Aligning Related Party Import Prices with Customs Transaction Value Rules
Aligning related party import prices requires establishing prospective formula clauses in supply contracts that satisfy both tax profit margins and customs valuation decrees.
Deductive Value Method
Meaning
A valuation hierarchy dictates the priority of methods used to determine the customs value of imported goods when the transaction price is rejected. This deductive value method calculates the assessment base by starting with the unit price at which the imported goods are sold in the greatest aggregate quantity to unrelated buyers in China. The General Administration of Customs views this as the fourth method considered in the valuation sequence defined by the World Trade Organization and local regulations.
Calculation Logic
The process begins with the resale price of the goods after they have entered the domestic market. This deductive value method removes the costs incurred within the country to isolate the value of the goods at the moment of importation. Customs officers use the audited financial statements of the importer to verify the sales price and the timing of the transactions.
Permissible Deduction
Deductions from the resale price include commissions, the usual expenses for transport and insurance within China, and the customs duties paid. This deductive value method also accounts for the profit and general expenses associated with the sale of the imported goods. The calculation must be based on objective and quantifiable data obtained from the accounting records.
If the goods have undergone processing after importation, the value added during that process is also subtracted from the final price.
Sequential Application
Importers can request the customs authority to apply the computed value method before this procedure, although such requests are rarely granted in practice. This deductive value method is used only if the transaction value and the values of identical goods are unavailable. The technique provides a reliable alternative when the relationship between the buyer and seller makes the invoice price unreliable.