Determine the Value of Goods when importing into EU

Reducing import duties: How to determine value of goods

For­eign sup­pli­ers look­ing to import goods into the Euro­pean Union (EU) are sub­ject to import duty based on a num­ber of fac­tors. One of the fac­tors that affects the duty to be paid is the val­ue of the goods to be import­ed. This arti­cle explains how to deter­mine val­ue of the goods declared and how cus­tomers use CAPLIN­Q’s fis­cal rep­re­sen­ta­tion ser­vice to reduce their import duties by reduc­ing the val­ue of goods being import­ed into the EU.

How do EU customs determine the value of goods?

There are two ways that the EU cus­toms office deter­mine the val­ue of goods at the time of import into the EU

What is the Customs Tariff Number

The Cus­toms Tar­iff Num­ber, also called the Tar­iff Code, Har­mo­niza­tion Code or HS Code is a Euro­pean stan­dard­ized 10-dig­it code used to clas­si­fy trad­ed prod­ucts. Each and every trad­ed prod­uct imag­in­able can be clas­si­fied by a tar­iff num­ber. These tar­iff num­bers are sep­a­rat­ed into 21 sec­tions (at this writ­ing) that iden­ti­fy the broad cat­e­go­ry of the prod­uct. Each sec­tion then splits fur­ther into chap­ters which then nar­rows down right to the exact prod­uct being imported.

For exam­ple, the Tar­iff Num­ber 3907.30.00.90 refers to Epox­ide resins; in pri­ma­ry forms. This is the tar­iff num­ber used by the Epoxy Mold­ing Com­pounds that CAPLINQ man­u­fac­tures and sells.

Every Euro­pean cus­toms office refers to a mul­ti­lin­gual data­base called TARIC (TARif Inté­gré de la Com­mu­nauté) (French: Inte­grat­ed Tar­iff of the Euro­pean Com­mu­ni­ty) that con­tains all of these tar­iff num­bers, and along with them, there is a record­ed his­to­ry of all the importers that have ever import­ed prod­ucts into the Euro­pean Union using this tar­iff num­ber. Nat­u­ral­ly, with all this his­to­ry is also the val­ue of the goods that was declared at the time of import. These two ele­ments — Cus­toms Tar­iff Num­ber and “Val­ue of Goods declared” — pro­vide a very good indi­ca­tion of what the val­ue of the goods are when they arrive at cus­toms. The list of tar­iff num­bers is open to the pub­lic, but it is like­ly no coin­ci­dence that the val­ue of the goods record­ed at the time of entry is not pub­licly available.

What are the “Value of the Goods Declared?”

The sec­ond way the EU uses to deter­mine the val­ue of the goods is the “Val­ue of the Goods Declared” by the importer at the time of entry. This sec­ond method is beau­ti­ful in its sim­plic­i­ty, but this is where many importers end up “over report­ing” and end up pay­ing more than they need to in import duties. It is always request­ed to sup­ply a com­mer­cial invoice at the time of import. In the absence of any oth­er infor­ma­tion, importers often report the “Cus­tomers Sales Price” to customs.

Regard­less of the “Val­ue of the Goods Declared” pro­vid­ed, the cus­toms offi­cers will check this declared val­ue against the his­to­ry of prices report­ed for this tar­iff num­ber. If the val­ue is high­er than the record­ed his­to­ry, the cus­toms offi­cer will accept your declared val­ue and impose duty based on this val­ue. If it is much low­er, the importer will get a notice to please recheck the val­ue of the goods declared. Notice that they nev­er come back to you to inform you that the val­ue of the goods is high­er than oth­er importers!

Whether the goods are worth $1 or $1 mil­lion, the cus­toms offi­cer demands that the val­ue of the goods be declared and impos­es a duty rate. It is in the best inter­est of the importer (and their cus­tomers) to have this val­ue be as low as pos­si­ble to min­i­mum the duty paid.

CAPLINQ’s Fiscal Representation Service saves money by selecting the best Tariff Number

In anoth­er arti­cle, we explain how the import duty due is cal­cu­lat­ed. One of the ele­ments is the choice of Tar­iff Num­ber. Each Tar­iff Num­ber may have dif­fer­ent import duty rates that are imposed on it. The import duty rates can range from 0% up to some very high per­cent­age depend­ing on many fac­tors con­cern­ing that par­tic­u­lar trad­ed good. For exam­ple, if the prod­uct is bad­ly need­ed, or the tech­nol­o­gy can­not be obtained with­in the EU, the duties are low or 0%. On the oth­er hand, if the that par­tic­u­lar trad­ed prod­uct is pro­tect­ed with­in the EU such as sug­ar or dairy prod­ucts, then the tar­iff rates can be very high. These rules can change often, so it’s impor­tant to check the lat­est reg­u­la­tions con­cern­ing that par­tic­u­lar trad­ed good.

The spe­cif­ic tar­iff code can be select­ed dif­fer­ent­ly, if we can con­vinc­ing­ly argue that the trad­ed good in ques­tion belongs in a more favor­able tar­iff num­ber. For exam­ple, using our exam­ple above of Epoxy Mold­ing Com­pounds, a halo­gen-free epox­ide can have a more favor­able tar­iff num­ber than a halo­gen-con­tain­ing epox­ide. Dur­ing our fis­cal rep­re­sen­ta­tive set­up phase, we look into what the most favor­able tar­iff num­ber is for the trad­ed prod­uct and rec­om­mend it for use.

CAPLINQ’s Fiscal Representation Service saves money by reducing the value of goods declared

Most for­eign sup­pli­ers with EU cus­tomers don’t real­ize that import and sales of trad­ed goods are actu­al­ly two sep­a­rate trans­ac­tions. Yes, the goods must be import­ed into the EU before they can be sold, but the first trans­ac­tion is record­ed as an import trans­ac­tion and the sec­ond as a sales transaction. 

This is impor­tant to note because importers are often wor­ried if that if they use a low­er val­ue for the import val­ue than they do for the sales trans­ac­tion then they might get into trou­ble with their cus­tomers. For exam­ple, if cus­tomers were to learn that the sales val­ue is 3–8 times the import val­ue (which is often the case), then they might get offend­ed and demand a price decrease. As your fis­cal rep­re­sen­ta­tive, CAPLINQ signs a Non-Dis­clo­sure Agree­ment (NDA) that ensures that cus­tomers nev­er see the import value.

As your fis­cal rep­re­sen­ta­tive, CAPLINQ signs a Non-Dis­clo­sure Agree­ment (NDA) that ensures that cus­tomers nev­er see the import value.

Once for­eign sup­pli­ers rec­og­nize this, they often ask “how low can we (legal­ly) go to reduce import duties”? CAPLIN­Q’s rec­om­men­da­tion is the Cost of Goods Sold (COGS) price.

The COGS price, also referred to as the pro­duc­tion val­ue or the car­ry­ing val­ue is the cost of prod­ucts man­u­fac­tured by the importer. This def­i­n­i­tion is some­times sub­jec­tive for com­pa­nies look­ing to reduce their tax bur­den, but for our pur­pos­es, it is very spe­cif­ic — name­ly all the costs relat­ed to the pro­duc­tion of the good including:

  • The parts, raw mate­ri­als and sup­plies used (often called the Bill of Mate­ri­als or BOM Costs)
  • All labor costs to pro­duce the mate­r­i­al or parts, includ­ing pay­roll tax­es and benefits
  • Busi­ness over­head allo­cat­ed to production

*Note this does not include any sales, mar­ket­ing or man­ag­er admin­is­tra­tion charges

Is declaring the COGS price as the Value of the Goods Declared” legal?

This ques­tion comes up often as com­pa­nies want to save mon­ey, but of course want do not want to do any­thing ille­gal. Let’s start by under­stand­ing that you, as the importer, know more about your own prod­uct and its pro­duc­tion process than any cus­toms offi­cer. At the same time, the cus­tom offi­cer (through forms and doc­u­ments) is only ever ask­ing you a sim­ple ques­tion, “Can you please tell me the val­ue of your product?”

In this sim­ple ques­tion, there is an unasked ques­tion: “To whom?”. Importers are being asked to declare the val­ue of their goods with­out being specif­i­cal­ly asked to declare to whom this val­ue applies. The real ques­tion that should be asked is “What is this val­ue of these goods to you?”

The real ques­tion that should be on the cus­toms dec­la­ra­tions forms is not “What is the val­ue of the goods?” but “What is the val­ue of the goods to you the importer?

Asked in this way, the val­ue is no longer the sales price to the cus­tomer, but the replace­ment cost of the prod­uct to the importer. To help importers with this ques­tion, we often ask them this same ques­tion a dif­fer­ent way, “If you were to lose these goods at the bor­der, how much insur­ance mon­ey would you require to cov­er your loss­es?” Asked this way, importers often look inward at exact­ly the ele­ments that make up the COGS price: BOM cost, labor rates and asso­ci­at­ed overhead.

So who is the importer of record for import

Here we come to the sec­ond impor­tant ele­ment of why we can use the COGS price at the time of import. If you are sell­ing your prod­ucts direct­ly to your cus­tomer on an EX WORKS basis, then your cus­tomer becomes the importer, and the ques­tion of “What is the val­ue of the goods to you?” is dif­fer­ent. In this case, the val­ue of the goods IS the sales price and not the COGS price.

By appoint­ing CAPLINQ as your fis­cal rep­re­sen­ta­tive, CAPLINQ acts on behalf of the for­eign sup­pli­er, which means that the for­eign sup­pli­er is the own­er of the goods and there­fore is also the importer of record. CAPLINQ sim­ply han­dles the trans­ac­tion as your fis­cal representative.

Multinationals have long known the secrets of customs valuations and COGS pricing

Fis­cal rep­re­sen­ta­tion and import­ing against the COGS price is well-known by multi­na­tion­als. For multi­na­tion­als that have sales offices in Ger­many, France, the Nether­lands or any oth­er EU coun­try, they are used to import­ing the goods using the COGS price and then sell­ing to their cus­tomers at a high­er sales price.

Imag­ine this sce­nario: A multi­na­tion­al has a wid­get that costs $10 to make in their fac­to­ry in Japan (or the Unit­ed States, Chi­na, Cana­da or any oth­er coun­try out­side the EU) and imports goods into the EU to sell to cus­tomers for $30. They have done this for many years and then decide to sell their Japan­ese fac­to­ry to a group of investors that do not have a sales office in the EU. Is it fair that the same wid­get, made in the same fac­to­ry com­ing to the EU all of a sud­den has duty imposed on it at $30 instead of $10? Of course it’s not, and it’s exact­ly the log­ic we use when dis­cussing with cus­toms offi­cers who agree with us entirely.

What risks are involved in importing goods at the COGS price?

None. For­eign sup­pli­ers are often wor­ried that import­ing goods at the COGS price car­ries a risk to it — but it is com­plete­ly unfound­ed. CAPLINQ has a fis­cal rep­re­sen­ta­tion license that allows us to import goods into the EU. Com­pa­nies that are grant­ed this license (includ­ing CAPLINQ) often have to go through a full finan­cial audit to be sure that the com­pa­ny is not invoiced in any ille­gal activ­i­ties includ­ing fraud or mon­ey laundering.

Fur­ther­more the tax author­i­ties, once they grant this license to fis­cal rep­re­sen­ta­tives, require them to make a sig­nif­i­cant deposit with the tax author­i­ties to ensure that if there are any sig­nif­i­cant con­cerns, that there are funds they can with­hold until the mat­ter is resolved. CAPLINQ of course has such a deposit with the tax authorities.

A simplified example to illustrate the CAPLINQ advantage

The fol­low­ing exam­ple illus­trates what CAPLIN­Q’s fis­cal rep­re­sen­ta­tion ser­vice can do for you and your EU customers.

Assume the fol­low­ing to be true:

  • Prod­uct Descrip­tion: Epoxy Mold­ing Compound
  • Prod­uct Tar­iff Code:: 3907.30.00.00
  • Duty Rate: 6.5%
  • COGS Price: $100
  • Sales Price: $300

Fiscal representation saves money import duty
How CAPLINQ saves you mon­ey as fis­cal representative

As you can see, on a sin­gle prod­uct, CAPLIN­Q’s fis­cal rep­re­sen­ta­tion ser­vice could save you and/or your cus­tomer $13.00 in duty charges.

CAPLINQ can often make the goods avail­able to your cus­tomers in Europe for less than they pay in duty charges alone

Please vis­it to learn more how CAPLIN­Q’s fis­cal rep­re­sen­ta­tion ser­vice is used as part of our order ful­fill­ment ser­vices. You can also con­tact us to find out more about how to reduce your EU import duties by pay­ing duty on the pro­duc­tion val­ue (COGS) instead of the sales price.

About Chris Perabo

Chris is an energetic and enthusiastic engineer and entrepreneur. He is always interested in taking highly technical subjects and distilling these to their essence so that even the layman can understand. He loves to get into the technical details of an issue and then understand how it can be useful for specific customers and applications. Chris is currently the Director of Business Development at CAPLINQ.

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