Study Guide

Even where a sale has occurred, the price cannot be accepted automatically as Customs value. The sale and price must meet all four conditions in Article 1 of the Agreement: Condition 1.       No restrictions on disposition or use 2.       No undetermined condition or consideration 3.       No subsequent proceeds unaccounted for 4.       Buyer and seller not related (or relationship did not influence price)

Key point: Where a sale for export has occurred, the existence of one or more of the four conditions above constitutes the ONLY reason(s) for not using Transaction Value. This reinforces the Agreement's principle that Customs valuation should, to the greatest extent possible, be based on transaction value.

Condition 1: Restrictions on disposition or use

Sellers sometimes restrict how a buyer may dispose of or use imported goods. Paragraph 1 (a) of Article 1 identifies restrictions that would not disqualify the use of transaction value:

Restriction type	Example
Imposed by law or public authorities	A license is required before sale (for example, firearms); labeling requirements; inspection by public authorities.
Geographical area of resale	A territorial restriction (for example, a regional distributorship); goods may be resold only within a specified area.
Does not substantially affect value	The seller requires the buyer of automobiles not to sell or exhibit them before a fixed date (the start of the model year); a door-to-door sales requirement.

WCO Commentary 12.1 identifies factors for deciding whether a restriction has substantially affected value:

·         The nature of the restriction.

·         The nature of the imported goods.

·         The nature of the industry and its commercial practices.

·         Whether the monetary effect is commercially significant.

Condition 2: Condition or consideration

The sale or price must not be subject to a condition for which a value cannot be determined. Paragraph 1 (b) of Article 1 of the Interpretative Notes to the Agreement gives the following examples:

Condition 3: Subsequent proceeds

Transaction value may be used provided that no proceeds of any resale or use of the goods accrue to the seller without being accounted for in determining Customs value.

Article 8.1 (d) directs:

8.       (d) the value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller.

This adds any part of the proceeds of a subsequent resale that accrues to the seller to the price actually paid or payable. If the value of the proceeds can be determined, this restriction on the use of transaction value does not apply. For example, the sale for export may be based on a fixed payment at the time of sale, plus a further payment when the goods are resold in the country of importation. The mechanics of adding proceeds under Article 8 are covered later, under "Subsequent proceeds (Article 8 addition)."

Condition 4: Related parties       

Transaction value can be accepted provided that any relationship between the buyer and seller has had no influence on the price.

Article 15.4 of the Agreement defines related parties as follows:

(a)    they are officers or directors of one another’s businesses; (b)    they are legally recognized partners in business; (c)     they are employer and employee; (d)    any person directly or indirectly owns, controls or holds 5 percent or more of the outstanding voting stock or shares of both of them; (e)    either the seller of the buyer directly or indirectly controls the other; (f)      both are directly or indirectly controlled by a third person; (g)    together they directly or indirectly control a third person; or (h)    they are members of the same family.