Customs Valuation
Also known as: Customs Value, Dutiable Value, Import Valuation
Definition
Customs valuation is the methodology used to determine the value of imported goods for duty calculation purposes. Based on World Trade Organization (WTO) rules, the primary method is transaction value—the price actually paid or payable for goods.
Why Valuation Matters
Duty Calculation
Duty = Customs Value × Duty Rate
Example:
Customs Value: $100,000
Duty Rate: 5%
Duty Owed: $5,000
If value understated at $80,000:
Duty Paid: $4,000
Underpayment: $1,000 (plus penalties)
Impact on Costs
- Higher value = more duty
- Lower value = less duty (but fraud if understated)
- Related party transactions scrutinized
- Accuracy required by law
Valuation Methods Hierarchy
WTO Valuation Agreement
CBP must use methods in order—can only move to next if previous doesn’t apply:
| Order | Method | Description |
|---|---|---|
| 1 | Transaction Value | Price paid/payable |
| 2 | Transaction Value of Identical Goods | Same goods, other transactions |
| 3 | Transaction Value of Similar Goods | Similar goods, other transactions |
| 4 | Deductive Value | Resale price minus costs |
| 5 | Computed Value | Cost of production plus profit |
| 6 | Fallback | Reasonable means |
Transaction Value (Primary Method)
Definition
The price actually paid or payable for goods when sold for export to the US, plus certain additions.
Transaction Value Formula
Transaction Value =
Price Paid or Payable
+ Packing costs
+ Selling commissions
+ Assists (materials/tools provided)
+ Royalties/license fees
+ Proceeds from resale
Additions to Price
| Addition | Example |
|---|---|
| Packing | Special crating for export |
| Commissions | Agent fees paid by buyer |
| Assists | Molds, designs, engineering |
| Royalties | License fees tied to imported goods |
| Proceeds | % of resale going to seller |
Deductions (Not Included)
- Freight after importation
- Insurance after importation
- Customs duties
- Installation costs
- Post-import costs
Related Party Transactions
What Are Related Parties
- Parent-subsidiary companies
- Common ownership
- Family relationships
- Agent-principal relationships
Scrutiny Level
Related party sale:
Price: $500,000
CBP question: Is this "arm's length"?
Would unrelated parties use same price?
If NO → Transaction value rejected
→ Use alternative method
Acceptable Circumstances
- Price comparable to unrelated party sales
- Transaction value of identical goods
- Deductive or computed value test
Transfer Pricing Considerations
- IRS transfer pricing rules differ
- CBP may adjust for customs purposes
- Documentation critical
- Advance ruling recommended
Assists in Valuation
Definition
Items provided free or at reduced cost to manufacturer for producing imported goods.
Types of Assists
| Assist Type | Example |
|---|---|
| Materials | Raw materials sent to factory |
| Tools/dies | Molds for production |
| Engineering | Design work for goods |
| Artwork | Designs, logos provided |
Calculating Assist Value
Assist: Mold costing $100,000
Production: 10,000 units
Per-unit assist: $10
First shipment: 2,000 units
Assist added: $20,000 (2,000 × $10)
Valuation Documentation
Required Records
- Commercial invoice
- Purchase order
- Payment records
- Related party documentation
- Assist calculations
- Royalty agreements
- Freight invoices
Retention Period
- Minimum 5 years from entry
- Available for CBP audit
- Organized and accessible
Common Valuation Issues
Red Flags for CBP
- Unusually low prices
- Related party transactions
- Multiple invoices
- Price varies significantly
- Assists not declared
- Royalties not included
Consequences of Undervaluation
| Violation | Consequence |
|---|---|
| Negligence | 2x unpaid duties |
| Gross negligence | 4x unpaid duties |
| Fraud | Domestic value + 8x duties |
| Criminal | Fines and imprisonment |
Best Practices
For Importers
- Understand valuation rules
- Document all transactions
- Include all additions to price
- Evaluate related party sales
- Calculate assists properly
- Keep records 5+ years
- Consider advance ruling
When to Get Help
- Related party transactions
- Complex assist situations
- Royalty/license arrangements
- Unusual pricing structures
- CBP inquiry or audit
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