Study Guide

8. Method I: Transaction value

8.1. Situation 1: No sales for export

Method 1 can only be applied where the goods are subject to a sale. If there is no sale, there is no transaction value.

The three requirements that must be met to apply the transaction value of Article 1:

1. There must be a sale for export.

2. The sale must be for export to the country of importation.

3. It must be possible to determine the price actually paid or payable.

If one of the above requirements is not met, transaction value of Article 1 is not applicable, and another method of valuation must be used.

Sales

Generally, a sale involves the transfer of property from one party to another for financial consideration. A valid sale requires four elements:

01 A buyer

An identifiable party acquiring the goods.

02 A seller

An identifiable party transferring the goods.

03 An agreed price

A fixed or determinable amount exchanged.

04 Transfer of title

Legal ownership passes from seller to buyer.

Title to the goods

To establish whether ownership has transferred, consider whether the buyer has:

· Assumed the risk of loss.

· Liability for goods lost or damaged during shipment.

· Acquired title to, or legally possesses or owns, the imported goods.

Terms of Trade

When no other evidence is available, the terms of sale can indicate who acquired title and when. Common terms under the so-called International Commercial Terms (INCOTERMs) include:

· Ex-Factory

· Free On Board (FOB)

· Cost Insurance Freight (CIF)

· Delivered Duty Paid (DDP)

From the terms of sale, Customs can determine who acquired title, who assumed the risk of loss, and at what point this occurred.

Buyer and seller versus agent and principal

In a buyer-seller relationship, the parties stay independent. In a principal-agent relationship, the principal controls the actions of the agent. The relationship is a buyer-seller relationship if the potential buyer:

· Provided, or could provide, instructions to the seller.

· Was free to sell the goods at any price.

· Selected, or could select, their own customers without consulting the seller.

· Could order the goods and have them delivered for inventory.

If a potential buyer does not carry out such tasks, it is generally a firm indication that the party is acting solely as an agent.

When no sales exist

WCO Advisory Opinion 1.1 identifies situations where imported goods would not be the subject of a sale:

01 Gifts, samples, promotions

Items furnished free of charge with no commercial transaction.

02 Consignment goods

Shipped for sale after importation for the account of the supplier.

03 Leasing contracts

Imported under a lease — title does not transfer.

04 Loaned goods

Goods provided on loan — no sale has occurred.

Key point: sale for export

The first step in determining Customs value under transaction value is to establish that a sale for export to the country of importation has occurred. If no such sale exists, the transaction value method is not appropriate.

Example 1: identifying a sale for export

Seller S in the exporting country X enters a contract to sell electric appliances to importer A in the importing country I at USD 5.75/piece.

Manufacturer M (also in country X) produces and ships the goods to A on behalf of S. M's price to S is USD 5/piece.

Is there a sale for export?

➡️ Yes. In this case, the transaction between S and A is an actual international transfer of goods and constitutes a sale for export to the country of importation.

Example 2: buyer and seller both in the country of importation

Buyer B in the importing country I purchases goods from seller S in the same country I. The goods are stocked by S in country X.

Necessary arrangements for shipments and export of the goods from country X are completed by S, and the goods are imported by B into country I.

Is there a sale for export?

➡️ Yes. The location of the seller is not relevant. The transaction between S and B is a sale for export to the country of importation.

Example 3: sale on the high seas

Seller S in country X sells goods to buyer A in country I and accordingly ships the goods. While the goods are on the high sea, buyer A is unable to make the payment and take delivery of the goods.

S sells to a new buyer B also in country I and arranges the delivery. Accordingly B imports the goods into country I.

Which is the sale for export?

➡️ The sale between seller S and buyer B results in the importation of the goods which, in turn, establishes it as being a sale for export. The transaction constitutes an international transfer of goods and would be the basis for valuation of the goods under Article 1