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.
GACC Announcement 20
Meaning
An administrative decree establishes the mandatory procedures for declaring royalty payments associated with imported goods. This gacc announcement 20 requires importers to disclose whether they pay royalties to the seller or a third party during the customs declaration process. The General Administration of Customs uses this information to determine if these payments should be added to the customs value of the merchandise.
Royalty Inclusion
Payments for the use of patents, trademarks, technical secrets and proprietary designs are taxable if they are related to the imported goods and constitute a condition of sale. This gacc announcement 20 focuses on the relationship between the intellectual property and the physical product. If the importer cannot purchase the goods without paying the royalty, the fee is usually included in the valuation.
Valuation Principle
Customs authorities evaluate the licensing agreement to identify the portion of the royalty that directly benefits the imported components. This gacc announcement 20 stipulates that royalties paid for the right to reproduce the goods in China are generally excluded from the customs value. The distinction depends on whether the intellectual property is embodied in the product at the time of entry.
Documentation must clearly show the breakdown of fees to avoid the taxation of non-taxable services. The port authority requires a copy of the contract translated into the local language to verify the claims.
Reporting Process
Importers must select a specific indicator in the declaration system to signify the presence of a royalty agreement. This gacc announcement 20 provides the legal framework for retrospective audits and the assessment of back taxes. Companies that fail to disclose these payments face penalties and the potential for a criminal investigation for smuggling.
Accurate reporting ensures that the enterprise maintains a high compliance rating with the port authorities.