Meaning
Customs valuation procedures that determine the duty on imported goods based on the price actually paid or payable for them are the standard in international trade. The application of the transaction value method requires the importer of record to present an invoice that represents the actual arm’s length transaction between the buyer and seller. This value is used to calculate the ad valorem import duties.
Valuation Rule
International guidelines require that all payments made as a condition of sale are included in the customs value. Under the transaction value method, costs such as packaging, tooling, and intellectual property rights must be added to the invoice price if they were not already included. This ensures that the full value of the imported goods is subject to duty.
Audit Risk
Trade compliance audits are conducted by customs authorities to verify that the declared values match the financial transactions in the company’s books. Discrepancies between the transaction value method filings and the actual payments to the supplier can result in substantial penalties and retroactive duty assessments. This risk makes it necessary to maintain clear links between purchase orders, invoices, and bank payments.
It also requires having a robust documentation process to support the declared values during a formal customs inquiry.
Sourcing Strategy
Procurement teams must evaluate how different components of the purchase price affect the customs valuation. By understanding the rules of the transaction value method, companies can structure their contracts to clearly separate non-dutiable costs, such as domestic transport or installation fees, from the dutiable value of the goods.
