Customs valuation of goods imported from related parties
Recently it has become quite established practice that the customs authorities do not accept customs value of imported goods declared by the importer at the contract price (transaction value method). In view of this we believe it may be useful to brief on how to act in such cases.
In particular the like cases often arise when the seller and the buyer are related parties.
In such cases, instead of transaction based method, the customs authorities make valuation based on the value of identical goods or similar (analogous) goods. Usually the level of customs value reassessed by the customs authorities based on such approach is considerably higher than the customs value of imported goods assessed based on transaction value method.
For the cases when the above mentioned situations occur, the law provides for possibilities and establishes procedures which might be used by the importer in order to express its disagreement with the customs value assessed by the customs authorities and appeal the respective decisions of the customs authorities. At the same time the goods may be cleared from customs before all the formalities related to such procedures are finished.
Below we outline possible steps for the like cases:
According to para. 3 of Article 264 of the Customs Code of Ukraine and paragraphs 2 through 6 of the Procedure of Releasing Goods into Circulation under Guarantee Obligations while Importing Them into the Customs Territory of Ukraine, adopted by Regulation No. 230 dated 17 March, 2008 of the State Customs Service of Ukraine (hereinafter – “Regulation No. 230”), in case the declarant disagrees with the customs value assessed by the customs authorities, the declarant is entitled to apply to the customs authorities and ask them to clear the goods from customs on terms of respective guarantee.
Such guarantee might be issued either in the form of a bank guarantee or by way of paying the amount of import taxes and duties assessed based on the customs value of imported goods as assessed by the customs authorities. The term of validity of guarantee obligations may not exceed 90 days from the moment the goods are cleared from customs.
Article 264 of the Customs Code of Ukraine stipulates the right of the declarant at the written request of the latter to receive from the customs authorities written explanation regarding the issue how the customs authorities assessed the customs value of imported goods. Such written explanation shall be provided by the customs authorities within one week from the date of request.
Applying with written request for explanations is not obligatory for the purposes of the procedure of customs clearance of goods on terms of guarantee, but such request might be referred to the customs in order to clarify the reasons for customs value reassessment. We recommend applying for such explanations.
For resolving the disputed issue by substance and for proving the declared customs value the importer shall submit relevant information to the customs authorities and provide possibility to check it. Customs authorities check the information provided by the declarant and, if necessary, exercise additional forms of control (Article 264 of the Customs Code of Ukraine, paragraphs 13-15 of the Regulation No. 230).
Under Article 267 of the Customs Code of Ukraine the transaction value method can be used in respect of transactions between related parties only in case such relation has no impact on the value of goods. Moreover, in order to use the transaction value method the declarant shall confirm that transaction value of the goods is in line, inter alias, to the value of the transactions with identical or similar goods intended for sale into Ukraine under transaction between non-related parties.
The laws of Ukraine (the Customs Code of Ukraine and the Resolution of the Cabinet of Ministers of Ukraine # 1766 dated 20 December 2006 “On Establishing the Procedure of Declaring Customs Value of Goods Moved through the Customs Border of Ukraine and Filing the Information Confirming Customs Value” (hereinafter – “the Resolution No. 1766”) provides for a wide list of documents by which the fact that the contractual price of the goods is not affected by relation between the parties might be substantiated.
Namely, in order to justify the customs value of goods the declarant shall submit to the customs authorities the following documents:
- import contract under which the goods are imported;
- payment documents in case the goods has been already paid for;
- documents confirming packing;
- documents regarding delivery expenses;
- bookkeeping and banking documents of the buyer regarding alienation of the goods being valued, identical or similar goods in the territory of Ukraine;
- documents confirming participation of the seller in allocation of the buyer’s profit (in case the seller is owner of the stocks or share in the buyer’s share capital);
- note of the buyer confirming that it has no financial obligations towards the seller arising from the sale of imported goods;
- bookkeeping documents of the producer confirming value of the goods;
- note confirming value of identical or similar goods in export country.
In addition the following documents (or some of them) may be submitted:
- producer’s catalogue, specification or price list of goods;
- producer’s calculation of cost;
- copies of the customs declaration filled in the export country;
- certificate of origin of the goods;
- information of foreign trading organizations regarding value of the goods.
We recommend that all the above mentioned documents should be prepared, as the chance might be, in advance and submitted to the customs authorities along with written explanation stating that the relation between the parties has no influence on the price of goods. In addition such written explanations should contain the request to issue a decision on admitted/ non-admitted customs value of imported goods assessed by the declarant.
The documents and the explanations are worth submitting in earliest terms, since the terms during which the customs authorities shall issue decision on accepting/ non-accepting customs value of imported goods assessed by the declarant are limited.
Namely, the customs authorities shall issue decision on accepting/ non-accepting customs value calculated by the declarant within a guarantee period (which, as it was mentioned above, lasts for 90 days from the moment when the goods are cleared through customs) but not later then ten days before the end of such period. The decision shall be taken based on the results of consideration of the information submitted by the declarant and other means of control exercised by the customs authorities, if necessary.
In case the declarant receives negative decision of the customs authorities (on non accepting the customs value calculated by the declarant), such decision may be contested via applying to administrative court with respective lawsuits or via applying to the customs authorities of higher level.
In case positive decision is taken, the amount of overpaid import taxes and duties shall be repaid to the declarant within one month upon the date of the decision.
We trust that the above comments might be useful for you. Please do not hesitate to contact us in case of any questions to the above or if any additional information might be required.
The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.
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