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What is Valuation? November 10, 2010. Presenter. Adrienne Graddy-Corporate Director Compliance Solutions Associated with BDP since 1994, various compliance roles. 18 month hiatus with major food company initiating both an import and export compliance program.

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What is Valuation?

November 10, 2010

  • Adrienne Graddy-Corporate Director Compliance Solutions
    • Associated with BDP since 1994, various compliance roles.
    • 18 month hiatus with major food company initiating both an import and export compliance program.
    • Licensed Customhouse broker since 1990.
    • Delivery and management of BDP internal audits, compliance manuals, and comprehensive internal and external training and audit programs.
  • Declared Value
  • Reasonable Care
  • Valuation and Transaction Value
      • Additions
      • Subtractions
      • Related Parties
declared value
Declared Value
  • Pursuant to 19 U.S.C. 1484 (a)(1), the importer of record is required, using reasonable care, to make and complete entry by filing with Customs, among other things, the declared value of the merchandise…without regard to whether the U.S. is or may be deprived of all or a portion of any lawful duty.
customs modernization legislation mod act
Customs Modernization Legislation (MOD Act)
  • The Mod Act amended 19 USC 1484 and 1500 by shifting from Customs to the importer of record the legal responsibility for initially valuing, classifying and determining the rate of duty applicable to imported merchandise and by imposing on the importer of record a "reasonable care” standard in carrying out that responsibility.
reasonable care
Reasonable Care
  • Everyone associated with the import transaction is responsible for using reasonable care to enter, classify, and value imported merchandise.
Lack of Reasonable Care
  • Negligence has always been and still is part of customs law.
  • If you are negligent, you are subject to penalties.
  • Negligence is failure to act as a “reasonable person” would have in the same situation.
  • The importer of record must provide any other information to Customs in order to assess duties, collect accurate statistics and determine whether legal requirements are met.
transaction types
Transaction Types
  • Valuation Laws Apply To All
  • Types of Transactions
  • Purchases from unrelated vendors
  • Transfer between related parties
  • Samples
  • Valuation should be equal in each of the following stages of an import transaction:
    • Purchase order
    • Commercial Invoice
    • Financial settlement
  • Values on commercial invoices and financial invoices for the same transaction MUST BE EQUAL, even if settlement takes place at a later time.
basis of valuation 19usc 1401a
Basis of Valuation19USC 1401a
  • Transaction Value (19CFR § 152.103)
  • Transaction Value of identical merchandise and
  • similar merchandise (19CFR § 152.104)
  • Deductive Value (19CFR § 152.105)
  • Computed Value (19CFR § 152.106)
  • Other, if values cannot be determined (19CFR § 152.107)
  • Unacceptable bases of appraisement (19CFR § 152.108)
transaction value
Transaction Value
  • Price actually paid or payable, total payment made by the buyer to the seller including indirect payments such as credits and off-sets
  • Plus
    • Packing costs incurred by the buyer
    • Selling commissions incurred by the buyer
    • Value of any assists
    • Certain Royalty/License Fees
    • Proceeds of post-import resale, disposal or use that will go the seller
    • Minus
    • International transportation and insurance
packing costs
Packing Costs
  • “The cost of all containers and coverings of whatever nature and of packing, whether for labor or materials, used in placing the merchandise in condition, packed ready for shipment to the United States.”
    • Labels
    • Inedible coatings on food
    • Hangers
    • Polybags
    • Spools
    • Boxes, Cartons, Wrapping
    • Labor costs in application of above
selling commissions
Selling Commissions
  • Goods sold through the seller’s agent cannot usually be purchased without payment of the selling agent’s commission.
  • A buying commission is paid by the importer in the U.S. to an agent who represents the buyer in the foreign market.
    • As only selling commissions are dutiable, all commission agreements must be in writing to prove to CBP whether the commission is for a buying agent rather than a selling agent.
  • No import topic causes more confusion, increased duties, and penalties than assists.
  • Assists can be both tangible and intangible items supplied by the importer in the U.S. to the foreign supplier, without charge, that assistin the production of the goods.
assists four categories only
Assists-Four Categories Only
  • Materials, components, parts, etc. incorporated in the imported merchandise.
  • Tools, dies, molds, etc. used to produce imported goods.
  • Product consumed in the production of imported merchandise.
  • Engineering, development, artwork, design work and plans that are:
    • Done outside of the U.S.
    • Necessary for the production of imported merchandise.
assists disclaimer
  • Valuation is a very complex issue, governed by regulatory requirements and accounting principles.
  • Determination as to whether something may or may not be an assist is fact specific, relationship influenced, and are sometimes governed by your company’s accounting and depreciation methods.
  • Determination may require advice from legal counsel.
  • The following examples do not take any specific situations or facts into account, but are provided for illustrative purposes specific to this topic.
assists examples
  • A used mold, depreciated to zero sent to a Chinese producer free of charge is an assist-don’t forget the transportation costs.
  • Interest free loan made to foreign supplier is not assist as it is not one of the four categories.
  • Technical data and blueprints originating in the U.S. sent to Hong Kong manufacturer is not an assist because it took place in the U.S.
  • Testing equipment supplied to U.K. to check integrity of finished instruments is not assist because it was used for testing, not in producing the item.
assists examples1
  • U.S. labels and hang tags supplied to China are assists, and will come back as American Goods Returned (AGR).
  • Payment made to seller to produce tooling is not an assist but must be included as part of the price paid or payable.
  • Electric motors shipped to Germany to be incorporated into electric drills is an assist.
  • Used machine tools and dies shipped to Singapore to produce bicycles is an assist, to be properly depreciated.
  • Engineering center in Ottawa sends blueprints to Singapore for production of computer controlled printer is an assist because it took place outside the U.S.
how is the value of an assist determined
How is the Value of An Assist Determined?
  • Cost of producing the assist
  • -or-
  • Cost of acquiring the assist
  • - plus-
  • Cost of transporting the assist
  • to the place of production
how is the value of an assist apportioned
How is the Value of an Assist Apportioned?
  • 1. All on the first importation
  • 2. Over the number of units produced up to the
  • date of exportation
  • 3. Over the entire anticipated production
  • Apportionment must be reasonable and according to Generally Accepted Accounting Principals (GAAP)
royalty and license fees
Royalty and License Fees
  • A royalty or license fee related to the imported merchandise that the U.S. buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States.
    • Merchandise manufactured under a patent, dutiable
    • If a royalty was involved in the production or sale if the imported merchandise, dutiable.
    • Could the importer buy the product without paying the fee???? Dutiable
  • The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.
    • Additional payment made to the seller because of change in rate of exchange (currency).
    • Final price paid to foreign seller is dependent on the importer’s resale price in the U.S.
    • Profit sharing agreement between the seller and importer.
transaction value1
Transaction Value
  • Assume that any and all payments to a
  • foreign supplier may be dutiable
  • regardless of when the payment takes
  • place.
non dutiable charges ndc s
Non-Dutiable Charges (NDC’s)
  • “Price actually paid or payable” means the total payment made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller, and exclusive of any costs incurred for transportation, insurance and related services incident to the international shipment of the merchandise
  • International Transportation
  • Insurance
non dutiable charges ndc s1
Non-Dutiable Charges (NDC’s)
  • Transaction value allows for deduction of ocean freight and insurance and other costs incident to the international shipment of the goods
  • Where invoices do not show terms of sale, no deductions can be made.
  • Costs must first comprise part of the price actually paid or payable (before you can take them out).
  • Documentary evidence required - from the provider of the services and /or from the person paying the provider/services.
  • Must deduct actual cost paid for services; estimates are not acceptable
foreign inland freight
Foreign Inland Freight
  • Foreign inland freight is part of dutiable value to the extent it is included in the price.
  • Foreign inland freight may be excluded from dutiable value if the total cost of transportation is clearly identified on the invoice and the goods are placed with a carrier on a through bill of lading to the U.S.
  • Review the invoice and ocean bill of lading to determine if the actual structure of the sale is consistent with the terms indicated on the invoice.
  • i.e. if a third party is involved, foreign inland freight cannot be deducted. Must be a “door” move….
declared value1
Declared Value
  • Pursuant to 19 U.S.C. 1484 (a)(1), the importer of record is required, using reasonable care, to make and complete entry by filing with Customs, among other things, the declared value of the merchandise.
  • The importer’ s declaration of a transaction value excluding an amount for freight/shipment charges based on estimated costs may constitute a failure to exercise reasonable care.
damaged goods
Damaged Goods
  • Merchandise which is subject to ad valorem duties and found to be partially damaged at the time of importation shall be appraised with an allowance made in value to the extent of the damage.
  • Partial damage caused by rust or discoloration on iron or steel - no allowance
  • Credits must be applied to the shipment containing the damage because each importation stands on its own.
  • Discounts are allowable.
  • An importer and foreign supplier have agreed to a 2% discount which is given on every shipment to cover defective merchandise.
  • Cash discount: 2%-10 days, net 30.
  • The importer received a credit on a future shipment in settlement of a claim for previously imported merchandise which was defective.
  • Any rebate of, or other decrease in, the price actually paid or payable made or otherwise effected between the buyer and seller after the date of importation of the merchandise will be disregarded in determining the transaction value.
        • As a result of late delivery of imported
        • merchandise, the importer received a
        • 10% decrease in the purchase price.
  • Interest charges are non-dutiable when:
      • A. the charges are distinguished from the price paid or payable.
      • B. financing arrangement is made in writing.
      • C. the interest rate does not exceed the prevailing rates in the country where the financing is provided.
      • D. interest charges must be “bona fide” and not simply arising out of delayed payment.
      • E. interest charges must be carried on the importers books as “interest expenses”
most common related party transactions
Most Common Related Party Transactions
  • Subsidiaries, Joint Ventures, Parent Company
  • The importer’s name may not always be a part of the related vendor’s name, especially when the importer’s ownership is a small percentage
  • How does Customs determine
  • related/non-related vendors ?
  • 5% or more, importer ownership
related parties examples
Related Parties-Examples
  • A. Member of the same family.
  • B. Any officer or director of an organization and such
  • organization.
  • C. An officer or director of an organization, and an officer
  • or director of another organization, if each such
  • individual is also an officer or director in the other
  • organizations.
  • D. Partners
  • E. Employer and employee
related party transactions
Related Party Transactions
  • Transfer price will be acceptable for Transaction Value if relationship did not influence price.
  • Arm’s length price required.
  • Subject to close scrutiny by CBP.
thank you
Thank you!
  • BDP International thanks you for your time and participation. Our next webcast in this complimentary series will be
  • TLA-Three Letter Acronyms
  • on Wednesday, December 15 at 1:00PM Central time.
thank you1
Thank you!
  • To register for the December 15 or any other session, go to:
  • Registration is required for each event.
  • Upon successful registration, you will receive an email with logon details.
  • A copy of this presentation will be available on this same
  • link Friday afternoon listed under today’s date and the event
  • BDP’s 101 Complementary Webinar-What is Valuation?

contact information
Contact Information
  • Adrienne Graddy
  • Corporate Director, Compliance Solutions
  • 875 Devon Avenue
  • Elk Grove Village, IL 60007
  • Direct: 847-350-2156
  • Email: