Ensuring Accurate Customs Valuation and Compliance

The value you declare when importing goods directly determines how much you pay in duties. Given the current tariff environment and the advisories around stricter customs enforcement, it's important to verify that your declared values are correct. Wrong values mean you'll either pay too little or too much. Let’s take a look at valuation to ensure you’re on the right track!

What is Valuation?

Customs valuation is the process of determining the monetary value of imported goods for the purpose of calculating customs duties and taxes. It's a critical component of international trade that affects how much importers pay when bringing goods across borders.

There are six different methods of Valuation. Typically, importers that have a Maquiladora operation abroad use the Computed Value method. The six methods are:

1. Transaction Value - value is the price actually paid or payable for the goods when sold for export to the importing country
2. Transaction value of identical goods - value based on the price of identical goods sold at the same time
3. Transaction value of similar goods - value based on the price of comparable products with similar characteristics
4. Deductive value - value based on the price the goods would sell for in the importing country, minus certain costs
5. Computed value - value based on production costs, profit, and general expenses of producing the goods (e.g.: sum of materials, fabrication, and other processing used in producing the imported merchandise, profit and general expenses, assists, packing costs). Note: A worksheet is provided below as a guide for determining Computed value according to U.S. Customs standards.
6. Fallback method - value using reasonable means consistent with WTO principles

Guidelines for Customs Valuation

Transaction Value as Primary Method

The preferred method for customs valuation is transaction value, which is the price paid or payable for imported goods. This price should be adjusted for specific costs, such as freight, insurance, royalties, or assists, in line with the World Trade Organization’s Agreement on Customs Valuation.

Proper Adjustments to Transaction Value

Dutiable additions, including packing costs, selling commissions, royalties, or license fees paid as a condition of sale, must be included. Conversely, non-dutiable costs like international freight or post-importation expenses should be excluded to avoid overvaluation.

Use of Alternative Valuation Methods

If transaction value cannot be applied, such as in cases where there is no sale or transactions occur between related parties, secondary methods should be used in this order: transaction value of identical goods, transaction value of similar goods, deductive value, computed value, or fallback method. Each approach must comply with regulatory requirements.

Related-Party Transactions

When dealing with transactions between related parties, it is crucial to ensure that the relationship does not influence the price. The “circumstances of sale” test or comparison with values of identical or similar goods can help confirm arm’s-length pricing.

Documentation and Recordkeeping

Maintain comprehensive records, such as invoices, contracts, and proof of payment, for at least five years to substantiate declared values. The U.S. Customs Service may audit these records for accuracy, and incomplete documentation can result in penalties.

Assists and Indirect Costs

Declare the value of assists, including materials, tools, or designs provided free or at reduced cost to the seller. These costs should be properly allocated to the imported goods.

Transfer Pricing Alignment

Customs valuation should align with transfer pricing policies for tax purposes to prevent discrepancies that could trigger audits. Advance pricing agreements or customs rulings may provide clarity in complex cases.

Compliance with Informed Compliance

Importers are required to exercise “reasonable care” by ensuring accurate declarations. This includes staff training, consulting customs brokers, or obtaining U.S. Customs Service rulings for complicated valuation scenarios.

Avoiding Penalties

Misdeclaration of value, whether intentional or negligent, can lead to fines, penalties, or even seizure of goods. Regular internal reviews and reconciliation of entries help to mitigate these risks.

Customs Rulings and Guidance

Utilize resources from the U.S. Customs Service, such as the Customs Valuation Encyclopedia or binding rulings, for clarification on valuation matters. For complex scenarios, seek advice from customs brokers or legal experts.

Reconciliation program

Reconciliation allows an importer to revise (post-entry) certain elements of an entry summary that were undeterminable at the time the merchandise was entered, such as value. At the time of filing their entry summaries Importers use the best available information, then (up to 21 months later) provide the corrected information on a new type of entry called a Reconciliation.

But waiting that long can significantly impact payment accuracy. Therefore, it is recommended to review declared values at least twice a year to help ensure accurate customs reporting.

U.S. Customs Valuation vs. Maquiladora Valuation

It is important to note that valuation for U.S. Customs purposes differs from Maquiladora operations in Mexico. In Mexico’s program, goods do not depreciate per se, which is relevant for companies returning equipment, machinery, or other items that have been in Mexico for an extended period.For US Customs purposes, the value to be declared at the time of entry is the U.S. book value of the goods, so if the equipment and machinery is fully depreciated, then the value of the goods for US Customs purposes can be:

• the market value if sold or what it would be worth to your organization in the current state, i.e., if it were stolen, what value would you give it? Note that no good can have zero 0.00 value for U.S. Customs purposes.
• the value being paid by the recycler if being recycled.
• if no value can be determined and the goods are being disposed of then the value can be the cost to be transported to the disposal site + all related charges to carry out the disposal.

Compliance

Given the current tariff environment, the impact of accurately declared values is more significant than ever. The value(s) declared at the time of entry directly affect the tariffs paid, and careful consideration must be given to the declared values. Importers are encouraged to conduct thorough audits of their importing practices and voluntarily self-disclose and remediate unlawful behavior.

To ensure full compliance, its helpful to run through this list of questions as well:

• Have you provided CBP with the correct declared value for your merchandise in accordance with 19 U.S.C. 1484 and 19 U.S.C. 1401a?
• Have you obtained a CBP ruling regarding valuation of your goods per 19 CFR Part 177 and can you establish that you followed the ruling reliably?
• Have you consulted the CBP valuation laws and regulations, CBP Valuation Encyclopedia, CBP informed compliance publications, court cases and CBP rulings to assist you in valuing merchandise?
• Do you know the total payment made, excluding international freight, insurance, and other C.I.F. charges?
• Do you know them terms of the sale? Whether there will be rebates, tie-ins, indirect cost, additional payments? If assists were provided or commissions or royalties paid?
• Are amounts actual or estimated?
• If you purchased the merchandise from a “related” seller, have you reported that fact upon entry? Did you assure the value submitted to CBP meets one of the “related party” tests?
• Have you assured that all legally required costs or payments associated with the imported merchandise (assists, commissions, indirect payments or rebates, royalties, etc.) have been reported to CBP?
• If you are declaring a value based upon a transaction in which you were/are not the buyer, have you substantiated that the transaction is a bona fide “sale at arm’s length” and that the merchandise was clearly destined to the United States at the time of sale?
• If you are claiming a conditionally free or special tariff classification or provision for your merchandise (GSP, HTS Item 9802, USMCA), have you reported the required value information and obtained the documentation necessary to support the claim?
• Can you produce the required entry documentation and supporting information?

Need help with valuation? Contact us at compliance@casasintl.com to get your compliance on track.