Importers are responsible for exercising reasonable care in valuing the imported merchandise and in providing the information and documentation necessary for Customs to properly assess the duty and to determine whether any other applicable legal requirements are met.
The preferred method of appraisement is Transaction Value, which is defined as the price paid or payable in an arm’s length sales transaction for export to the U.S., plus certain statutory additions:
- Packing costs incurred by the buyer;
- Selling commissions incurred by the buyer;
- The value of any assists, apportioned as appropriate;
- Royalties or licensing fees the buyer is required to pay, directly or indirectly, as a condition of the sale;
- The proceeds of any subsequent resale, disposal or use of the imported merchandise that accrue, directly or indirectly, to the seller.
In determining the proper value of the subject merchandise, many importers fail to capture all the required costs and are not properly declaring the correct value for any import. Of particular concern are assists. Assists are any of the following items that the buyer of imported merchandise provides, directly or indirectly, free of charge or at a reduced cost, for use in the production or sale of merchandise for export to the United States, and may include:
- Materials, components, parts and similar items incorporated into the merchandised;
- Tools, dies, molds and similar items used in producing the merchandise;
- Merchandise consumed in producing the imported merchandise;
- Engineering, development, artwork, design work, plans and sketches that are undertaken outside the U.S.
Although an importer may be able to identify an assist, the issue becomes more complex in determining the value of the assist and how the costs are apportioned. There are several other elements that must be considered in determining whether an importer can use transaction value as the method of appraising the value of the merchandise.
- Are there restrictions on the disposition or use of the merchandise;
- A value cannot be determined;
- There are proceeds from a subsequent resale, disposal or use of the merchandise that accrue to the seller, but an appropriate adjustment to transaction value cannot be made;
- The parties to the transaction are related and use of transaction value is not acceptable.
While transaction value remains the most commonly used basis for Customs valuation, other methods may be required to be exhausted when transaction value cannot be used, such as where the price is affected by a related party relationship between the importer and the exporter. In such instances, there is a matrix of methods that must be used in order to derive the value that must be declared to U.S. Customs. These are: transaction value of identical merchandise; transaction value of similar merchandise; deductive value; and computed value.
The First Sale Rule has been the center of interest to many importers because it allows importers to value the merchandise using the price paid or payable by a middleman to a manufacturer (or other supplier) rather than using the price paid or payable by the importer to the middleman. The First Sale Rule offers a potential significant savings to an importer. In January 2008, Customs published a notice in the Federal Register announcing its intention to reinterpret the value law to potentially prohibit use of the First Sale law. However, through an amendment to the Food, Conservation and Energy Act of 2008 (commonly referred to as the “Farm Bill”), Customs was directed to gather information on the use of First Sale, report its findings to Congress and allow the use of the rule until 2010. The U.S. International Trade Commission released its report to Congress on December 23, 2009. The report can be accessed at http://www.usits.gov/publications/332/pub4121.pdf.
Simon Gluck & Kane LLP provides guidance to clients with respect to the valuation of their imported goods, including ways that the declared value may be reduced legally, to achieve legitimate duty savings, such as the utilization of the First Sale for Export doctrine.