Customs valuation in the EU
Customs value

Customs valuation in the EU

How is the customs value determined, and what does it have to do with emissions? A look at customs valuation and the specific changes ahead.

New cost factors can lead to new surcharges on the customs value. And how might this play out? Maritime transport was integrated into the existing European Union Emissions Trading System (EU-ETS) effective January 1, 2024. Since then, those involved in maritime shipping must purchase emission allowances. They can pass these costs along to their customers based on where the goods are introduced into the EU customs territory. The specific ETS cost indicators (EU-ETS/EU port, EU-ETS/location, etc.) are added to the customs value of the imports based on the selected Incoterm. For this reason, let's look at the basics of customs valuation, including some helpful tips.

The evolution of customs value – a look back

Today, most customs tariffs worldwide are ad valorem tariffs based on the invoiced prices. Other tariffs based on weight, quantity, age, or other criteria have largely been relegated to the background, with a few exceptions, such as in the area of agricultural products.

That was not always the case. It took two World Wars – an experience traumatic for policymakers as well – for the conviction to take root that ever-closer economic ties between nations could also help usher in peace. So in 1947, the founders of the General Agreement on Tariffs and Trade (GATT) were careful to create a basis for customs clearance that was as uniform as possible: the actual value. Describing this actual value was no easy task, but the link to pricing had already been established, and this served as the basis for working on a uniform global customs value. This issue was quite rightly taken up by the Customs Cooperation Council, established in Brussels in 1952 and known since 1995 as the World Customs Organization (WCO).

The Brussels Convention on the Value of Goods for Customs Purposes of 1949/50 established the term "normal value," quickly embraced by early adopters in the early 1950s and eventually throughout the EC and in 90 countries. This phrase was not universally applied in the same way, however. The United States in particular rejected it. That's why the GATT Customs Valuation Code established the concept of customs value, which is still widely used today, including in the US, and codified in the WTO Agreement of 1994.

Customs valuation in the WTO Agreement

The method of customs valuation is set forth in the WTO Agreement on Implementation of Article VII GATT. It contains a hierarchy of valuation methods and defines the transaction value method as the primary basis for customs valuation, one that is also dominant in the commercial sector. The General Introductory Commentary of the agreement notes that Article 1 provides for "adjustments to the price actually paid or payable in cases where certain specific elements which are considered to form a part of the value for customs purposes are incurred by the buyer but are not included in the price." It also provides for considerations "which may pass from the buyer to the seller in the form of specified goods or services rather than in the form of money."

The US Customs and Border Protection publication on customs value lists six methods of customs valuation, the most important of which is transaction value.

  1. Transaction value
  2. Transaction value of identical merchandise
  3. Transaction value of similar merchandise
  4. Deductive value
  5. Computed value
  6. Final value

Rule of thumb: Where the transaction value method cannot be applied, the secondary valuation methods are applied sequentially (Article 74 UCC). As soon as one of the methods is found to be usable, the subsequent methods are no longer checked.

Customs value in the EU

These principles of the WTO Agreement apply in the EU as well. See an overview of the Commission

In a nutshell: Costs not included in the price that are incurred before the point of entry (outside the customs territory) and that are to be borne by the customer must be added to the customs value.

Conversely, costs included in the price but incurred only after the goods enter the customs territory may be deducted.

Three examples illustrate this point:

  1. Invoice price FCA seller's works 100,000 euros.
    Freight by truck (1,000 euros) and air (2,000 euros) to EU border payable in addition:
    Customs value: 103,000 euros – freight within Europe is irrelevant for customs value.

  2. Customs value and invoice value are identical, such as for an invoice CFR border port.

  3. Invoice price DAP buyer's plant 108,000 euros, including inner-European freight. In this case, the inner-European freight (here 1,600 euros) may be deducted: Customs value: 106,400 euros. Only documented costs may be deducted, however.

Special circumstances: chain of buyers, processing, emissions, and relief from customs duties

The declarant is central to the valuation. The declarant must be able to provide all the necessary documentation and also be based in the EU (for exceptions, see Article 170 UCC).

Besides the invoice, the required documents generally include other forms of documentation such as the waybill, freight invoice, insurance documents, and license agreements, depending on the case.

The following factors are frequent sources of confusion for declarants, so we'll cover them briefly here:

Chain of buyers

In the case of sales to a chain of buyers, only the transaction immediately preceding the introduction to the customs territory is relevant.

Example:

  1. Seller S from the US sells to Buyer B1 in the UK (third country) for 100 euros.
  2. B1 sells to B2 in FR (EU) for 150 euros.
  3. B2 resells to B3 in DE (EU) for 200 euros.

What's relevant here is the invoice price of the second transaction, 150 euros, in accordance with the UCC Implementing Provisions, Article 128.

Outward processing

Article 86 (5) UCC includes the following provision:

"Where a customs debt is incurred for processed or replacement products resulting from the outward processing procedure [...], the amount of import duty will be determined on the basis of the cost of the processing operation undertaken outside the customs territory of the Union."

In other words: Only the processing costs are applied here, not any other costs that arise outside of the processing (such as freight).

Costs for emissions trade

The current European Emissions Trading System (EU-ETS) has been integrated into maritime transport since 2024, so it has also impacted customs value since that time.

The following stems from an article entitled "Customs value: treatment of EU-ETS surcharges on freight invoices," published (in German) by i-TMS in Bremen: "The EU Emissions Trading System (EU ETS) is a cap-and-trade system that limits the emission of certain pollutants within a specific geographic area. Under the EU ETS, companies are obliged to provide certificates for CO2 and other greenhouse gas emissions. [...] When asked, the customs authorities stated that the EU-ETS surcharges are directly linked to the transport of the goods and should therefore be added to the transaction value. If the costs are incurred before the point of entry into the EU, they are to be added as transport costs to the price actually paid or payable for the import goods for the purposes of customs valuation, as provided for under Article 71(1)(e) UCC."

This corresponds to the provisions of Article 71(1)(c) UCC: "In determining the customs value [...], the price actually paid or payable for the imported goods shall be supplemented by: […] c) royalties and license fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable […]."

Regulation on the relief from customs duties: samples, advertising prints

The customs value for samples is determined on the basis of the usual provisions.

There is relief from customs duties for certain goods imported for promotional purposes, however: Trade samples, printed advertising material and items, and goods used and consumed at trade shows, including the import of samples:

Article 86 – relief from customs duties

(1) [...], samples of goods which are of negligible value and can be used only to solicit orders for goods of the type they represent with a view to their being imported into the customs territory of the Community shall be admitted free of import duties.

(2) The competent authorities may require that certain articles, to qualify for relief, be rendered permanently unusable by being torn, perforated, or clearly and indelibly marked, or by any other process, provided such operation does not destroy their character as samples."

An exemption from customs duty can also be granted for other goods up to a quantity of five samples or specimens and up to a value of 50 euros per product group, if labeling cannot reasonably be expected of the declarant. 

2½ tips on customs valuation

There are two things to always keep in mind when calculating the customs value:

  • Check for special circumstances
    Irrespective of the customs value, there are other exemptions like the exemption for samples that may come as a surprise. The duty relief regulation can make for pleasant reading in that respect. There you will find interesting exemptions that include personal property (such as motor vehicles or even sports aircraft), marriage property, inheritance property, educational material, shipments between private individuals, and medals. Check whether your goods qualify for such an exemption.

  • Check delivery terms
    The customs regulations do not refer to the Incoterms. The same applies to the customs valuation. Nevertheless, it is always important to know how the customs value is determined in each specific case and which costs have been included in the invoice. And this is largely determined by the choice of Incoterm. Check whether you as the buyer have to pay the freight, whether it will be invoiced separately, and whether it will then increase or decrease the customs value, and check whether you will exceed the threshold above which you must file a customs declaration.

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