are levied and paid to Brussels are correct. On the other hand, it is essential for businesses that import goods from outside the Union to state the full and correct customs value in their declarations, thereby avoiding ex-post corrections and additional assessments.
“The real value of a good is sometimes hard to determine,” Birkhoff starts. “While one party is prepared to spend 3,000 euros on a certain product, another party may not want to pay more than 1,000 euros for it. And for Customs this can both be ‘true’. That is what makes valuation a complex issue. It comes with other complications as well. For example, imported goods may not have been purchased, but donated. Is a donation a transaction, and does it represent a certain value? Another complication is that cargo may be damaged during transport. Does the original value still apply in that case? And what if a batch of imported products constitutes a sale/purchase within a multinational, i.e. between a parent company and a subsidiary? If that is the case, will a price be charged that an independent third party would normally have to pay? These are just some factors that are taken into account in assessing whether a correct customs value has been declared.”
Many customs officers deal with valuation in their everyday activities, especially staff members of the Customer Management, Declaration Processing, and Objection & Appeal departments. “In the vast majority of cases, our colleagues from those departments are perfectly capable of determining the correct value on their own,” Ramdjiawan says. “All of them have attended training courses in this particular area, and have, of course, gained the necessary experience. A large section of the Customs Manual is devoted to this topic; it describes exactly what valuation methods are available and on which elements you should base your valuation. Nevertheless, there are situations in which this is somewhat more difficult to determine. In these situations, one can contact our team for support. We give advice to staff members of other departments, for example about which methods they can use in specific cases. And we have the expertise to perform our own audits and assessments as to what particular amount an importer has paid to a foreign supplier. We do this especially when dealing with more complex technical issues.”
“In determining whether the declared value of goods is correct and complete, we first look at the invoiced price,” Ramdjiawan continues. “But there are also items that a customer pays separately and which often need to be added, such as research & development and transport costs up to the Union’s border, or royalties. It is important to obtain the separate invoices stating these costs. To this end, our team includes an auditor and audit staff who are able to thoroughly understand the records that are kept by businesses. However, it is often the case that additional information needs to be supplied from abroad. Businesses can supply this information themselves, but it also happens that we request documents from sister organisations across the border – through mutual assistance, as we call it.”
If Customs has any doubts about the declared value of goods, it is up to the party concerned to prove that the information contained in the declaration reflects reality. “If we do not agree with their statement, we can adjust the value according to the law: increase it to a level that is realistic and acceptable. A consequence may be that requests for payment of import duties are imposed with retroactive effect. If a business does not agree with this, it can lodge an objection and appeal. In our experience, however, there is relatively little litigation on customs value. This is mainly due to the fact that, as a rule, businesses want to have certainty in advance about the value to be used. They or their consultants will then contact us in advance about how to calculate a certain value, to ensure that they are not confronted with any surprises later. We also notice that market players usually want to pay the amount they have to pay, as long as their competitors pay the same in equal cases.”
Ramdjiawan: “As a service, we also provide information on current developments in this area. For example, if there is any news about the valuation of certain groups of products, we will communicate this with the umbrella organisations via the Customs-Business Consultation.”
One voice within Europe
“So, as I said, our National Valuation Team conducts its own audit if necessary; our work therefore overlaps with controls,” Birkhoff says. “There is also overlap with the legal component of our work: interpreting EU legislation and case law – all this is covered by the Union Customs Code. We do this together with experts from the Customs National Office and the Ministry of Finance. The fact that, as a specialist team, we focus on both policy and implementation makes us unique within Europe and offers us great advantages. We are therefore able to quickly assess whether a law can be implemented in everyday practice and, if there is any friction, to assess what a good solution would be.”
Birkhoff sits on the Customs Valuation Committee in the Belgian capital on behalf of the Netherlands several times a year. “In this committee, we hold discussions with colleagues from all Member States on how to interpret the provisions of the UCC about which there is a difference of opinion. After all, it is important that we translate the law in the same way in all Member States, thus creating a level playing field within the Union; otherwise, trade will suffer from this. If we reach an agreement, it will be recorded in a guidance document that is published on the website of the European Commission. This way, everyone can see what decision has been made on a particular subject and what the EU’s position is.”
Everything is tradable
A recent case that was to be decided on in Brussels was about domestic waste that was transported from the United Kingdom to mainland Europe in order to be destroyed here. “It was a case that Dutch Customs had put on the agenda,” Ramdjiawan says. “Various regional offices had asked us how we should deal with this after Brexit, as waste processors were also scratching their heads over this. This waste still constitutes free movement of goods, as it concerns an intra-EU movement. Soon, the waste will be imported from outside the Union, released for free circulation and then incinerated for a fee. This will make it a taxed economic flow. Only the issue is how to determine its value. As the waste is not sold, there is no transaction or cost price. The Netherlands brought this problem to the attention of the Brussels consultation with the other Member States. In the end, the Member States jointly established that, using the fall-back method (see box below), the customs value on import could, in some cases, be a symbolic one euro per unit of waste. This result has now been laid down in a new comment, which will be incorporated into the European Commission’s Customs Valuation Compendium. This compendium offers guidance to the Member States.”
“This example shows that our team is involved in a wide range of issues, and that the aspect of valuation is really not that simple,” Birkhoff concludes. “This is simply because everything is tradable – even waste.”
National units in the spotlight
Dutch Customs has several national teams and units, all of which focus on specific tasks and have highly specialist in-house expertise. As knowledge and advice centres, they support the customs regions and often customs clients as well (be it directly or indirectly). Some of these organisational units (such as the Central Import and Export Service, the Central Excise Unit and the National Customs Help Desk) have been discussed in Customs NL inSight before; other units have so far received less attention. In this issue, we will highlight five of the latter group of units: our national units that deal with valuation, tariff classification, origin, guarantees and clearing respectively.
Customs administrations within the EU use the same methods to determine the customs value of imported goods, in a standard hierarchical order. These are explained in broad outline below. (For more detailed information, see Articles 70 and 74 of the UCC – detailed in Articles 128, 141 to 144 of the UCC Implementing Regulation.)
- Transaction value of the goods
The customs value is determined on the basis of the price agreed between the seller and the buyer (adjusted where necessary with elements of Articles 71 and 72 UCC).
- Transaction value of identical goods
The customs value is determined on the basis of the transaction value of identical goods.
- Transaction value of similar goods
The customs value is determined on the basis of the transaction value of similar goods.
- Deductive method
The customs value is determined on the basis of the price (transaction value of the goods, or of identical or similar goods) of the first (re)sale to unrelated buyers after import (adjusted by a number of elements).
- Computed value method
The customs value is determined on the basis of the cost price of the good, profit and transport costs.
- Fall-back method (reasonable means method)
The customs value is determined by the smooth application of one of the above five methods, otherwise by ‘other appropriate methods’.
In most cases, the customs value is determined using the transaction value method. Often, a sales contract is concluded before the goods are released for free circulation, after which the cargo is transported to the Union’s customs territory.