Deductive Value

Welcome back to our series on "Methods of Valuation." Last week we covered the definition of Transaction Value of Identical & Similar Merchandise. Those two methods are similar to Transaction Value and are easy to understand. As you will see in our coverage of Deductive and Computed Value, the requirements become a little more complex.

Deductive Value is the fourth method of valuation. If the previous three methods are found to be inappropriate to use, then deductive value must be used. Generally, deductive value takes the merchandise sold after importation, and assigns value based on the price of the greatest aggregate quantity sold, with deductions made for profit, transportation and other expenses. Although it might not be noticeable now, determining the value gets more complex with each new method introduced. The following amounts should be deducted from the merchandise being appraised under the deductive method:

•Any commission usually paid or the addition usually made for profit and general expenses in connection with sales in the U.S. of imported merchandise that is of the same class or kind regardless of the country of exportation.
•The actual costs and associated costs of transportation and insurance incurred with respect to international shipments of the concerned merchandise from the country of exportation to the U.S.
•The usual costs and associated costs for transportation and insurance incurred with respect to shipments of the concerned merchandise from the place of importation to the place of delivery in the U.S.
•The customs duties and other federal taxes currently payable on the concerned merchandise because of its importation.

Note: Even though deductive value is the 4th method, computed value may be used before deductive if the importer requests it before entry and CBP approves it.

Example: Eagle Exporter manufactured and shipped widgets to its subsidiary in the United States; however, it was determined that the relationship influenced the price, and transaction value was not acceptable. Eagle Exporter only manufactured one kind of widget and only sold them to the U.S. subsidiary; therefore, transaction value of identical and similar merchandise was not an acceptable method of appraisement. The U.S. subsidiary would need to keep track of the sales for 90 days after importation, determine the greatest aggregate quantity sold at a certain value and make the proper deductions in order to determine the value for customs purposes. Since this information will not be available at the time of entry, the importer will need to consider participation in the reconciliation program or provide the information using another acceptable post entry process.

Join us next week when we explore computed value.

Methods of Valuation

Last week we introduced you to the topic of valuation of imported goods. For the next few weeks, we will discuss the methods of valuation. There are six major methods that can be used to determine the value, however, the methods must be used in order, as appropriate, and in accordance with the regulations.

Derived value (lowest on the hierarchy), for example, cannot be used until each of the other methods have proven inappropriate. It is important for international trade professionals to be familiar with not only the different methods of valuation, but also the order in which they may be applied:

• Transaction Value
• Transaction Value of Identical Merchandise
• Transaction Value of Similar Merchandise
• Deductive Value
• Computed Value
• Derived Value

Transaction Value
Transaction value is the first method of valuation to be considered when determining the value of an import shipment and the most common. Transaction value is the price actually paid or payable for the imported goods, with additions made for any dutiable items not included, or deductions made for any non-dutiable items included. Transaction value is simply the price that is paid for the merchandise. Remember, it is important to determine the correct value because duties are usually based on a percentage of value.

Additions to the Price Actually Paid or Payable
The transaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for export to the U.S., plus amounts equal to:

• Packing Costs
• Selling Commissions
• Assists
• Royalties or License Fees that the buyer is required to pay directly or indirectly as a condition of sale of the imported merchandise
• Proceeds of any subsequent resale or use of the imported merchandise that accrue directly or indirectly to the seller.

Charges Not Added to the Price
• International Freight and Insurance
• Discounts
• Buying Commissions - When determining the transaction value, buying commissions that are added to the price actually paid or payable for the imported goods must be listed separately from the price of the goods in order to remain non-dutiable.
• Costs for transport and construction/maintenance after import
• Customs Duties and Taxes

Transaction value cannot be used when
• there is no sale, such as consignments, leases or free-of-charge shipments,
• sales are not made at “arm's-length” such as related party transactions, and
• restrictions on disposition or use of imported merchandise substantially affect the value of the merchandise.

We will continue our series on valuation next week with a brief discussion about Transaction Value of Identical and Similar Merchandise.