We have a lot of cases of huge discounting applied to the value of shipments, not necessarily to avoid duties and taxes but genuine discounting linked to the provision of other services associated with the product. i.e. in simple terms an Internet Service Provider will provide a router at a very low cost or even free on the proviso that you buy internet services from them at a certain price for a certain period. This breaks condition 3 listed below.

Clearly in the above case the router is being imported under valued unless as defined by Article 8 the customs value is increased by the value of the subsequent services associated with the product. If this is a variable amount and cannot be determined, then you move on to method 2.

Another case where transaction value cannot be used is for items sold as a service perhaps being delivered to a data centre as there is no hardware transaction, so you would need to move down the method list.

If using an Importer of Record, then again it may not be possible to use this valuation method as there is not normally any evidence of sale between the seller and Importer of Record.

I am dealing here with just the transaction value but will go through each valuation method in subsequent articles.

When determining a value for customs purposes it is important to follow the procedures as set out in the WTO Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (Uruguay Round Agreement) which is the latest interpretation of how goods should be valued.

While the article is may be of a technical nature, we can simplify it here, but I am just concentrating on the first principle applied which is the transaction value. Its important to point out that there are 6 valuation methods, but they must be applied in hierarchical order until you arrive at the correct method for your export. The valuation methods, in order, are,

Method 1 — Transaction value

Method 2 — Transaction value of identical goods

Method 3 — Transaction value of similar goods

Method 4 — Deductive method

Method 5 — Computed method

Method 6 — Fall-back method


Method 1 — Transaction value

This is the price actually paid or to be paid (if sold under credit terms) from the buyer to the seller for the imported goods or by the buyer to a third party to satisfy the obligation of the seller.

There are though certain conditions which must be met to apply this method and all conditions must be met,

1.       There must be evidence of sale for export I.e. commercial invoice, contract etc.

2.       No restriction on use or disposition of the goods by the buyer except as governed by law.

Note: The buyer must have free use and title of the goods.

3.       The buyer must not be subject to further conditions for which a value cannot be determined such as,

The price should not be based on the future purchase of other goods in specified quantities.

The price is established based on a form of payment extraneous to the imported goods

4.       The full price must be used unless no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will directly or indirectly accrue to the seller unless the adjustments can be made in accordance with Article 8.

Article 8 deals with what can and cannot be added or subtracted to the customs value and in some cases member nations can make their own determinations.

5.       The buyer and seller are not related. Definition of related parties can be found in Article 15.


If all the above apply the transaction valuation is used and no other valuation can be used.

Customs valuation based on the transaction value method is largely based on documentary input from the importer. Article 17 of the Agreement confirms that customs administrations have the right to “satisfy themselves as to the truth or accuracy of any statement, document or declaration.”

A “Decision Regarding Cases Where Customs Administrations Have Reasons to Doubt the Truth or Accuracy of the Declared Value” taken by the Committee on Customs Valuation pursuant to a Ministerial Decision at Marrakesh spells out the procedures to be observed in such cases.

As a first step, customs may ask the importer to provide further explanation that the declared value represents the total amount actually paid or payable for the imported goods.

If the reasonable doubt still exists after reception of further information (or in absence of a response), customs may decide that the value cannot be determined according to the transaction value method. Before a final decision is taken, customs must communicate its reasoning to the importer, who, in turn, must be given reasonable time to respond. In addition, the reasoning of the final decision must be communicated to the importer in writing.


If you would like to ask any question on this or any other subject you can get in touch with me here directly – gogrady@blackthorneit.com.

Gary O’Grady

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