The customs value is a key element of customs law, since it used as a basis for calculating the customs duties and import VAT. The customs value of a delivery is, as a rule, determined by means of the invoice amount, which is referred to as transaction value.
Customs value and additions
It is not as widely known that other costs must be added to the invoice amount in some instances, if they are not included in the invoice amount. These regulations are in place because the calculation of the customs duty should include all costs incurred to bring the goods to the European Union. These additions are often overlooked and can result in substantial recoveries of duties during customs audits.
Customs value and investments
Investments previously made in a third-country must be added to the invoice amount on a pro-rata basis. This frequently occurs when a domestic enterprise invests abroad and thereby serves as the basis for the subsequent imports.
Here’s an example of how the customs value is calculated:
A German textiles company exports a weaving machine to China and provides it to its manufacturer free of charge to subsequently import woven fabrics to Germany.
In this example, the price of the weaving machine must be split by the number of fabrics produced and added to the invoice amount on a pro-rata basis. If the foreign producer would have had to purchase the weaving machine itself, then these costs would likewise have to be included in the sales price.
Customs value and license fees
License fees must be added to the customs value if the buyer owes them directly or indirectly, and if they are not included in the purchase price. Whether or not the license fees are designated as such is irrelevant; all that matters is the purpose of the payment.
For example: A domestic electronics retailer obtains finished products from Taiwan. To purchase these products, it pays a license fee to the American parent company, which is located in Ireland for tax reasons.
In this example, the license fee must be taken into account when determining the customs value, since the domestic retailer could not have bought the goods without paying the license fee.
Liability under customs law
The customs value has a direct effect on the determination of the customs duty and the import VAT. Therefore, mistakes in this area may inadvertently lead to tax evasion. If the customs value has been wrongly calculated, it will, in the worst case, result in criminal proceedings for tax evasion. Therefore, the customs value should be calculated by businesses with due care. Under no circumstances should an entrepreneur rely on the calculation made by freight forwarders upon entry, since the freight forwarder, as a rule, is not aware of these “hidden” costs. If errors in this area are discovered, it should be considered whether and to what extent a voluntary disclosure made to avoid penalties can protect from the risks of personal liability.
As a Specialized Customs and Tax Attorney, I am your point of contact if you would like information regarding customs valuation, or if you seek legal advice in the event that errors have already occurred.
This post is also available in: German