The determination of customs value has always been the key point of customs supervision. In import and export activities, it is the obligation of enterprises to accurately declare the value of the imports and exports. Otherwise, once the Customs determines that the value declaration is untrue or deceitful, the enterprises shall bear the corresponding administrative liability. Furthermore, if the illegal act reached the extent of committing a crime, the enterprises shall be prosecuted for criminal liability accordingly.

The price issue is very important and its illegal consequences are severe. However, the price issue has always been a sore point for the enterprises in practice. The reason is not difficult to understand, the determination of customs value is highly professional, involving the mastering and understanding of the value declaration skill, which is not easy. Just as an old saying goes, one false step will make a great difference.

Main Basis:

Regulations on Tariff of the People’s Republic of China

Measures for the Customs to Examine and Determine the Duty-paid Value of Imported and Exported Goods

Measures for the Customs to Examine and Determine the Duty-paid Value of Bonded Goods Sold in the Domestic Market

Measures for the Customs Taxation on Imported and Exported Goods

In addition, there are also other official announcements issued by the Customs for examining and determining the customs value. For example, to regulate the customs value of imported goods or trade methods such as processing trade, cross-border e-commerce, aircraft leasing, etc.

As the name implies, the customs valuation, is a process in which the Customs examines the declared value of imports and exports to determine the customs value. Therefore, determination of duty-paid value of the import and export goods is the core issue for the Customs valuation.

The basic methods for determining the customs value are as follows:

(I) Determination of the Customs Value of Imported Goods

1. Valuation Method Based on Transaction Price

The customs value of imported goods shall be determined by the Customs on the basis of the transaction price of the imported goods, including the cost of transport and associated charges and insurance of the goods before the unloading at the port of entry in the territory of the People’s Republic of China. Where the transaction price of imported goods cannot be determined or is deemed to not comply with the provisions by the Customs, the Customs shall determine the customs value of the goods by the following items 2-6 methods in a sequential order after gathering relevant information and consulting with taxpayers regarding value.

Note: taxpayers may, after providing relevant information to the Customs, request that the applicable order of items 4 and 5 in the following paragraph be reversed.

2. Valuation Method Based on Transaction Price of Identical Goods 

The valuation method based on the transaction price of identical goods is a valuation method whereby the Customs determines the customs value of imported goods on the basis of the transaction price of identical goods sold for export to the territory of the People’s Republic of China at or about the same time as the imported goods. “Identical goods” means goods which are produced in the same country or region as the imported goods and are identical to the imported goods in all aspects including physical characteristics, quality, and reputation; but minor differences in appearance are permitted. “About the same time” means less than 45 days before or after the day on which the Customs accepts the declaration of goods.

3. Valuation Method Based on Transaction Price of Similar Goods 

The valuation method based on the transaction price of similar goods is a valuation method whereby the Customs determines the customs value of imported goods on the basis of the transaction price of similar goods sold for export to the territory of the People’s Republic of China at or about the same time as the imported goods. “Similar goods” means goods which are produced in the same country or region as the imported goods and, although not identical in all aspects, have similar characteristics and component materials enabling them to perform the same functions, and they can be commercially interchangeable with the imported goods.

4. Deductive Price Valuation Method

The deductive price valuation method is a valuation method whereby the Customs determines the customs value of imported goods on the basis of the sales price of the imported goods or identical or similar goods after deduction of relevant expenses incurred within China. The sales price shall meet all of the following conditions: (1) the price is the sales price of the imported goods or identical or similar goods sold within China at or about the time of the importation; (2) the price is the sales price of the goods in the same condition as imported; (3) the price is the sales price of the goods initially sold within China; (4) the price is the sales price of the goods sold to unrelated parties within China; and (5) the goods sold at the price are in the largest aggregate quantity.

5. Computed Price Valuation Method

The computed price valuation method is a method whereby the Customs determines the customs value of imported goods on the basis of the sum of the following: (1) the cost of materials, parts and other processing employed in producing the goods; (2) usual profit and general expenses (including direct and indirect expenses) in sales of goods of the same class or kind for export to China; and (3) the cost of transport and associated charges and insurance incurred before the unloading of goods at the port of entry within China.

6. Reasonable Price Valuation Method 

The reasonable price valuation method is a method whereby the Customs determines the customs value of imported goods on the basis of objective and quantifiable data under the principles of neutrality, fairness, and uniformity, only if the customs value cannot be determined by the above methods. In determining the customs value applying this method, the Customs is not allowed to use the following:

1） sales price of goods produced within China;

2） the higher price of two alternatives;

3） sales price of the goods in the exporting country or region;

4） price of identical or similar goods computed based on the values or costs other than computed price valuation method.

5） sales price of goods exported to a third country or region; or

6） floor price, or arbitrary or fictitious prices.

(II) Customs Value of Exported Goods

The customs value of exported goods shall be determined by the Customs on the basis of the transaction price of the goods, including the cost of transport and associated charges and insurance incurred before loading of the goods at the port of departure within the People’s Republic of China.

Where the transaction price of exported goods cannot be determined, the Customs shall, after gathering relevant information and consulting with taxpayers, determine the customs value of the goods on the basis of the following prices in a sequential order:

(1) the transaction price of identical goods exported to the same country or region at or about the same time;

(2) the transaction price of similar goods exported to the same country or region at or about the same time;

(3) the value computed on the basis of the cost, profit, and general expenses (including direct and indirect expenses) for producing identical or similar goods within China and the cost of transport and associated charges and insurance incurred within China; and

(4) the value determined by reasonable price valuation method.

1. In declaration to the Customs, taxpayers shall truthfully provide invoices, contracts, bills of lading, packing lists, and other documents to the Customs, and declare the related transactions. The Customs shall examine the price of the declared goods, and confirm whether the related relationship affects the transaction price.

2. To verify the truth and accuracy of the declared values, when examining and verifying the value, the Customs may require the taxpayers and the customs declaration enterprises to make supplementary declaration. For example, they shall also truthfully provide payment vouchers relating to the transaction, as well as other commercial documents, written materials, and electronic data proving the truth and accuracy of the declared values.

3. When the Customs has any doubt about the truth or accuracy of the declared value or deems that the relationship between the buyer and the seller has affected the transaction price, it will initiate the price doubt negotiation procedure, notifying in writing the taxpayer of the reasons for the doubt. The taxpayer shall, provide the relevant information or other evidence in writing to prove that the declared value is true and accurate or the relationship between both parties has not affected the transaction price.

4. After initiating the price doubt negotiation procedure and the taxpayer’s provision of the relevant information or evidence, the Customs still has reasons to doubt the truth or accuracy of the declared value, or to believe that the relationship between the buyer and the seller has affected the transaction price after examining such information or evidence. Under this condition, the Customs can decline the declared value, and use the above-mentioned valuation methods in a sequential order to examine and determine the customs value in accordance with relevant provisions. Otherwise, the Customs accepts the declared price of the enterprise as the transaction price to examine and determine the customs value.

(I) Main Points of Customs Value Verification

“Value verification” is an examination procedure for the authenticity and accuracy of the declared transaction price of imported or exported goods, as well as any relationship between the buyer and the seller affecting the transaction price, conducted by the Customs for the purpose of determining the customs value of imported or exported goods, by exercising powers legally through the methods such as examining documents, verifying data, and checking physical goods and relevant accounts.

In the value verification, the Customs actually conducts a comprehensive and systematic review and verification of the actual transaction of the imports and exports. The key contents of the value verification are as follows:

1. Whether the relevant documents are true, valid and complete, and whether the documents and the goods can be mutually verified.

2. Whether all relevant expenses are included in the customs value. “Relevant expenses” here, such as royalties, the “assistance” expenses provided by the buyer free of charge or at a reduced price, freight and insurance premiums incurred abroad, commissions and brokerage, except buying commissions, cost of containers as essential part of the imported goods, cost of packing both for labor and materials, income from resale, disposal or use of imported goods by the seller, etc.

3. Whether the transaction price is affected by a special relationship.

4. Whether there is any special arrangement affecting the transaction price, such as tie-in or mutual sales.

5. Whether there is payment by installments or payment through multiple channels.

(II) Main Methods of Customs Value Verification

The Customs value verification is mainly though the methods of examining documents, verifying data, and checking physical goods and relevant accounts. The key methods of the value verification are as follows:

1. consulting and duplicating the contracts, invoices, account books, payment vouchers, bills, business correspondence, and audio-video recordings relating to the imported or exported goods, as well as other commercial documents, written materials, and electronic data reflecting the relationship and trading activities between the buyer and the seller;

2. investigating the taxpayers of imported or exported goods and citizens, corporations, or other organizations who financially or otherwise associated with the taxpayers, with regard to the issues on the prices of imported or exported goods;

3. examining the imported or exported goods or taking samples of the goods for inspection or lab testing;

4. entering the factories, operation addresses and warehouses of the taxpayers to inspect goods and business operations relating to their import or export activities;

5. with the approval of the director of the customs office directly under the General Administration of Customs or the director of the subordinate customs office authorized by it, requesting the provision of information on capital flows in an institutional account of a taxpayer with a bank or any other financial institution, and notifying the banking regulatory authority of relevant information; and

6. requesting the tax authorities to provide information on the payment of domestic taxes relating to the imported or exported goods.

In addition, according to the value verification, the Customs can also determine whether to initiate the inspection, investigation and even criminal detection to verify the import and export goods and activities of enterprises, so as to verify whether the import and export activities of enterprises conform to the customs laws and regulations.

1. If a taxpayer fails to declare the value truthfully, and falsely conceals the value, evades taxes, etc. which, upon examination and determination by the Customs, constitutes violation of the customs supervision regulations or a smuggling act, it shall be punished in accordance with the Implementation Regulations of the Customs of the People’s Republic of China on Administrative Penalties; if the illegal act reached the extent of committing a crime, the enterprises shall be prosecuted for criminal liability accordingly.

2. If the taxpayer has any objection to the customs value, he may apply to the higher-level Customs authority in charge of examining determining the price for reconsideration. If the taxpayer refuses to accept the reconsideration decision, it may file an administrative lawsuit before the court.