Like classification and country of origin, Customs Valuation is a crucial element of trade compliance. Valuation has always been a key focus of Customs administrations, as it will primarily affect the import customs duty and import VAT of imported goods, VAT refund of exported goods, and other important statistical considerations.

Recently, more and more companies have been approached by China Customs with queries and audits on their valuation-related matters, including import and export declared goods value, transfer price, freight & insurance declaration, royalty and other non-trade payments, etc. If the declared valuation factors are suspected to be inaccurate/incorrect by China Customs, companies will need to pay the additional customs duty and import VAT according to revised value, return excessively claimed VAT refund; also, if mishandled, amounts of late payment fee and heavy penalties can also apply.

In this regard, Tradewin can support companies in handling various valuation-related cases. Specifically including but not limited to the following aspects:

• Transfer price review: we can perform a comprehensive review of the Transfer Pricing Documentation from the perspective of customs valuation to identify any potential customs risk and then provide relevant advice to mitigate the associated risks;
• TP registration in Customs: we can assist in proactively explaining the TP policy to Customs and seek their opinions to manage potential risk;
• Year-end TP adjustment: prior to the year-end TP adjustment, we can assess the adjustment from the perspective of customs valuation to provide advice in understanding the implications of such adjustment on the imported goods during the period to which the adjustment relates and formulate a recommended approach to mitigate potential risks; we can also consult with the local Customs on alignment in making such TP adjustments from customs declaration perspective;
• Freight & insurance review: on a sample basis, we can perform a preliminary analysis on the import and export freight and insurance declared to identify potential gaps and ensure a level of data integrity and traceability is consistent with expectations of Customs during a targeted valuation audit;
• Royalty review/assessment: Some royalty payments are subject to duty, whereas others are not. This depends on several variables pertaining to the relationship of the royalty payment with the imported gods, the business model, transaction and payment structure, and several other factors.   To ensure that applicable royalty payments are accurately attributed to Customs Valuation, Tradewin can review the royalty agreement from the perspective of customs valuation to identify potential customs risk; regarding specific imported goods, we can further assess whether the royalty is relevant to the imported goods and quantify the potential exposure where appropriate
• Other non-trade payments review (excluding freight & insurance): based on the list of non-trade payments, we can review each line description to identify potentially risky items that Customs is likely to scrutinize. Further, we can conduct an assessment of the non-trade agreement/other descriptive documents to assess the potential customs risk or opportunity and quantify exposure
• Self-disclosure: Where it is identified by an importer that an inadvertent error has transpired in import declaration(s) regarding the Customs Value, prior to any inquiry from Customs on the matter (i.e., through an audit), there may be an opportunity to draft a self-disclosure (voluntary disclosure). It is imperative that such matters are reviewed with utmost care. Tradewin recommends that a comprehensive review is undertaken to understand the cause of the transgression and its implications on both past and future shipments prior to making any submissions. Tradewin can assist in ensuring that all potential considerations are accounted for and that the disclosure to Customs is made in a professional manner, advocating for the client’s interests.

If you have any queries about Customs Valuation and its increased focus in China, we would be pleased to hear from you.