Scenario. ABC Singapore (ABC SGP) manufactures, distributes and sells branded consumer items across the Southeast Asia region. In the Philippines, it sells its products to an unrelated selling agent – RP Distribution, Inc. (RPDI). ABC SGP consigns the goods to RPDI, which sells the same in the domestic market at a price established by ABC SGP. Upon sale of the goods in the domestic market, RPDI deducts from the gross revenue a fixed percentage as commission. The balance of the gross revenue is remitted to ABC SGP on a monthly basis. For purposes of documentation and billing, ABC SGP issues a consignment invoice to RPDI for the goods consigned.
Customs has raised issues against the consignment invoice. Specifically, customs noted that there is no sale for export since the goods are for consignment and as such, the declared price is not acceptable. Inasmuch as the goods being imported are branded and unique, there are no reference values of identical or similar goods. What should now be the basis of the customs value?
The above case scenario is a variation of an actual customs case, which was decided using Method 4 (Deductive Method) of the Transaction Value (TV) system under Section 201, TCCP. Said actual case is the first and only case where the Deductive Method was applied to determine the dutiable value of imported goods.
Absence of Reference Values. We have previously discussed the first three methods of valuation under the TV system. As previously stated, customs may use previously accepted values of similar or identical goods as a substitute value in case the declared value has been rejected on valid grounds.
In the above case, there is certainly no sale for export and as such, the declared value in the consignment invoice cannot be used unless there are other grounds to support the same. In addition, there are no applicable reference values based on similar or identical goods given the unique characteristics and the particular brand of the imported products.
Faced with such issues, RPDI submitted in its position paper a sample computation based on the Deductive Method to support the declared price. After deliberations and review of the documents submitted, the declared price in the consignment invoice was accepted using Method 4 – Deductive Method.
Method 4 – Deductive Method. Paragraph D of Section 201, TCCP provides that the “dutiable value of the imported goods under this method shall be the deductive value, which shall be based on the unit price at which the imported goods or identical goods are soled in the Philippines, in the same condition as when imported, in the greatest aggregate quantity, at or about the time of the importation of the goods being valued, to persons not related to the persons from whom they buy such goods, subject to deductions for the following:
- Either the commissions usually paid or agreed to be paid or the additions usually made for profit and general expenses in connection with sales in such of imported goods of the same class or kind;
- The usual costs of transport and insurance and associated costs incurred within the Philippines; and
- Where appropriate, the costs and charges referred to in subsection (A) (3), (4) and (5); and; [this refer to transport, freight and insurance costs incurred from port of exportation to port of entry]
- The customs duties and other national taxes payable in the Philippines by reason of the importation or sale of the goods.”.
Practical Application. Also known as the Resale Minus Method, the general approach for Method 4 (Deductive Method) is that
- valuation begins with the resale price in the domestic market; and
- appropriate deductions (such as profit and expenses) are made to arrive at a value at the point of importation (CIF value).
Thus, the Deductive Method may apply when the goods are “consigned to an agent/sales representative which imports the goods and is paid by a commission for performing selling agency functions on behalf of the vendor located outside the Philippines”. In the scenario provided above, the Deductive Method was applied considering that the commission of RPDI covers the service fee as selling agent as well as the sales, distribution and other expenses (e.g. transport costs, taxes and duties). To arrive at the value for customs, a net selling price per unit for each type of imported article was established, after which deduction for the commission (service fee and expenses) was made. The resulting amount closely approximated the declared price in the consignment invoice.
Conclusion. There are many instances where imported articles are not covered by an export sale. Examples of these would be donations, lease or consignment. In these instances, customs may reject the declared price and may look at reference values of identical or similar goods for possible use as substitute values. However, not all imported articles have their corresponding reference values of previously imported identical or similar goods. When faced with such a situation, the remedy is to use the other methods of valuation (e.g. Deductive Method or Computed Method) to support the declared price to customs.
The author is an international trade, indirect tax (customs) and supply chain expert. He is the Editorial Board Chairman of Asia Customs & Trade, an online portal on customs and trade developments affecting global trade and customs compliance in Asia. He was also Bureau of Customs Deputy Commissioner for Assessment and Operations Coordinating Group (2013-2016). For questions, please email at agatonuvero@yahoo.com and agatonuvero@customstrade.asia