Some Complications

But often import transactions are more complicated. Sales may be between a parent and a subsidiary, who quite legitimately might set prices due to considerations other than the market. Production assistance might be furnished. Purchases might be CIF rather than FOB. Buying agents might be used. Credits granted in settlement of prior claims might be subtracted from invoiced price. All these have the potential for both increasing or for decreasing the amount of duties paid. They also can create penalty exposure. All valuation issues can be easily handled if recognized. All issues can be resolved, preferably before, but also after the facts that created them have occurred. Programs can be readily established to enable you to meet your obligation to properly declare the correct dutiable value of your goods without any appreciable administrative burden.

What We Do

• Analyze your import operations to identify valuation issues, determine the most favorable dutiable valuation and give you confidence in computing your landed, duty-paid costs.
• Obtain binding rulings from Customs on your behalf as your Customs attorney, or, if necessary and economical, from the Court, as to valuation under a given set of facts.
• Review your program to determine the existence of “assists.” If so, we establish a simple manner for them to be captured, verified and declared.
• Insure that your agents qualify as non-dutiable buying agents if possible.
• In related party transactions, seek to obtain the most favorable valuation, whether that is the inter-company price or a lower value based on an alternative valuation section.
• Recover duty overpayments, going back up to a year and a half after entry, and secure duty savings y on a going forward basis.
• Should there have been clear undervaluations of prior imports, prepare a duty tender in a manner that avoids any penalty assessment.

More Details

There are several statutory methods Customs uses to appraise imported merchandise and to determine whether a cost related to imported product is to be added or subtracted from the manufacturer’s price. There is a preferred method of valuation--“Transaction Value”--which is used in most cases and which is based on the price paid or payable. If this method cannot, for a variety of reasons, be used, other valuation methods, set forth in the Customs laws, will be applied.

A Customs attorney’s role is to determine correct valuation methodology and to understand and resolve valuation problems when the invoiced price is not all-inclusive. For example, it is common for an importer to provide a manufacturer, free or at reduced cost, with certain types of production assistance, such as materials, components, molds, packing, and foreign-sourced R&D and design work. The cost or value of these “assists” must be added to invoiced price to derive dutiable value. Customs has no problem with an importer supplying such “assists” but regards it to be a penalty situation if their values are not declared or cannot be verified. It is easy to declare these “assists” but unfortunately all too easy to not even think of doing so, or for an import department to be unaware of the existence of an “assist” provided by a different department.

Companies frequently encounter a valuation issue when dealing with buying agents. Buying commissions are not dutiable–but Customs does not always agree that the agent is a non-dutiable buying agent. There have been many cases where Customs regarded the agent to be a seller or a seller’s agent, making the “commissions” dutiable. Lengthy disputes ensued, with much at stake. If the contracts between the importer and agent are in order, and the paperwork flow is consistent with a principal-agent relationship, you can avoid exposure to significant and unexpected additional duties on the commissions as well as to penalty actions.

In another example, if you purchase CIF, ocean freight and insurance charges may be deducted. Importers have received penalties for using estimates rather than actual freight and insurance charges or being unable to document them. This is because an overstatement of such costs leads to an overstatement of the deduction.

And in a third example, it often happens that to reimburse for a defective or late prior shipment, a seller nets out a credit on the price of a subsequent shipment. Such a price reduction is not regarded as affecting the full dutiable value of the later shipment. Disclosure is a simple matter; the credit needs only to be declared on entry. Failure to do so it leads to penalty cases, and the Courts have upheld the imposition of penalties in these types of cases. (You can often recover duties on the credit by making a claim against the assessment on the shipment to which the credit really applies.)

Related-party transactions and valuation problems also arise when the importer is purchasing from a related party–such as a parent, subsidiary or otherwise affiliated company. There, the FOB price is not automatically accepted as the basis for dutiable value. There are legitimate business reasons for varying inter-company prices from the price that would be charged in an arms-length transaction. There are several subsections to the valuation statute that can be used to derive proper dutiable value. There are opportunities in this area for reducing dutiable value that are often missed.

Contact Us for More Information

You are welcome to call us to review any area of concern. Contact Stephen M. Zelman, Esq., at 1+ 212.245.6100 for a telephone consultation, with no obligation for any fee. E-mail at stephenzelman@gmail.com.