For the last few months, we have devoted Monday’s blog to issues related to valuation of imported merchandise. Last week the blog addressed duties and taxes. The answer to last week’s question can be found at the end of this article. As we discussed in the first article in this series, both importers and brokers must have a good understanding of valuation and how to apply it to a variety of situations. Over the past few months, we have provided some information about methods of valuation and components of valuation, as well as some examples. This week, we will conclude our valuation series by providing some tips for studying valuation.
· Gather resources such as the Valuation Encyclopedia and Informed Compliance Publications.
· Read the blogs in this series; they appear on Mondays from March 9 to June 1.
· Read Part 152 of the CBP Regulations.
· Take a valuation course. (See www.bcplearning.com for a sample.)
· Learn the methods of valuation, focusing on why each one is used.
· Learn the components of valuation.
· Create fact sheets summarizing what you have learned.
· Create a process/checklist for verifying the value of imported goods. This list will likely include a review of the purchase order, commercial invoice and accounts payable.
· Create procedures for certain key valuation topics such as declaring assists, deducting non-dutiable charges and converting foreign currency.
· Create presentations and tools for use in training other departments with valuation responsibilities such as purchasing and finance.
· Compile all of your resources into a valuation guide to share with your team and other departments having responsibilities related to valuation .
This concludes our series on valuation. Join us next Monday as we start a new series. The topic has not yet been determined so submit your suggestions in the next few days.
Answer to Duties & Taxes Question – Monday May 25, 2009
Question 58 October 2005
$100,000 - $6,000 (frt) - $850 (ins.) = $93,150 6.5 + .21 +.125 = 6.835% (duty paid)
$ 93,150/1.06835= $87,191
Showing posts with label Appraisement. Show all posts
Showing posts with label Appraisement. Show all posts
Monday, June 1, 2009
Monday, April 27, 2009
Components of Valuation
For almost two months, we have been discussing valuation of imported goods. Now that we’ve discussed the various methods of valuation, we’ll look at the various components of valuation.
You may remember reading that transaction value is the price paid or payable for the imported products. Sounds simple, right? Well, it does provide us with a basis to start, but now we must determine if the "price paid" actually includes everything that is required. Then we must also determine if there are items included that could be deducted. Why would we want to do this? Why can't we just take the value on the sheet of paper and use it? The short explanation is that the price paid may not include items that must be included in order for the value to be reported according to CBP requirements. If we fail to add these required items, then the value is understated and CBP will not collect the correct amount of duties. Undervaluing merchandise means CBP collects LESS duty than required and being cheated out of monies will not make CBP happy. Then again, you probably wouldn't be too happy if your employers didn't pay you the proper amounts. Many of the valuation components fall into the categories of dutiable or non-dutiable. Some of these components fall into only one category, while others may fall into both, depending on how the transaction is structured. This article introduces you to the concepts of dutiable and non-dutiable components to value. Over the next few weeks, the articles will cover some of these components in more detail.
Dutiable Components
What costs are considered dutiable? Although transaction value may seem to be the price actually paid or payable for the merchandise, there are often arrangements between the buyer and seller that include supplementary agreements which can affect transaction value. Take a close look at the invoice to determine if dutiable components have been properly included. If not, then their values must be added. What are some of these dutiable components?
· Assists provided by the buyer
· Packing costs incurred by the buyer
· Selling commissions incurred by the buyer
· Repairs and warranties
· Proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller
Non-Dutiable Components
Transaction value of imported merchandise should not include any of the following if identified separately from the price actually paid or payable. We refer to these items as the non-dutiable components.
You may remember reading that transaction value is the price paid or payable for the imported products. Sounds simple, right? Well, it does provide us with a basis to start, but now we must determine if the "price paid" actually includes everything that is required. Then we must also determine if there are items included that could be deducted. Why would we want to do this? Why can't we just take the value on the sheet of paper and use it? The short explanation is that the price paid may not include items that must be included in order for the value to be reported according to CBP requirements. If we fail to add these required items, then the value is understated and CBP will not collect the correct amount of duties. Undervaluing merchandise means CBP collects LESS duty than required and being cheated out of monies will not make CBP happy. Then again, you probably wouldn't be too happy if your employers didn't pay you the proper amounts. Many of the valuation components fall into the categories of dutiable or non-dutiable. Some of these components fall into only one category, while others may fall into both, depending on how the transaction is structured. This article introduces you to the concepts of dutiable and non-dutiable components to value. Over the next few weeks, the articles will cover some of these components in more detail.
Dutiable Components
What costs are considered dutiable? Although transaction value may seem to be the price actually paid or payable for the merchandise, there are often arrangements between the buyer and seller that include supplementary agreements which can affect transaction value. Take a close look at the invoice to determine if dutiable components have been properly included. If not, then their values must be added. What are some of these dutiable components?
· Assists provided by the buyer
· Packing costs incurred by the buyer
· Selling commissions incurred by the buyer
· Repairs and warranties
· Proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller
Non-Dutiable Components
Transaction value of imported merchandise should not include any of the following if identified separately from the price actually paid or payable. We refer to these items as the non-dutiable components.
- International transportation costs
- Cost of transporting the goods after they have been imported
- International insurance
- Cost of any prepaid customs duties and other federal taxes
- Costs of constructing, erecting, assembling, maintaining, or providing technical assistance for goods after importation into the U.S.
- Buying Commissions
Next Monday we will start to explore the dutiable components. Join us tomorrow as we start a new series called "Trade Term Tuesdays."
Monday, April 20, 2009
Valuation and the Customs Broker Exam
As we continue our series on valuation, this week we will address one of the difficult questions from the April 2009 Customs Broker Exam. Valuation questions included on the exam are usually difficult. The key to answering Question 76 on this exam is knowing what components can be deducted and in what order.
Note: This is not the official answer to Question 76, but an attempt to analyze the question and provide a starting place for discussion.
Question 76
Select the correct answer for calculating the transaction value of a shipment with details as follows:
• $1,750,000 entered amount
• CIF New York Duty Paid, MPF included
• Price includes $25,000 ocean freight, $25 marine insurance, $1500 trucking freight (New York to Baltimore, MD), $100 broker fee in Baltimore, $100,000 customs duties and fees.
• The actual duty rate is 6.5%
• The actual MPF rate is 0.21%
Potential Answers:
A. TV = entered amount minus ocean freight, marine insurance, trucking freight, and customs broker fee; add MPF and 6.5% duty.
B. TV – entered amount minus ocean freight, marine insurance, trucking freight and customs broker fee. Divide remainder by 1.0671. Multiply the remainder by .0021. Subtract $485from the entered amount minus the authorized deductions. Divide the remainder by 1.065.
C. TV = entered amount minus ocean freight, marine insurance, trucking freight, maximum MPF, and 6.5% actual duty rate.
D. Divide out the actual duty rate, and then subtract the ocean freight, marine insurance, trucking freight and customs broker fee.
E. TV = entered amount minus ocean freight, marine insurance, and trucking freight fee and divide by 1.06701, multiply by .0021 for actual MPF; subtract MPF as allowed from the entered amount minus deductions and divide by 1.065 to yield Transaction Value.
Let's determine the status of each component.
1. 25,000 freight - not dutiable [152.102(f)]
2. $2500 insurance - not dutiable [152.102(f)]
3. $1500 U.S. domestic transportation - not dutiable [152.103(i)(1)(ii)]
4. $100 broker fee - not dutiable [152.102(f) - related services]
5. Duties - not dutiable [152.103(i)(2)]
6. MPF - not dutiable [152.103(i)(2)]
Answer A is incorrect because duty and MPF are deducted, not added.
Answer C is incorrect because the brokerage fees should be deducted. This would be the second best answer.
Answer D is incorrect because duty should not be divided out on the amount that includes freight and insurance since these two items are non dutiable and their value should not be included in the amount duty is calculated on. Answer E is incorrect because the brokerage fee should be deducted before calculating the duty.
Answer B is the best answer, as explained below.
Deduct the ocean freight, insurance trucking freight and broker fee. Then divide the remainder by the duty and MPF rate. Since the maximum deduction for MPF is $485and this amount is met due to the value, only $485 should be deducted and then the duty can be deducted.
$1,750,000 - $25,000 - $2,500 - $1,500 - $100 = $1,720,900
$1,720,900/1.0671 = $1,612,689
$1,612,689 x .0021 = $3,386.61 MPF = $485 Max MPF
Go back to the value determined after deducting freight, insurance, trucking and broker fee:
$1,720,900 - $485 = $1,720,415
Calculate Duty Deduction
$1,720,415/1.065 = $1,615,413
Now that the Wizard has provided some thoughts on the potential answer to this question, we would like to hear from our readers. Is this explanation correct? Is there a better answer? We are looking forward to some great discussions on this issue, so please respond with your thoughts and answers for this question.
Note: This is not the official answer to Question 76, but an attempt to analyze the question and provide a starting place for discussion.
Question 76
Select the correct answer for calculating the transaction value of a shipment with details as follows:
• $1,750,000 entered amount
• CIF New York Duty Paid, MPF included
• Price includes $25,000 ocean freight, $25 marine insurance, $1500 trucking freight (New York to Baltimore, MD), $100 broker fee in Baltimore, $100,000 customs duties and fees.
• The actual duty rate is 6.5%
• The actual MPF rate is 0.21%
Potential Answers:
A. TV = entered amount minus ocean freight, marine insurance, trucking freight, and customs broker fee; add MPF and 6.5% duty.
B. TV – entered amount minus ocean freight, marine insurance, trucking freight and customs broker fee. Divide remainder by 1.0671. Multiply the remainder by .0021. Subtract $485from the entered amount minus the authorized deductions. Divide the remainder by 1.065.
C. TV = entered amount minus ocean freight, marine insurance, trucking freight, maximum MPF, and 6.5% actual duty rate.
D. Divide out the actual duty rate, and then subtract the ocean freight, marine insurance, trucking freight and customs broker fee.
E. TV = entered amount minus ocean freight, marine insurance, and trucking freight fee and divide by 1.06701, multiply by .0021 for actual MPF; subtract MPF as allowed from the entered amount minus deductions and divide by 1.065 to yield Transaction Value.
Let's determine the status of each component.
1. 25,000 freight - not dutiable [152.102(f)]
2. $2500 insurance - not dutiable [152.102(f)]
3. $1500 U.S. domestic transportation - not dutiable [152.103(i)(1)(ii)]
4. $100 broker fee - not dutiable [152.102(f) - related services]
5. Duties - not dutiable [152.103(i)(2)]
6. MPF - not dutiable [152.103(i)(2)]
Answer A is incorrect because duty and MPF are deducted, not added.
Answer C is incorrect because the brokerage fees should be deducted. This would be the second best answer.
Answer D is incorrect because duty should not be divided out on the amount that includes freight and insurance since these two items are non dutiable and their value should not be included in the amount duty is calculated on. Answer E is incorrect because the brokerage fee should be deducted before calculating the duty.
Answer B is the best answer, as explained below.
Deduct the ocean freight, insurance trucking freight and broker fee. Then divide the remainder by the duty and MPF rate. Since the maximum deduction for MPF is $485and this amount is met due to the value, only $485 should be deducted and then the duty can be deducted.
$1,750,000 - $25,000 - $2,500 - $1,500 - $100 = $1,720,900
$1,720,900/1.0671 = $1,612,689
$1,612,689 x .0021 = $3,386.61 MPF = $485 Max MPF
Go back to the value determined after deducting freight, insurance, trucking and broker fee:
$1,720,900 - $485 = $1,720,415
Calculate Duty Deduction
$1,720,415/1.065 = $1,615,413
Now that the Wizard has provided some thoughts on the potential answer to this question, we would like to hear from our readers. Is this explanation correct? Is there a better answer? We are looking forward to some great discussions on this issue, so please respond with your thoughts and answers for this question.
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