Page 153 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes the costs of packing and containers, assists, royalties and license fees. The rules exclude buying
commissions and special discounts obtained by sole agents and sole concessionaires from being
taken into account in arriving at dutiable value.
The Tokyo Round Agreement strictly limited the discretion available to Customs to reject
transaction value to the small number of cases. This was a matter of concern to numerous
developing countries. They considered that the rule unduly inhibited the ability of their customs
administrations to deal with the traders’ practice of undervaluing imported goods in order to
reduce incidence on duties. This was one reason for the reluctance of a large number of developing
countries to accede to the Agreement in the pre-WTO period.

The Decision Regarding Cases where Customs Administrations Have Reasons to Doubt the
Truth or Accuracy of the Declared Value (also known as the Decision on Shifting the Burden of
Proof), adopted as a result of the initiative taken by developing countries during the Uruguay
Round, corrects this lacuna. The Tokyo Round Agreement placed the burden of proof on Customs
if it rejected the transaction value declared by the importer. The Uruguay Round decision shifts
the burden of proof on to the importers when Customs, on the basis of the information on prices
and other data available to it, “has reason to doubt the truth or accuracy of the particulars or of
documents produced in support” of declarations made by the importers.

Did u know? The basic rule of the Agreement is that the value for customs purposes should
be based on the price actually paid or payable when sold for export to the country of
importation (e.g. the invoice price), adjusted, where appropriate, to include certain
payments made by buyers such as the costs of packing and containers, assists, royalties
and license fees.
In order to ensure that the transaction value is rejected by Customs in such cases on an objective
basis, the Agreement on Customs Valuation stipulates that national legislation should provide
certain rights to importers. First, where Customs expresses doubts as to the truth or accuracy of
a declared value, importers should have a right to provide an explanation, including documents
or other evidence to prove that the value declared by them reflects the correct value of the
imported goods. Second, where Customs is not satisfied with the explanations given, importers
should have a right to ask Customs to communicate to them in writing its reasons for doubting
the truth or accuracy of the declared value. This provision is intended to safeguard the interests
of importers, by giving them the right to appeal against the decision to higher authorities and,
if necessary, to a tribunal or other independent body, within the customs administration.
The rule that transaction values declared by importers should be used for valuation of goods
applies not only to arms-length transactions but also to transactions between related parties. In
the latter transactions, which generally take place among transnational corporations and their
subsidiaries or affiliates, prices are charged on the basis of transfer pricing which may not
always reflect the correct or true value of the imported goods. Even in such cases, the Agreement
requires Customs to enter into consultations with the importer, in order to ascertain the type of
relationship, the circumstances surrounding the transaction and whether the relationship has
influenced the price. If Customs after such examination finds that the relationship has not
influenced the declared prices, the transaction value is to be determined on the basis of those
prices.
Further, in order to ensure that in practice the transaction value is not rejected simply on the
grounds that the parties are related, the Agreement gives importers the right to demand that the
value should be accepted when they demonstrate that the value approximates the test values
arrived at on the basis of:

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