Alexander Chebotarenko, Interleagal & A. Lazarev
Up-to-date economic relationships are rapidly developing. Globalization is characterized by strengthening of trade and economic ties between foreign trade participants, importers & exporters. Those who import goods to Ukraine are quite aware of the fact that correct determination of customs value of goods to import remains a hot issue. This indicator primarily affects the amounts of customs duties and charges that in the future would determine the fate of the goods.
The customs value of goods crossing the customs border is defined as their price that was actually paid or payable, calculated in accordance with the laws of Ukraine.
Declarant (or its authorized representative) has the right to declare the price of imported goods by itself. The declared value of the goods, subject to its correct definition by the declarant, is considered by the customs authorities as the customs value of the goods. The law obliges importers to correct customs value of goods (if necessary or incorrectly determined), but a declarant is given the right to appeal to the appropriate authority of the State Fiscal Service of Ukraine for clarification on the correct determination of the customs value.
Obviously, the proper determination of the customs value of goods saves time and prevents from additional costs for adjustment of their customs value.
Methods for determining the customs value of imported goods
The current practice informally divides customs valuation methods into two categories:
1) The basic method
On the basis of the transaction value of the imported goods (i.e. at the contract price).
- Additional methods, i.e. on the basis of:
2) the transaction value of identical goods;
3) the transaction value of similar goods;
4) the subtraction of value;
5) the addition of value;
6) fall-back method.
Method for determining the customs value at the contract price actually comes to the correct assessment of the import operation value. The Declarant (or its authorized representative) shall declare the price. The price is the total amount of all payments that have been made (or to be made) by the buyer to the seller of goods and (or) to the seller through a third party, and (or) parties related to the seller. Also further costs can be added if they were not included to the price actually been paid (or payable). Those may include:
- Costs incurred by the buyer;
- Properly allocated cost of goods and services supplied by the buyer free of charge or at reduced prices for the sale for export of the goods being valued in Ukraine, if this value is not included in the price that was actually paid or payable;
- Royalties and license fees;
- The relevant part of the proceeds from each resale, transfer or use of the goods being valued on the customs territory of Ukraine, which is directly or indirectly, comes to the seller;
- Transportation costs to the place of entry of the goods into the territory of Ukraine;
- The cost of loading, unloading and handling of the goods being valued associated with their transportation to the place of entry into the territory of Ukraine;
- The cost of insurance.
Practice of customs valuation of imported goods is actually reduced to the primary use of the method for determining the customs value at the contract price. In general, the legislator does not limit the use of this method, except for cases:
- established by law or specially implemented by government authorities;
- of establishing limited geographical area in which the goods may be resold;
- when a buyer and a seller are affiliated and/or related persons.
Additional methods for determining the customs value of goods are used only if the customs value of goods can not be determined by the basic method. The use of secondary methods in practice boils down to close work with government agencies through consultations and mutual exchange of the available information, subject to Privacy Policy.
The method of customs valuation based on the transaction value of identical goods is logical if these goods were imported approximately in the same amount and under the same commercial terms as the goods being valued. In practice, this kind of adjustment of customs value of goods is carried out regardless of whether the customs value of imported goods increases or decreases.
Determining the customs value of goods on the transaction value of similar goods means that the rate of customs value of goods is taken from the import operations of such goods in as close period of time as possible. Similar products in this case are understood as those that have similar characteristics, consist of similar components, so that comparable products perform the same function. The basis for determining similarity of products include: quality, availability of the brand and its reputation in the market; country of origin; manufacturer. This method is used for approximately equal quantity of products, similar terms and conditions of commercial importation of goods.
Determining the customs value of goods based on subtraction of value is grounded on a unit price, provided that the following is deducted: agency fees (which are actually paid or payable) or normal trade margins; expenses incurred in the territory of Ukraine for loading, unloading, transportation, insurance and other related operations; sums of import duties, taxes, fees and other mandatory charges related to the importation or sale of goods.
To determine the customs value on the addition of value (computed value) the basic price is provided by the manufacturer of the goods being valued, or the information about their cost is provided on his behalf, which consists of the cost of materials and expenses incurred by the producer in the process of production of the goods being valued; amount of profit and general expenses of producers in the exporting country; total cost of loading the goods, their transportation to the place of import into the customs territory of Ukraine, the cost of insurance and other related costs.
If it is impossible to determine the customs value of the imported goods by the above mentioned methods the fall-back method is used whose essence is to create a special committee which provides expert assessment of the goods imported.
In day to day customs evaluation check, Ukrainian customs used to prove higher level of the customs value and force importers pay more VAT and duty. Most common argument is “in our database we have other prices on similar cargo”. So the customs are more oriented not on proving or refusing a contract value, but on consulting customs brokers on indicative prices and using the 6th method with remark “after verbal consultation”
Documentation filed by the Declarant to confirm customs value of goods
Confirmation of the customs value of imported goods by customs authorities directly depends on correctness and validity of the documents filed by the declarant.
Following documents are filed to confirm customs value of goods:
1) Customs value declaration, is submitted in case when to the price that was actually paid or payable for the goods being valued, costs had been added (comprising customs value), if they were not included in the price that was actually paid or payable, namely the costs incurred by the buyer, the cost of tare (containers), the cost for packaging or packaging materials and services related to packaging.
2) Notice on the distribution of resources that belonged to the goods being valued, used in the production of valued goods, royalties and other license payments, the corresponding part of the proceeds of any subsequent resale of goods.
3) Foreign trade agreement (contract) or replacing document and its annexes if required.
4) Invoice or proforma invoice (if the product is not the subject of sale); If the invoice is paid – payment documents related to the goods being valued; other transport documents, if the freight is not included to the cost of the goods, and the documents containing information on the cost of transportation of the goods being valued.
5) A copy of the import license in case where imports of a product subject to licensing.
6) Insurance documents (in case of insurance).
In case of any discrepancies in the abovementioned documents or if there are signs of forgery, the Declarant (or its authorized representative) shall in 10 calendar days submit the following documents(if available): agreements with third parties related to the agreement/contract on supply of goods being valued; invoices on payments to third parties in favor of the Seller if such payments are performed under the terms of the agreement/contract; invoices on payment of agency fees, intermediary services due to performance of the agreement/contract; extract from accounting documentation; a buyer’s license/copyright agreement on evaluated goods if required under terms for selling evaluated goods; a manufacturer’s catalogues, specifications, price lists; copy of customs declaration of the country of consignment; reports on quality and value of goods made by specialized expert organizations and/or stock-exchange data on cost of the goods or raw materials.
When encountered with Ukrainian customs an importer have to know the rules – all signatures and stamps have to be similar in all documents, no discrepancies in documents are allowed. Specifically, because all indicative prices in customs database are in format “USD per KG” the customs pays attention on cargo weight checking, difference between net and gross weight. If goods are labeled by trademark – this have to be noted in the commercial documents.
Adjustment of customs value
The decisions on the adjustment of customs value of goods, which were declared by the declarant, are made by the corresponding body of the State Fiscal Service of Ukraine in writing during the check of accuracy of determining the customs value of goods. The decision on the adjustment of customs value of goods can be taken in the event when incomplete or unreliable information about the customs value of goods are presented, and also when the customs value of goods are incorrectly defined. A written decision of the State Fiscal Service shall contain the reasons on which it refused to recognize the customs value of the goods.
The declarant is entitled to disagree with the decision to adjust the declared customs value and release it into free circulation only on condition of payment of customs duties and on having paid the difference between the sums claimed by the declarant and the amount determined by the customs authority.
It should be noted that the declarant within 80 days should submit documents confirming the declared customs value of his goods that may serve as a mechanism to obtain additional time to resolve problems that may arise with customs clearance of the goods. Public authority within five days should examine such documents and can take a written decision on the recognition of the declared customs value of the declarant and, accordingly, reverse the decision on adjustment of declared customs value. If the customs authority within five days did not provide reasonable refusal customs value of the goods declared by the declarant is considered correct.
Court practice
The Ministry of incomes and taxes of Ukraine (now – The State Fiscal Service of Ukraine) in its letter number 5087/7/99-99-10-03-01-17 of 28.02.2014 summarized the provisions of the court practice of the Supreme Court of Ukraine and the Supreme Administrative Court of Ukraine on determining the customs value of goods.
The practice of denial of customs clearance of goods on the declared customs value is grounded primarily on identifying inconsistencies and errors in the information submitted by the declarant, which generally puts credibility of the filed documents into question. This kind of situation usually occurs in case of submitting documents which contain incomplete information; discrepancy is found between the goods declared and those which are registered in the customs office, or by comparing the declared value of the goods to the level of value of identical or similar goods, customs clearance of which was carried out before. So, as we can see, the list of reasons is advanced and, as evidenced by the practice, is rather complicated; and therefore the probability of incorrect charging or extra charging of customs value is high enough.
Having studied the court practice upon the issues of determining customs value, we can come to the main conclusion that only the reasonable grounds for stating that incomplete and/or incorrect customs value was declared may serve as grounds for denial in customs clearance of goods under the customs value declared by the Declarant (or its authorized representative).
The legal position of the Supreme Court of Ukraine (Decree of the Supreme Court of Ukraine of 01.10.2013, in the case No. 21-354a13) can well be applied. The Court concluded that the doubts about the authenticity of data filed by the declarant or his representative can arise due to the incompleteness of the submitted documents confirming the declared customs value of goods, non-compliance of the goods specified in the submitted documents to customs inspection of the goods, by comparison of the declared customs value of goods in terms of customs valuation level of the customs value of identical or similar goods customs clearance of which were already implemented.
If there is a reasonable doubt in correctness of determining the customs value of goods the position of the Supreme Court of Ukraine is driven towards laying the burden of proof on customs authorities, as with this condition the law binds the opportunity for the customs authorities to request a declarant for additional documents and entitles the officials to perform the necessary actions for determining the customs value of the goods.
In its decisions, the Supreme Court of Ukraine establishes exclusive jurisdiction of the customs authorities in matters of customs inspection and control over the correct calculation and declaring the customs value of goods, and states that those powers are governed solely by the law.
Raising the customs value and forcing to use the 6th method unfortunately remains rather common practice used by the Ukrainian customs with the aims to fill the state budget (declared) or “blackmail” importers (undeclared). . Even under official information – 20% of all import declarations are subject to customs value correction.
However, despite of the obvious difficulties that currently exist in determining customs value of goods imported to Ukraine, and related conflicts with the customs, careful and responsible approach to the preparation of necessary documents, consulting certified customs brokers as well as timely, if necessary, appeal to specialized lawyers, will help to avoid unnecessary problems.