The Importance of Correct Valuation of Goods Imported Into the U.S.
06/09/2015 | Summer 2015 NewsletterU.S. Companies importing goods from other countries must pay close attention to the valuation of the goods determined by U.S. Customs. As a general rule, any products imported into or exported from the U.S. have to be properly valued and declared to U.S. Customs.
The correct valuation of merchandise is crucial because it will determine the amount of duty to be paid. If imported or exported merchandise is found to be undervalued, it may lead to delays in shipment and even civil or criminal penalties. If, on the other hand, the merchandise is overvalued, it may result in lost revenue to the company and there is a risk that the overvaluation will be interpreted as money laundering or capital flight by government agencies.
In view of these potentially serious legal consequences, it is important for U.S. companies to confirm the correct appraisal of the merchandise. U.S. Customs will perform a proper appraisal of the merchandise even in the event that it is "duty free."
As a member of the WTO (World Trade Organization), the U.S. has enacted into law the GATT (General Agreement on Tariff and Trade) Valuation Agreement (19 U.S.C. § 1401a). Under this law, commissions and fees paid to the foreign seller must be included in the value declared to U.S. Customs. Accordingly, it is important for U.S. companies to be aware that the value for Customs purposes isn't always equal to the purchase order price or contract price.
Specifically, in most import transactions, U.S. Customs appraises the value of imported merchandise by determining its "transaction value," which is defied under the GATT Valuation Agreement (19 U.S.C. § 1401a(b)(1)) to mean the price actually paid or payable for the merchandise when sold for exportation to the U.S., plus amounts equal to:
- the packing costs incurred by the buyer with respect to the imported merchandise;
- any selling commission incurred by the buyer with respect to the imported merchandise;
- the value, apportioned as appropriate, of any assist;
- any royalty or license fee related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States; and
- the proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.
Thus, if a U.S. company pays a commission to a foreign supplier based on sales in the U.S. or if a customer of a U.S. company pays a license fee or royalties to the U.S. company of which a part is paid back to the foreign supplier, these commissions must be included in the value declared to U.S. Customs. If the U.S. company uses the actual purchase price without taking these commissions or fees into account, then the value of the merchandise might not be properly declared in the import documents.
It should also be noted that U.S. Customs law contains specific provisions concerning transactions between "related parties," meaning, for example, a U.S. company and its foreign affiliate. Unless certain requirements are met, U.S. Customs will be reluctant to accept "transaction value" between a related seller and buyer. The importer of record will either have to show that the price charged by the related party was the product of arm's length negotiations or that it satisfies certain test values described in the regulations. If the parties fail to meet these conditions, U.S. Customs may use an alternative method of appraisal that likely results in a higher value and increased duties reducing the profit margin.
About the author: Tobias F. Ziegler, Esq., head of the firm's international business practice, represents foreign and U.S. companies in all areas of corporate work, including, for example, the formation of corporate entities, product liability, sales agency, joint ventures and cooperation arrangements, corporate structuring, trademarks, licensing requirements and commercial contracts of all types. Mr. Ziegler also has extensive experience in representing business and individual clients in all aspects of real estate work, including transactional work, mortgage financing and real estate development work. In addition to his legal education in the United States, Mr. Ziegler holds law degrees from Germany and France, and he is fluent in the languages of both countries. He is an active member of the Eurojuris international legal organization. Mr. Ziegler can be reached at tfz@gdblaw.com.