When importing goods into the European Union (EU), the customs value is the determining factor for the amount of customs duty and import turnover tax. In combination with the customs rate, which is derived from the customs tariff (TARIC, HS code, CN nomenclature, customs code, commodity code) of the goods, the amount of the customs debt can be calculated.
The customs value is primarily derived from the price of the goods agreed between the parties or paid by the importer for the goods (transaction value). This value is the gross invoice price of the goods. If the invoice is to be paid in a foreign currency, the value must be converted into euros according to the fixed exchange rates.
In practice, many errors occur when calculating the transaction value, which are detected in later customs audits and can often lead to severe consequences. The transaction value also includes the following:
- Freight costs up to the EU border,
- Insurance costs,
- Commissions and brokerage fees,
- Development costs,
- Costs of packaging (e.g. bags, crates, barrels),
- Packaging costs including packaging design,
- Materials, components, parts etc. contained in the imported goods
- Tools, dies, moulds, etc. used in the manufacture of the imported goods
- Materials consumed in the production of the imported goods,
- Royalties not included in the price actually paid or to be paid,
- Transport costs for the imported goods,
- Charging costs and the cost of handling
- The value of any proceeds of subsequent resales, other transfers or uses of the imported goods which benefit the seller, directly or indirectly
In practice, companies often overlook the fact that the customs value can also be influenced by (hidden) considerations from the contracting party or discounts from previous transactions. However, this type of thing is usually only noticed during tax audits. This in turn often leads to suspicions of tax evasion.
If, at the time of customs clearance, the customs authorities have "reasonable doubt" as to whether the transaction value is correct, they may request further information in accordance with Article 140 of the Union Customs Code (UCC). If the doubts are not removed, the customs may reject the transaction value.
If a transaction value is not available in the first place, further methods of investigation are used. This is the case, for example, if the importer did not have to pay a price for the goods or received an individual discount price.
Customs law provides for other methods of calculating the customs value in addition to the transaction value. These are applicable in descending order of importance. This means that if the first method cannot be used as a basis for calculation, the second method must be applied (so-called "customs value staircase").
- Transaction value paid by other importers for identical goods
- Transaction value paid by other importers for similar products
- Deductive method: domestic sales price minus domestic costs and taxes
- Method of the calculated value: cost/profit calculation of the producer as a basis for calculation
- Final method: other appropriate calculation methods including estimation
If the standard method for calculation of the transaction value is used, it is often necessary in practice to add certain costs to the invoice price.
This is due to the basic idea of customs value, according to which the amount of the customs debt is based on the costs the importer actually had to incur to obtain the goods. Article 71 UCC contains an exhaustive list of these possible additions. Accordingly, the invoice price shall be increased by, for example, loading costs, packaging costs or licence fees. We will be pleased to assist you with all such questions.
Certain payments made by the importer to the seller may not be taken into account in the transaction value. Article 72 UCC establishes six groups of possible deductions:
- Transport costs for the goods after arrival in the importing country
- Payments for construction, assembly, installation, etc., provided that these activities are carried out after importation
- Certain interest and financing obligations of the buyer towards the seller or towards a bank
- Cost of the right of reproduction within the European Community
- Purchasing commissions
- Import duties and other charges payable in the EU on importation or sale
If the contracting parties agree on a lower purchase price for the goods, the customs debt will also be reduced. However, importers should refrain from making agreements with trading partners that aim to keep the transaction value deliberately low in order to save taxes.
The transaction value represents a binding tax base vis-à-vis the financial authorities, so that manipulations generally constitute criminal tax evasion in accordance with Section 370 of the German Fiscal Code (Abgabenordnung, AO). In this context, the courts regard any assistance provided to the trading partner as a punishable aid to tax evasion.
Even unconscious errors in the calculation of the customs value can have consequences under criminal tax law if they lead to tax reductions. Every company that imports goods from EU third countries on a large scale should therefore appoint a compliance officer who checks the steps outlined in determining the customs value.
According to our experience, customs agencies and customs agents do not check thoroughly enough and thus expose their customers to high risks. The engagement of a customs agency does not relieve companies of their own responsibility, so the courts require companies to take appropriate measures to ensure compliance with customs regulations. These may include regular random checks by external experts. Our compliance officers will be happy to assist you in this respect.
If a calculation error has already been made, it should be examined how to deal with it in order to avoid additional payments and criminal proceedings. The declaration of incorrect customs values is also subject to the statute of limitations, and the duration of the statute of limitations depends on various factors which must be examined in each individual case.
It is not advisable to turn a blind eye, because this quickly leads to allegations of a punishable intentional omission. Under certain circumstances, it may also be recommendable to file a self-disclosure that exempts the defendant from punishment. This should, however, only be done with the help of a lawyer, because the exemption from punishment does not come into effect if not all requirements are met.
Our experienced specialists in customs law will be happy to assist you.
Do you have questions regarding customs value or transaction value? Our experts on all aspects of customs law, customs code, customs clearance, customs criminal proceedings, import turnover tax and import/export are looking forward to receiving your inquiry. Your customs specialist is Attorney Bartosz Dzionsko. The easiest way to contact us is by e-mail (firstname.lastname@example.org) or by phone (+49 (0)69 76 75 77 80).