Import Valuation Basics: Transaction Value

Repeat after me:

“The price paid or payable at time of export”

“The price paid or payable at time of export”

“The price paid or payable….”

No, Dorothy, we are not trying to get out of Oz. We’re trying to legally import your latest shipment into the United States.

The above is the mantra of the commercial importer when determining the value to declare to Customs and Border Protection (CBP) on the customs entry.

“Well that’s easy!” you snort. “The customs value is the invoice value. Everyone knows that!”

Not so fast, my inexperienced one. The invoice may or may not support the value you are required to declare to Customs. Let’s look at this issue more closely.

One of the most important data elements any commercial importer reports to Customs is the value of the merchandise. Why? Most duty payments are calculated as a percentage of the value of the import. These are also referred to as ad valorem rates of duty.

This discussion assumes the buyer and seller are unrelated to one another and the sale is subject to a commercial transaction. A commercial transaction is usually evidenced by a purchase order or contract and a subsequent and corresponding transfer of ownership from seller to the buyer through an invoice.

When an arm’s length commercial transaction exists the importer may use the value of that transaction, or the Transaction Value, to determine the value to be declared to CBP. That value starts with the invoice, but certain costs of the sale may be excluded from the value declared to CBP while other costs must be included.

Most commercial importers structure their imports to be able to take advantage of transaction value. It is to these companies I direct this article. If you are an importer buying from related suppliers, you might be able to utilize transaction value under specific guidelines.

Imported merchandise, for which there is not an identifiable transaction or clearly ascertainable value, is subject to other valuation methods. I will address these valuation methods within a future article.

Does your commercial invoice represent the entire price paid or payable at the time of export?

Excluded Charges

Let us first consider some of the charges that might be included within your invoice value but are not part of the transaction value to be declared to Customs. Please note: the excluded charges may not be estimates and must be verifiable. It is recommended these charges be explicitly detailed on the commercial invoice.

International Freight

If your company buys under the commonly used INCOTERMS CFR, CIF, CPT, CIP, DDU and the less familiar DEQ and DES, the invoice price includes international transportation and possibly some US transportation charges. These fees, if they can be clearly documented, may be deducted from the invoice value.

Under certain conditions when your company takes physical control of the product at the vendor’s facility at origin and your company controls and pays for the origin shipping to the port of export, you may be able to use the transaction value from the factory as your declared value. These values are defined under the INCOTERMS Ex-Works (EXW) or Free Carrier at Factory (FCA).

Insurance

Similarly, if the invoice value includes insurance, as is the case when the INCOTERMS CIF and CIP are used, you may deduct any verifiable insurance costs from the invoice value.

Buying Commissions

Should your company utilize the service of a buying agent, the agent’s fees are excluded. If your company uses a buying agent, it is advised you document the relationship ensuring the services they provide are those of a true buying agent and not a sales representative.

Services After Importation

Some companies purchase products, the price of which includes additional services to be performed in the United States after importation. Services such as training or assembly may be excluded from the value declared to Customs.

Discounts Taken Before Importation

The important thing to remember about discounts is when and where they occur. If they occur before exportation, then they usually can decrease the declared value. If they occur after export, then they usually must be added back into the declared value.

There are very narrowly defined situations when discounts after importation may be allowed. These usually involve discounts for damage or merchantability, which were previously defined in the purchase contract prior to export. Before you take advantage of this detail, you are advised to research this subject in the Customs Valuation Encyclopedia. (See below.)

License and Royalty payments as a Condition of Sale in the U.S.

If you are allowed to import product into the U.S. without paying license fees or royalties to the intellectual property rights (IPR) owner then it is likely any royalties or license fees you pay after importation are not dutiable charges. (See below.)

Included Charges

License and Royalty Payments as a Condition of the Import

Any license or royalty fees you pay as a condition of importing the product into the USA are dutiable and must be declared to Customs.

Packing

Retail packaging and shipment packing are both considered part of the transaction value for Customs purposes.

Assists

The value of anything your company provides to the supplier free of charge or at less than market value (including the freight to get it to the supplier) are to be included in the value declared to Customs.

The topic of assists is worthy of an entire article. For sake of space examples of common assists include:

• Tooling, molds, dies, stamps.
• Packaging, labels, hangtags.
• Materials used in the production of the finished product.
• Supplies consumed in the production of the finished product.
• Engineering and design work performed outside of the U.S.
• Any payments to the supplier to obtain the above.

Subsequent Proceeds

If, at the time of export, the buyer and seller have an agreement to share in the profits or proceeds of the sale of the imported merchandise, then the payments made to the seller after, or subsequent to, the import are considered part of the price paid or payable at the time of export.

Indirect Payments

It is common business practice for exporters to issue a credit to an importer within an invoice for an issue unrelated to the transaction covered by that invoice. Such credits should have no bearing on the price paid or payable at the time of export for the current transaction and normally must be added back into the value of the shipment. (See example below.)

Selling Commissions

Payments made to the seller’s representatives or agents are part of the price to be declared to Customs.

Resources

Customs and Border Protection provides a number of resources to clarify the definitions of value. These include:

Informed Compliance Documents

Customs provides two excellent resources on its website:

• Customs Value. This brief 20-page overview of value is available in PDF format. 
• Customs Valuation Encyclopedia. This document, as implied by its title, is a sizeable reference tool exceeding 500 pages in length.

Federal Regulations

Chapter 19 of the Federal Code of Regulations is home to most of the CBP rules and regulations. Although the regulations are often difficult reading, they occasionally succeed in offering the average importer practical guidance. The following valuation examples are reprinted from 19 CFR §152.103:

• In a transaction with foreign Company X, a U.S. firm pays Company X $10,000 for a shipment of meat products, packed ready for shipment to the United States. No selling commission, assist, royalty or license fee is involved. Company X is not related to the U.S. purchaser and imposes no condition or limitation on the buyer. The customs value of the imported meat products is $10,000—the transaction value of the imported merchandise.
• A foreign shipper sold merchandise at $100 per unit to a U.S. importer. Subsequently, the foreign shipper increased its price to $110 per unit. The merchandise was exported after the effective date of the price increase. The invoice price of $100 was the price originally agreed upon and the price the U.S. importer actually paid for the merchandise. How should the merchandise be appraised? Actual transaction value of $100 per unit based on the price actually paid or payable.
• A foreign shipper sells to U.S. wholesalers at one price and to U.S. retailers at a higher price. The shipment undergoing appraisement is a shipment to a U.S. retailer. There are continuing shipments of identical and similar merchandise to U.S. wholesalers. How should the merchandise be appraised? Actual transaction value based on the price actually paid or payable by the retailer.
• Company X in the United States pays $2,000 to Y Toy Factory abroad for a shipment of toys. The $2,000 consists of $1,850 for the toys and $150 for ocean freight and insurance. Y Toy Factory would have charged Company X $2,200 for the toys; however, because Y owed Company X $350, Y charged only $1,850 for the toys. What is the transaction value? The transaction value of the imported merchandise is $2,200, that is, the sum of the $1,850 plus the $350 indirect payment. Because the transaction value excludes C.I.F. charges, the $150 ocean freight and insurance charge is excluded.
• A seller offers merchandise at $100, less a 2% discount for cash. A buyer remits $98 cash, taking advantage of the cash discount. The transaction value is $98, the price actually paid or payable.

The above examples should give you some insight into the most common method of determining value for customs purposes. Should you still have questions, remember the valuation mantra:

“The price paid or payable at time of export”

“The price paid or payable at time of export”

“The price paid or payable….”