How does the export contract price become the customs value: are freight and packing added to the declaration, is delivery abroad deducted?

"Hazorasp Quritma" LLC sold 12 000 kilograms of dried apricots to a foreign wholesale buyer. Under the contract the goods are delivered to the buyer's warehouse abroad, and the total price is 48 000 US dollars. Chief accountant Barno looked at the declaration and was surprised: the customs value box shows 45 950, not 48 000. Where did the 2 050 dollars between the two figures go? This article answers that question in one place.

An important distinction: the contract price and the customs value are not the same thing. The first is the agreement of the parties and the basis of revenue in the accounts. The second is an indicator calculated for customs purposes and determined under separate articles of the Customs Code.

Which documents are prepared?

Information on the customs value must be supported by documents (Article 318, part four). Barno put the folder together like this:

The full list of documents for customs clearance of exports is set by the Cabinet of Ministers (Customs Code, Article 31). We do not have the text of that list, so the table gives only the documents named in the Code itself. The form of the customs value declaration is set by the State Customs Committee (Article 318); before completing it, take the current form from an official source. Part seven of Article 318 also provides for cases where the declaration is not completed, so find out from a customs broker or an official source which procedure applies to your shipment.

From the contract price to the customs value: step by step

Part one of Article 315 gives the basic rule: the value starts from the transaction price actually paid or agreed to be paid when the goods are sold for export. Then there are two adjustments: under Article 316, costs are added to the price (if they are not included in it) and under Article 317, costs are deducted from the price (if they are included in it and there are documents).

The full list of costs added under Article 316:

• The route to the place of exit: freight to the place where the goods leave the customs territory; loading, unloading, reloading and handling costs; the cost of insuring this route.
• The seller's own costs: the fee of an intermediary and broker (a buying commission for purchasing the goods is not included); the cost of a container and other reusable packaging (if under the Commodity Nomenclature of Foreign Economic Activity it is treated as one whole with the goods); the cost of packing, that is, materials and work.
• Licence fees: the fee for the use of intellectual property that the buyer pays as a condition of the sale (directly or indirectly).
• The seller's later income: the part of the income, direct or indirect, that the seller receives from the subsequent resale, transfer or use of the goods outside the customs territory.

The full list of payments and costs deducted under Article 317 (if they are included in the price and can be confirmed by documents):

• costs of construction, installation, assembly, mounting, adjustment, servicing and technical assistance carried out after the export of industrial equipment, a machine or an installation;
• costs of delivery of the goods to the destination after they have left;
• the cost of insuring that later delivery;
• customs payments made by the seller in the country into which the goods are imported.

So the Code gives two different lists: the costs of delivery to the place of exit from the customs territory (Article 316, added if not included in the price) and the costs of delivery after exit (Article 317, deducted if included in the price).

A worked calculation: from 48 000 to 45 950

In the "Hazorasp Quritma" contract the price is a single figure, but the composition of the price is shown separately in the documents (compiled by the author, in dollars):

Check: 43 200 + 600 + 1 950 + 200 = 45 950; 48 000 − 2 050 = 45 950. The two calculations gave the same result.

In this example the Article 316 costs were already in the contract price, so they were not added. Only the 2 050 after the border was deducted under Article 317. That is why the declaration was completed at 45 950. For a cost to be deducted, it must be included in the price and be capable of confirmation by documents (Article 317): for Barno these are the separately shown lines in the carrier's and the insurer's invoices.

Does the value change if the composition of the price is different?

Imagine a different contract: the price includes only the goods and the delivery after the border (43 200 + 2 050 = 45 250), while packing, carriage to the place of exit, insurance and brokerage are not included in the price and are paid separately against other documents (compiled by the author, in dollars):

Calculation: 45 250 − 2 050 + 2 750 = 45 950. The price is different, but the customs value is the same: in contract A the Article 316 costs are already in the price, in contract B they were not included in the price, so they were added; in both contracts the 2 050 after the border is deducted under Article 317. The components to be added are determined on the basis of documents confirming payment for the relevant services (invoice, payment order, receipt) (Article 316, part two).

What if the price is not confirmed or is determined later?

Article 315 provides for three special cases:

• No supporting document. If there are no documents confirming the declared customs value, the value is set on the basis of the customs authority's own data on identical or similar goods. Also, if there is no information confirming that the declared value is correct, or there are grounds to believe that the information submitted is incorrect or insufficient, the customs authority determines the value independently. In that case, if the declarant or broker submits a written application, the customs authority must explain in writing why the declared value was not accepted.
• The final price is determined later. If the contract has no firm price, or the final price is determined by the result of the buyer's acceptance of the goods as to quantity and quality, the value is determined taking into account a provisional (conditional) estimate. The initial contract price, or the calculated price determined on the shipment date under the settlement term set in the contract, is taken as the basis.
• The transaction price cannot be used. Under the last part of Article 315, the customs value is not determined on the basis of the transaction value if: the contract contains a restriction or condition that affected the transaction value; the sale or price depends on a condition whose effect cannot be taken into account; the parties to the transaction are related persons and the effect of this factor on the price cannot be expressed in value; the data used by the declarant are not confirmed by documents or are incorrect.

The signs of related persons are given in Article 307; part two of Article 315 extends to exported goods the seventh paragraph of Article 306 (if the parties are related, the declarant must prove that their relationship did not affect the price) and Articles 307 and 308. Under Article 308, if the parties show such signs, the customs authority examines the actual circumstances of the transaction; if it does not find that the relationship did not affect the price, it notifies the declarant or broker in writing of the need to submit evidence of this within a period not exceeding thirty calendar days. For such a contract, prepare the documents supporting the price in advance.

What changes in the accounts?

The customs value does not create an accounting entry by itself (a practical conclusion). Revenue is recorded at the amount in the contract and in the settlement document presented to the buyer, while the customs value is a separate indicator in the declaration. At a hypothetical rate of 12 600 soum, the entries of "Hazorasp Quritma" (contract A, compiled by the author; the cost of the goods is taken as 350 000 000 soum):

Calculation: 48 000 × 12 600 = 604 800 000; 4 000 × 12 600 = 50 400 000. The accounting for insurance and packing costs and the effect of the delivery terms on profit are covered in a separate article; the exchange rate for foreign-currency revenue and the zero VAT rate on export are discussed in other articles.

If, in calculating the customs value, services are recorded in soum, the rate at which to convert them into dollars depends on the rule for completing the declaration. We do not have that rule, so everything in the example is given in dollars.

Practical advice

• Separate the composition of the price in the contract. If "goods, packing, carriage to the place of exit, carriage after the border" are written on separate lines, the calculation under 316 and 317 takes a minute (practical advice).
• Get separate invoices from the carrier and the insurer. To deduct the part after the border, it must be shown by a document (Article 317). If you have a document with only a total amount, you cannot separate the part (practical advice).
• Keep the documents confirming the contract price together. If there are no documents confirming the customs value, customs determines the value from its own data (Article 315).
• In a contract where the price is determined later, write down the initial price and the settlement term in advance. The provisional estimate rests on exactly these (Article 315).
• Compare the customs value and revenue. Check that the difference comes from the composition of the contract; if there is an unexplained difference, recheck the price (practical advice).
• Do not take duty rates or payment amounts from here. The article contains no export duty rate because we have no source for it; check the current rate in an official source.