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Delivery Terms and EU Customs Valuation

Incoterms 2020 8 min read
Delivery Terms and EU Customs Valuation

Quick answer

In the EU, customs valuation primarily follows the transaction value principle, meaning the customs value is based on the price actually paid or payable for the goods, adjusted as needed. Delivery terms (Incoterms) significantly influence which costs are included in the customs value, impacting import declarations and duties. EU businesses must understand how delivery terms affect the customs value to ensure accurate declarations and compliance.

Key takeaways

  • The EU applies the transaction value principle for customs valuation, aligned with the WTO Customs Valuation Agreement [1].
  • Customs value includes the price paid or payable for the goods plus certain additions such as commissions, packing, and royalties [2].
  • Delivery terms (Incoterms) determine which costs are included in the customs value, such as transport, insurance, and loading charges [2:1].
  • When transaction value cannot be used, alternative methods based on identical or similar goods or fallback methods apply [3], [4], [5].
  • EU importers must declare the correct customs value to their national customs authorities using their EORI number and comply with relevant deadlines [6].
  • Understanding delivery terms customs value interplay is essential to avoid undervaluation risks and penalties.

The Transaction Value Principle in EU Customs Valuation

The foundation of customs valuation in the European Union is the transaction value principle, which is the price actually paid or payable for imported goods when sold for export to the EU, adjusted according to specific rules [1:1]. This principle aligns with the WTO Customs Valuation Agreement, which the EU follows to ensure uniformity and fairness in customs valuation.

The transaction value must meet certain conditions to be acceptable. These include the absence of restrictions on the goods’ disposition or use beyond those imposed by law, no conditions affecting the price that cannot be valued, and no part of the proceeds from subsequent resale accruing to the seller unless adjustments are made [1:2]. Additionally, the relationship between buyer and seller is examined to ensure the price is not influenced by that relationship; if it is, customs may reject the declared value unless the importer can demonstrate that the value approximates one of the alternative valuation methods [1:3].

In practice, EU businesses must report the transaction value accurately, reflecting the genuine price paid or payable for the goods, as this value forms the basis for calculating customs duties and taxes upon importation.

Adjustments to the Price Paid or Payable

The customs value is not limited to the invoice price alone. Article 8 of the WTO Customs Valuation Agreement, applicable in the EU, specifies additions that must be included in the customs value to reflect the true economic value of the imported goods [2:2]. These adjustments include:

  • Commissions and brokerage fees (excluding buying commissions) incurred by the buyer but not included in the price.
  • Costs of containers treated as one with the goods.
  • Packing costs for labour and materials.
  • The value of materials, components, tools, dies, moulds, and similar items supplied free or at reduced cost by the buyer for production or sale of the goods.
  • Royalties and licence fees related to the goods that the buyer must pay as a condition of sale.
  • Any part of the proceeds of subsequent resale or use accruing to the seller.

Moreover, depending on national legislation, transport costs to the place of importation, loading/unloading charges, and insurance costs may also be included or excluded from the customs value [2:3].

For EU businesses, this means that the declared customs value must incorporate these adjustments where applicable. Failure to do so can result in undervaluation, leading to customs penalties or delays.

When Transaction Value Cannot Be Used: Alternative Valuation Methods

In certain cases, the transaction value cannot be used to determine the customs value. This may occur when the price is unknown, unreliable, or influenced by related-party transactions without acceptable justification [1:4]. The WTO Customs Valuation Agreement, binding on the EU, provides a hierarchy of alternative valuation methods:

  1. Transaction value of identical goods: The customs value is based on the transaction value of identical goods sold for export to the EU at or about the same time and commercial level, adjusted for differences in quantity or commercial level if necessary [3:1].

  2. Transaction value of similar goods: If no identical goods are available, the transaction value of similar goods is used under similar conditions [4:1].

  3. Deductive value: Based on the unit price at which the imported goods or identical/similar goods are sold in the EU in the greatest aggregate quantity, with deductions for costs after importation.

  4. Computed value: Based on the cost of production, materials, labour, and an amount for profit and general expenses.

  5. Fallback method: Reasonable means consistent with the principles and general provisions of the Agreement [5:1].

EU importers may request customs authorities to apply these alternative methods, but the transaction value principle remains the preferred and primary method. Understanding these alternatives helps businesses prepare for cases where transaction value is not applicable.

The Role of Incoterms in Determining Customs Value

Delivery terms, commonly expressed as Incoterms, are internationally recognised commercial terms defining the responsibilities of buyers and sellers for delivery of goods. These terms directly affect the components included in the customs value because they determine which party bears costs such as transport, insurance, and loading.

For example, under Incoterms where the seller bears transport costs up to the EU border (e.g., Delivered Duty Paid - DDP), these costs are generally included in the price paid or payable and thus form part of the customs value [2:4]. Conversely, if the buyer arranges transport from the seller’s country (e.g., Ex Works - EXW), transport costs incurred by the buyer after export are not included in the customs value.

This interplay means that the choice of delivery terms influences the “delivery terms customs value” relationship, affecting the customs declaration and duty calculation. EU businesses must carefully consider their Incoterms in contracts and ensure their customs declarations reflect the correct valuation based on these terms.

Obligations for EU Importers Regarding Customs Value Declarations

EU importers have specific obligations when declaring customs value:

  • They must provide an accurate customs value based on the transaction value principle or alternative methods if applicable [1:5], [3:2], [4:2].
  • Declarations must be made using the importer’s EORI number to the customs authorities of the relevant Member State.
  • Importers have the right to request a written explanation from customs on how the customs value was determined [6:1].
  • Customs authorities retain the right to verify the truth and accuracy of the declared customs value and may request supporting documents [6:2].
  • Importers must comply with national deadlines and procedures for customs declarations and payments.

Failure to comply with these obligations can lead to administrative sanctions, delays, or additional duties. Therefore, EU businesses must maintain thorough documentation of transactions, contracts, and delivery terms to support their customs value declarations.

Ensuring Compliance: Best Practices for EU Businesses

To manage the complexities of delivery terms customs value and ensure compliance, EU businesses should adopt the following best practices:

  • Understand Incoterms: Clearly define delivery terms in contracts and understand their impact on customs valuation.
  • Maintain accurate records: Keep detailed invoices, contracts, transport documents, and proof of payments.
  • Train staff and advisors: Ensure customs and logistics teams understand customs valuation rules and the importance of accurate declarations.
  • Engage with customs authorities: Use the right to request explanations and clarify valuation issues proactively.
  • Use customs valuation experts: Consult specialists when dealing with complex transactions, related-party sales, or alternative valuation methods.
  • Monitor regulatory updates: Verify the current consolidated texts of relevant regulations on EUR-Lex to stay informed of any amendments [7].

By integrating these practices, EU companies can mitigate risks of non-compliance and optimise their customs processes.

FAQ

What does customs value mean in DPD?
In the context of Delivered Duty Paid (DPD) Incoterms, the customs value generally includes the price paid for the goods plus all costs borne by the seller up to delivery, such as transport and insurance. These costs form part of the customs value declared to customs authorities [2:5].

What does a customs value mean?
Customs value is the value assigned to imported goods for the purpose of calculating customs duties and taxes. It is primarily based on the transaction value—the price actually paid or payable for the goods—adjusted for certain costs and charges as required by EU and WTO rules [1:6], [2:6].

How do customs know how much a parcel is worth?
Customs authorities determine the value of imported goods based on the customs value declared by the importer, supported by invoices and other documentation. They verify the declared value using the transaction value principle and, if necessary, alternative valuation methods or audits [6:3].

How is customs value calculated?
Customs value is calculated starting with the transaction value (price paid or payable), to which certain additions are made, such as commissions, packing, royalties, and sometimes transport and insurance costs, depending on delivery terms. If transaction value cannot be used, alternative methods based on identical or similar goods or computed values apply [1:7], [2:7], [3:3], [4:3].

Sources

  1. Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (WTO Customs Valuation Agreement), Article 1

  2. Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (WTO Customs Valuation Agreement), Article 8

  3. Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (WTO Customs Valuation Agreement), Article 2

  4. Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (WTO Customs Valuation Agreement), Article 3

  5. Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (WTO Customs Valuation Agreement), Article 4

  6. Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (WTO Customs Valuation Agreement), Article 15

  7. [02 Trade in goods.pdf, Article 2.15](https://circabc.europa.eu/d/d/workspace/SpacesStore/5784412b-1369-40bb-b3b4-91d9aaa00525/02 Trade in goods.pdf)

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