Meaning
Administrative procedures for determining the economic value of imported goods provide the basis for the assessment of duties and taxes at the border. Customs valuation is a systematic process governed by the General Administration of Customs and based on the principles of the World Trade Organization. The primary method used is the transaction value, which is the price actually paid or payable for the goods when sold for export to China.
This value includes not only the cost of the goods themselves but also other related expenses such as commissions, royalties, and the cost of transport and insurance to the port of entry. The process stops once the customs authorities have accepted the declared value and issued the tax payment notice. It does not apply to goods that are imported for non-commercial purposes or those that have no transaction price, such as gifts or samples.
Valuation Methods
Hierarchy of rules for the determination of the customs value must be followed sequentially when the transaction price cannot be determined or is deemed unreliable. If the primary transaction value method is rejected, the authorities will first look at the value of identical goods imported into China at or about the same time. If no identical goods are found, the value of similar goods will be used as the next alternative.
Further down the hierarchy, the deductive value method and the computed value method are applied, which are based on the resale price in the domestic market or the cost of production respectively. The final fallback is the reasonable means method, which allows for a flexible application of the other rules based on available data. Importers are encouraged to provide as much information as possible to support their declared value and avoid the use of alternative methods.
The burden of proof is on the importer to demonstrate that the transaction price was negotiated at arm’s length and was not influenced by any special relationship between the parties.
Adjustment Factors
Financial elements that must be added to or subtracted from the transaction price are clearly defined in the customs regulations to ensure a uniform application of the rules. Additions to the price include items such as assists, which are materials or services provided by the buyer to the seller for free, and royalty payments related to the imported goods. These adjustments are necessary to reflect the full economic value of the transaction.
On the other hand, certain costs that are incurred after the goods have arrived at the port of entry, such as domestic transport and installation costs, can be deducted from the value if they are separately identified in the invoice. The proper identification and calculation of these adjustments is a common area of dispute between importers and customs officers. Detailed record-keeping and a clear understanding of the valuation rules are essential for companies to minimize their tax risks.
Customs authorities have the power to perform audits up to three years after the importation to verify the accuracy of the declared adjustments.
Audit and Dispute
Legal mechanisms for the resolution of disagreements regarding the valuation of goods include administrative reviews and appeals to the higher customs authorities. If a customs officer believes that the declared value is too low, they will issue a price inquiry and ask the importer for additional documentation. The importer must respond within a specified period and provide evidence such as bank statements, contracts, and market price data.
If the explanation is not satisfactory, the customs bureau will formally reject the declared value and proceed with its own assessment. The importer then has the right to pay the tax under protest and apply for an administrative review. This process ensures that the rights of the importer are protected while maintaining the integrity of the tax system.
The outcome of the review can be further challenged in a people’s court if necessary. This structured approach to dispute resolution provides a predictable environment for international trade and helps to prevent arbitrary decisions by customs officials.
