Five Compliance Best Practices for … the Valuation of Imports

As an accompaniment to our biweekly series on What Every Multinational Should Know About various international trade, enforcement, and compliance topics, below find an update to our “Five Compliance Best Practices” series, which provides quick-hit advice on how organizations (particularly multinational companies) can implement compliance best practices to enhance their compliance programs and internal controls.

Customs valuation is the process of determining the customs value of imported goods for the purpose of assessing duties and taxes. It is essential to get the valuation correct, as in most cases the amount of tariffs due are calculated as a percentage of the declared entered value. Five common issues you should evaluate to ensure correct evaluation include:

• Ensure Your Company Is Correctly Valuing Imports. The primary method for customs valuation is the transaction value method, which uses the actual price paid or payable for the imported goods when sold for export to the country of importation. You should ensure your entries are correctly valued, including that the transaction value is correctly picking up all necessary adjustments from the purchase price, including mandatory adjustments for elements such as commissions, royalties, assists, and certain packing costs.
• Ensure You Are Accurately Tracking Assists, Indirect Costs, and Royalties. Customs valuation includes the value of any assists (production aids, such as tools, dies, and molds) provided by the buyer to the seller or the value of royalties paid by the buyer to the seller as part of the transaction value. These elements must be included in the customs value of imported goods. Many importers forget about these elements because they do not appear on the commercial invoice. You should check to see that these off-invoice elements are being tracked and correctly apportioned to impacted entries.
• Ensure Your Purchasing Team and Other Relevant Import Stakeholders Properly Understand Incoterms. To correctly calculate the entered value, it is important to understand how Incoterms influence the entered value and which adjustments need to occur to calculate it. As an aid to correct valuation and unexpected tariff surprises, it is a compliance best practice to pick and use a consistent Incoterm, such as free on board (FOB) or cost, insurance, and freight (CIF).
• Ensure You Have a Customs Transfer Pricing Study for Related-Party Transactions. When the buyer and seller are related parties, customs authorities may examine the transaction value to ensure that it reflects a bona fide sale under normal commercial conditions. This generally requires that companies that frequently import from related parties have a Customs transfer price study in place to validate the arms-length nature of their related-party pricing. Because Customs and the IRS use different methodologies, it is not permissible to rely on an IRS transfer pricing study to validate related-party pricing for Customs purposes.
• Ensure Your Transfer Pricing Study is Consistently Followed. In addition to having a Customs transfer pricing policy in place, it is important to analyze its conclusions and apply any required adjustments consistently when determining entered value, across all related-party imports.

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