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HOME > Publications > Professional Articles > Do you know the Customs transaction value valuation method?

Do you know the Customs transaction value valuation method?

Author: Sean Jia & Jing Ning 2020-10-281530

In the case of levying customs duties on the basis of ad valorem, the valuation method based on transaction price is the first method to be considered for the Customs to examine and determine the duty-paid value. Whether the valuation method based on transaction price can be accurately understood and applied determines whether the declared value of the enterprise can be accepted by the Customs, and whether the Customs would use the declared value as the transaction price to determine the customs value of the goods, which is directly related to the vital interests of the enterprise.These three questions can help better understand the valuation method based on transaction price:


What is the transaction price?


What are the conditions for the transaction price to be accepted by the Customs?


What considerations need to be included in the transaction price and deducted from it when determining the customs value?


Ⅰ. What is the transaction price


The transaction price of imported goods is the total price actually paid and payable by the buyer to the seller for the sale of the goods for export to the territory of the People’s Republic of China as adjusted under the provisions of Measures for the Customs to Examine and Determine the Duty-paid Value of Imported and Exported Goods (hereinafter referred to as “the Measures”), including amounts directly and indirectly paid.


That is so say, the transaction price equals the actually paid or payable price after adjustment.


It should be noted that the transaction price here is not exactly equal to the actual invoice or contract price in the actual commerce, because the invoice or contract price in the trade is often agreed by the buyer and the seller, and the agreed price may be the price actually paid or payable, may also include the cost of transport and insurance of imported goods after the unloading of the goods at the port of entry in the territory, or may even include other factors that need to be adjusted. The transaction price in the examination and determination of customs value is specific. It must be the price actually paid or payable after adjustment according to the Measures, and at the same time, it must meet some certain conditions.


“Price actually paid or payable” means the total payment made directly or indirectly by the buyer for the purchase of imported goods, including amounts directly and indirectly paid.


Ⅱ. What are the conditions for the transaction price to be accepted by the Customs


(1) The transaction price in the examination and determination of customs value is specific, which shall be adjusted according to the factors of inclusion and deduction stipulated in the Measures. At the same time, the following (II) conditions shall be met before it can be accepted as the transaction price by the Customs. Otherwise, the valuation method based on transaction price cannot be applied to determine the customs value .


(II) Conditions for the transaction price to be accepted by the Customs


Take the imported goods as an example, the transaction price accepted by the Customs shall meet the following conditions: (1) there are no restrictions as to the disposal or use of the goods by the buyer, other than the restrictions which are imposed by laws and administrative regulations, or the restrictions only limiting the sales area, or other restrictions do not substantially affect the price; (2) the price of the imported goods is not subject to some condition or consideration for which the transaction price of the goods cannot be determined; (3) no part of the proceeds of any subsequent resale, disposal, or use of the goods by the buyer shall accrue directly or indirectly to the seller, unless an adjustment can be made under customs regulations and laws; and (4) the buyer and the seller are not related, unless the transaction price is not affected by their relationship. The mentioned conditions will be interpreted one by one:


1. There are no restrictions as to the disposal or use of the imported goods by the buyer.


This is based on the requirement of fair trading. The transaction based on restriction is unfair, and the corresponding price will be affected. Therefore, the valuation method based on transaction price is not applicable at this time. We understand that the restrictions here shall not be interpreted more broadly, but shall be interpreted as restrictions that have a substantial impact on the price.


According to the Measures, under any of the following circumstances, it shall be deemed that there is an restriction as to the disposal or use of the goods by the buyer:


(1) the imported goods may only be used for exhibition or as gift;

(2) the imported goods may only be sold to a designated third person;

(3) the imported goods may only be sold to the seller or a designated third person as processed products; and

(4) other restrictions as to the disposal or use of the goods by the buyer, as determined by the Customs upon examination.


2. The price of the goods is not subject to some condition or consideration for which the transaction price of the goods cannot be determined.


For example, the seller’s selling price depends on the buyer’s purchase of a specific quantity of other goods at the same time, that is a so-called tie-in transaction. At this time, it can be considered that the sale or price is affected by certain condition or consideration, and the Customs can refuse to use the valuation method based on transaction price.


For this condition, we can interpret it according to the Article 10 of the Measures, under any of the following circumstances, the price of the imported goods shall be deemed subject to some condition or consideration for which the transaction price of the goods cannot be determined:


(1) the price of the imported goods is established on condition that the buyer will also buy other goods in specified quantities from the seller;

(2) the price of the imported goods is established on condition that the buyer also sells other goods to the seller; and

(3) other conditions where the price of the imported goods is subject to some condition or consideration for which the transaction price of the goods cannot be determined, according to the Customs’ examination.


3. No part of the proceeds of any subsequent resale, disposal, or use of the goods by the buyer shall accrue directly or indirectly to the seller, unless an adjustment can be made under the Measures.


According to the article 11.1.4 of the Measures, where the customs value of imported goods is determined on the basis of transaction price, the following costs or values not included in the price actually paid or payable for the imported goods shall be included in the customs value: the value of any part of the proceeds of any subsequent resale, disposal, or use of the goods by the buyer after importation which accrues directly or indirectly to the seller.


In practice, there is a buyer who, in addition to paying the price of the goods, returns part of the resale and use profits of the imported goods. In this case, if there is no objective and quantitative data and no adjustment can be made according to the above provisions, the Customs can refuse to use the valuation method based on transaction price.


4. The buyer and the seller are not related, or where the buyer and the seller are related, the transaction price is not affected by the relationship.


There are two questions involved: first, how shall the buyer and the seller be deemed to be related? Second, how to determine whether the special relationship has affected the invoice or contract price between the two parties?


How shall the buyer and the seller be deemed to be related?


According to the Article 16 of the Measures, under any of the following circumstances, the buyer and the seller shall be deemed to be related:

(1) they are members of the same family;

(2) they are officers or directors of each other ’s businesses;

(3) one party is directly or indirectly controlled by the other;

(4) both the seller and the buyer are directly or indirectly controlled by a third party;

(5) together they directly or indirectly control a third party;

(6) one party directly or indirectly owns, controls, or holds no less than 5% of the outstanding voting stock or shares of the other;

(7) one party is an employee, officer, or director of the other; or

(8) they are members of the same partnership.


Where the buyer and the seller are associated in business with each other, one party is the sole agent, sole distributor, or sole assignee of the other. Under this condition, they shall be deemed to be related.


How to determine whether the special relationship has affected the invoice or contract price between the two parties?


According to the Article 17 of the Measures, where the buyer and the seller are related, but the taxpayer is able to prove that the transaction price approximates to one of the following occurring at or about the same time, it shall not be deemed that the relationship has affected the transaction price of imported goods:


(1) the transaction price in sales to unrelated buyers of identical or similar goods within China;

(2) the customs value of identical or similar goods as determined under the provisions of the deductive price valuation method; and

(3) the customs value of identical or similar goods as determined under the provisions of the computed price valuation method.


In comparing the aforesaid values, the Customs shall take into account the differences in commercial levels, quantity, and costs resulting from the fact that the buyer and the seller are related or not related.


If the activities related to the sale of goods is in accordance with the commercial practices after examination , the Customs may determine that the relationship has not affected the transaction price of imported goods.


Ⅲ. What considerations of adjustment for the transaction price


In short, which considerations shall be included in the transaction price and which shall be excluded from the transaction price need to be decided. Generally speaking, the former is the addition term, and the latter is the subtraction term. When determining the duty-paid price, the Customs shall, on the basis of the declared price actually paid or payable, plus the addition terms and minus the subtraction terms according to the Measures. The final adjusted price is the transaction price.


(Ⅰ) The considerations that shall be included in the transaction price


According to the Article 11 of the Measures, where the customs value of imported goods is determined on the basis of transaction price, the following costs or values not included in the price actually paid or payable for the imported goods shall be calculated in the customs value:


(1) The following costs undertaken by the buyer:

(a) commissions and brokerage, except for the purchase commissions;

(b) the costs of containers which are treated as part of the goods; and

(c) the costs of packaging for materials and labor.


(2) The value, apportioned as appropriate, of the following goods and services where supplied by the buyer free of charge or at reduced cost, in connection with the manufacturing and sales of the imported goods to the People’s Republic of China:

(a) materials, components, parts, and similar items incorporated in the imported goods;

(b) tools, dies, moulds, and similar items used in the manufacturing of the imported goods;

(c) materials consumed in the manufacturing of the imported goods; and

(d) engineering, technology development, artwork, design work, plans and sketches, and other relevant services undertaken outside of China necessary for the manufacturing of the imported goods.


(3) Royalties and license fees which the buyer must pay, directly or indirectly, to the seller or the relevant parties, unless under either of the following circumstances:

(a) the royalties and license fees are not related to the goods; or

(b) the payment of the royalties and license fees is not a condition for sales to the territory of the People's Republic of China.

(4) The profit obtaining by the seller from any subsequent resale, disposal, or use of the goods by the buyer after importation directly or indirectly.


Taxpayers shall provide the Customs with objective and quantifiable data on the aforesaid costs or values. If taxpayers are unable to provide such data, the Customs shall, after consultation with taxpayers, determine the customs value based on the following methods in a sequential order: valuation method based on transaction price of identical goods, valuation method based on transaction price of similar goods, deductive price valuation method, computed price valuation method, and reasonable price valuation method.


(Ⅱ) The factors that need to be deducted in the transaction price


According to the Article 15 of the Measures, the customs value of imported goods shall not include the following charges or costs distinguished from the price of the imported goods:


(1) charges for construction, erection, assembly, maintenance, or technical assistance of industrial plants, machinery, or equipment incurred after importation, except for the warranty costs;

(2) the costs of transport and associated charges and insurance of imported goods after the unloading of the goods at the port of entry in the territory of the People's Republic of China;

(3) import duties, taxes collected by the Customs vicariously at the time of importation, and other domestic taxes;

(4) charges paid for the reproduction of imported goods within China; and

(5) expenses for domestic and overseas technical training and overseas business tour.

Interest expenses meeting the following conditions shall not be included in the customs value:

(1) the interest expenses are incurred by the buyer on financing for purchasing the imported goods;

(2) there is a written financing agreement;

(3) the interest expenses are distinguished in the agreement; or

(4) the taxpayer is able to prove that the interest rate adopted is not higher than the interest rate generally available for local similar transactions at that time, and the price of identical or similar imported goods without any financing arrangements approximates to the value paid or payable for the imported goods.