Determination of the correct tax base plays an important role in determining the import duties payable. Two different tax bases are used in the EU:
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the quantity of the goods (per kilo, per item, per liter)
Taxes imposed on this basis are also referred to as specific duties; -
the financial value of the goods.
In that case, the import duties are called ad valorem duties; this value is referred to as the customs value.
A combination of these tax bases is also possible: the duties are partly calculated on the customs value and partly on the basis of a specific duty.
Customs value: what do clients encounter in practice?
The general rules for determining the customs value are laid down in the Union Customs Code (UCC). The term ‘customs value’ is primarily used when applying the customs tariff. The UCC has six methods for determination the value, which should be applied in chronological order (at the request of the importer methods 4 and 5 are interchangeable).
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Transaction value of the imported goods
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Transaction value of identical goods
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Transaction value of similar goods
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Deductive method
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Computed method
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Fall-back method
The first method is the general rule for the customs value of the goods. Any deviation from this method must be accompanied by proof that it cannot be applied. This means that the customs value is usually the value between the seller and the buyer of a product and is expressed in the price agreed between them. This price is sometimes increased by certain elements (e.g. freight costs up to the EU border, the value of goods and/or services that were provided free-of-charge to the manufacturer of the goods and royalties payable in the context of the purchase and resale of the goods) or decreased by certain elements (e.g. freight costs within the EU and import duties in the EU if already included in the price of the good).
Transfer pricing / association
The transaction value only applies if the seller and the buyer are independent of one another and if this is not the case the price is not affected by this. In order to prove that the price between associated parties is not affected, a connection is often sought with existing transfer pricing documentation. However, a company’s transfer pricing policy may mean that retroactive price adjustments have to be made, which will have a major impact on the customs value method to be used and thus on the declared customs value. It is important to thoroughly look into this and document it in advance, so that no additional assessments are imposed, or any refunds of import duties are refused by the authorities. It is customary to agree the correct customs value with the Customs authorities in advance.
How can we help?
Our customs specialists have extensive experience with determining the customs value. They work closely with their transfer pricing colleagues so that we can ensure that the regulations of both tax disciplines are met.
