Meaning
Regulations issued by the general administration of customs define the specific procedures for the declaration and valuation of imported goods. The administrative decree known as customs order 213 establishes the framework for determining whether payments made by an importer to a foreign licensor must be included in the dutiable value of the merchandise. It governs the assessment of royalties and license fees that relate to the imported goods as a condition of sale.
This order stops applying once the customs value is finalized and the corresponding duties are paid. It applies to all manufacturing and trade entities importing items that involve a patent or technical secrets.
Declaration Obligation
Importers must proactively disclose the existence of any royalty agreements during the initial entry filing. Following the rules in customs order 213, a failure to declare these payments can lead to charges of smuggling or tax evasion. The responsibility for accurate valuation rests entirely on the local importing entity.
Valuation Test
Officials examine whether the payment is made for the right to use a specific brand or technical process contained in the cargo. Under customs order 213, if the goods cannot be purchased without the royalty payment, the fee is added to the transaction price. This test separates pure service fees from product-related costs.
Audit Risk
Customs bureaus conduct post-importation audits to verify that the declared values match the financial records of the company. A violation of customs order 213 often results in the reassessment of duties for all shipments made over the previous three years. This retroactive adjustment can create significant financial liabilities for a supply chain operation.
