Valuing Customs Valuation: Lessons for US Importers

Most importers are well aware that US Customs and Border Protection (CBP) can and often does assess harsh civil penalties against importers for importing goods in violation of often difficult-to-comprehend laws and regulations. Whether or not there has been an actual duty loss can also affect a penalty assessment by CBP against the importer. In this blog, we will explore the importance of accurate customs valuation for US importers.

Legal Repercussions Of Incorrect Valuation

Penalties can be assessed by the US government against an importer by two different legal avenues:

• Section 1592 of the Tariff Act of 1930
• Title 19 of the Code of Federal Regulations
  

Section 1592

Section 1592 of the Tariff Act of 1930 is the primary customs penalty provision regarding the importation of goods into the US.  It is the chief enforcement tool used by CBP to ensure customs laws concerning valuation, commodity classification under the Harmonized Tariff Schedule of the US (HTSUS), and others are followed. 

Section 1592 of the US federal statute gives authority to CBP to impose penalties for customs law violations. The statute has different levels of culpability (that is, blameworthiness) with respect to the penalties that may be imposed for:

• Negligence (think of it as carelessness)
• Gross negligence (meaning wanton disregard of the facts)
• Fraud (that is, the mindset of the importer is to intentionally deceive) 
  

Specifically, Section 1592 prohibits the importation or attempt to import merchandise by means of:

• (a) false and material documents or electronic data or 
• (b) material omissions. 
  

In other words, if an importer tries to or succeeds in hiding essential or relevant facts about an import shipment from CBP then that person can be penalized.  Likewise, if an importer tries to or succeeds in presenting false essential or relevant facts then that person can be penalized.  

Section 1592 Penalties

Depending upon the circumstances involved, civil penalties under Section 1592 may range from 20 percent to 100 percent of the domestic value of the imported goods.  Unfortunately, civil penalty investigations by CBP often morph into criminal investigations, which are always traumatic and expensive for the importers involved.   

Most penalties arise because importers make mistakes related to the valuation of their goods, their HTSUS classifications, and true country of origin determinations. Penalties can also be assessed for the importation of goods that are not invoiced or declared. Since many importers may not appreciate the importance of valuation, however, we are going to highlight what an importer should do and not do with regard to this extremely significant requirement. Valuation mistakes can be very costly. When an importer enters goods and seeks agency, CBP has the absolute right to request additional information about their value.  If the agency has any doubts about the true value of the goods, then CBP officers can detain, examine, further scrutinize, and even seize the goods in question. CBP’s actions can be aggravating and financially ruinous to importers who misunderstand or misinterpret valuation. 

Title 19

CBP may also make use of Title 19 of the Code of Federal Regulations (better known as the Customs Regulations).  

Declaring the correct value of goods is critical to the import entry process.  By law (Title 19, US Code, Section 1484), the importer is responsible for using “reasonable care” (surprisingly, a term not defined by CBP) to enter, classify and value imported merchandise.  The importer must provide information necessary for CBP to do a host of things, including but not limited to the following: 

• Properly assess and collect duties
• Collect trade statistics
• Protect tariff concessions
• Complement trade policy concerns
  

Today, in 2021, almost all Customs administrations of the current 164 World Trade Organization (WTO) member countries value imported goods in terms of the 1994 WTO Agreement on Customs Valuation. Currently, more than 90 percent of world trade is valued based on the transaction value method, which is something rather readily understandable.

What is Transaction Value?

Simply put, transaction value is the price actually paid or payable by the buyer to the seller for the goods, or merchandise, when sold for exportation to the US, plus amounts equal to:

1. The packing costs incurred by the buyer 
2. Any selling commission incurred by the buyer
3. The value, apportioned as appropriate, of any assist
4. Any royalty or license fee that the buyer is required to pay, directly or indirectly, as a condition of the sale
5. The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller. 
   

CBP Vs. CBSA Valuation History

Alternative Methods of Customs Valuation

Transaction value, the preferred method of Customs valuation, relies on the total transaction value of the imported goods reflected on the invoice supporting the customs entry.  

When the transaction value is not acceptable as the Customs value because of certain conditions, or because there is no transaction value (as an example, leasing), there are five alternative methods of Customs valuation, which are as follow:  

1. Transaction value of identical merchandise

2. Transaction value of similar goods

3. Deductive method

4. Computed method

5. Fall-back method

In reality, CBP concerns itself almost completely to the transaction value method.  For this reason, the other methods of valuation will not be of utmost concern to importers except in fairly uncommon circumstances. It is also the reason why the other methods are not being described here.

6 Methods Of Determining Customs Valuation

How to Make Certain Your Customs Valuation is CBP Acceptable   

• Understand how to use and cite Incoterms® 2020 or whatever version of is agreed upon by buyer and seller. (Go to www.iccwbo.org)
• Comply with all CBP commercial import invoice requirements. (See 19 CFR 141.83 -86)
• Become familiar with the Customs Valuation Encyclopedia. (Available in pdf at www.cbp.gov)
• Understand the terms of sale involving your import transactions. These include rebates, tie-ins, indirect costs, additional payments, whether assists were provided, whether commissions or royalties are paid, and if there are any licensing fees to be paid.  
• Have documents related to the import transaction readily available for CBP review, including but not limited to purchase orders, sales contracts, invoices, and payment records.
• If you are declaring a value based upon a transaction in which you are not the buyer, you must have proof that the transaction is a bona fide sale and that the goods were destined to the US at the time of sale.
• Download, review and understand the following Informed Compliance Publications, all of which are available at the CBP website, www.cbp.gov:‍

                   - Customs Value
                    - Bona Fide Sales & Sales for Exportation to the US
                   - Buying & Selling Commissions 
                    - Proper Deductions for Freight and other Costs