The price at which an importer sells goods in Russia may include delivery, customs payments, trading costs and profit. If that entire price is simply used for the customs calculation, it will include amounts that method 4 requires to be deducted.
This method works backwards from a sale in the territory of the Eurasian Economic Union (EAEU) to the customs value. Permitted amounts are deducted from a suitable sale price: the usual trade mark-up covering profit and general expenses, transport and insurance costs within the EAEU, and duties, taxes and fees connected with importation and sale. Which sale may be used as the basis and which deductions are allowed are set out in Article 43 of the EAEU Customs Code.
Method 4 is used when it has not been possible to use the transaction value of the imported goods themselves, followed by transaction values of identical and similar goods - methods 1, 2 and 3. The declarant, meaning the person who declares the goods or on whose behalf they are declared, may ask to reverse the order of methods 4 and 5. This article deals with commercial imports.
If, at the time of calculation, suitable information is available about sales of the goods being valued themselves, that information is used. If there are no such sales, previously imported identical or similar goods may be considered. So it is not always necessary to wait until the current shipment is actually sold. This procedure is explained in the Rules approved by Decision No. 214 of the Board of the Eurasian Economic Commission (EEC) dated 13.11.2012.
Under Article 37 of the EAEU Customs Code, identical goods must be the same in all respects, including physical characteristics, quality and reputation. Minor differences in appearance do not prevent this. Similar goods may differ, but they must have similar characteristics and components, be made of the same materials, perform the same functions and be commercially interchangeable. The manufacturer, country of production and other conditions of Article 37 are also taken into account.
A matching HS code under the EAEU Commodity Nomenclature for Foreign Economic Activity does not by itself establish that the comparison is valid. The EAEU Commodity Nomenclature for Foreign Economic Activity is the nomenclature used to classify goods for customs purposes. Goods with materially different characteristics and prices may fall under the same code.
For method 4, sales at the first commercial level after importation are relevant. Put simply, the question is the price at which the importer sold the goods to its immediate buyer. If a Russian wholesaler later resold those goods to a retail store, that later price belongs to a different level of trade.
The buyer and seller must be unrelated. In addition, paragraph 6 of Article 43 excludes sales to a buyer that, in connection with the production and supply of the goods being valued, provided the producer free of charge or at a reduced cost with materials, tools, moulds or relevant services. For example, a Russian buyer may have supplied a foreign factory with a mould to make those particular goods. Such a sale cannot simply be placed in the same group as ordinary sales to unrelated buyers.
| Buyer | Unrelated to the seller |
|---|---|
| Quantity | Largest aggregate quantity sold at one price |
| Period | Article 43 conditions |
As a general rule, the goods must be sold in the same condition as imported. Removing transport packaging does not prevent this. There is a separate calculation option for goods sold after processing.
There is also a time condition. Sales in the same or a corresponding period as the importation are considered first. If there were no suitable sales of the goods being valued, identical goods or similar goods at that time, paragraph 3 of Article 43 allows a sale on the earliest suitable date after importation to be used, but within 90 calendar days. The period is counted from the date the goods were imported into the customs territory of the EAEU. The date they arrived at a Russian warehouse does not replace that date.
For example, an importer sold 50 units at RUB 12,000 and another 70 at the same price. Another 100 units were sold at RUB 11,800, and another 40 at RUB 12,500. For this hypothetical calculation, we assume that all sales are suitable in terms of timing, condition of the goods, buyers and commercial level.
Article 43 looks to the price at which the largest aggregate quantity of the goods was sold at one price. At RUB 12,000, 120 units were sold: 50 + 70. At RUB 11,800, 100 units were sold, and at RUB 12,500, 40 units. The calculation therefore starts with RUB 12,000. The largest individual invoice does not determine the result here. The total quantity sold at the same price is counted. If the same largest aggregate quantity was sold at two different prices, paragraph 10 of Rules No. 214 requires the lower price to be selected.
Next, the amounts listed in paragraph 2 of Article 43 are deducted from the selected price. Depending on how the sales are organised, this is either the usual commission paid to an intermediary or the usual mark-up to the price covering profit and general commercial and administrative expenses. Both the intermediary commission and that addition cannot be deducted at the same time.
Profit and general expenses are considered together. If a company sells completely different product groups, its overall profitability may poorly reflect trade in the particular goods being valued. Information on sales of goods of the same class or kind is therefore used. The narrowest possible group of goods for which suitable data are available is considered. For this purpose, Article 43 permits goods from both the country of production of the goods being valued and other countries.
If the importer's data on profit and general expenses differ from information available to customs about the usual level of those indicators, customs may use its own information. It is then important to see which group of goods that information relates to and how the addition was calculated.
Usual costs of transport, insurance and related operations within the EAEU are deducted separately if they are not already included in the mark-up. Otherwise, the same delivery cost would reduce the price twice. Duties, taxes and fees payable in connection with the importation or sale of the goods are also taken into account. Where the relevant obligation applies, special, anti-dumping and countervailing duties are also checked.
Let us continue the hypothetical calculation. All prices and expenses below are assumed to be stated excluding recoverable VAT. Full deduction of import VAT is assumed only for purposes of this example. No general conclusion about a particular importer's entitlement to such a deduction may be drawn from it.
The starting price is RUB 12,000. The usual mark-up covering profit and general expenses is RUB 2,500 per unit. Domestic transport and insurance not included in that addition amount to RUB 500. The customs fee allocated per unit is RUB 200. The hypothetical import duty rate is 10% of the customs value. There are no other non-recoverable taxes or duties in the example.
First, deduct the fixed amounts:
12,000 - 2,500 - 500 - 200 = RUB 8,800.
The RUB 8,800 still contains the customs value and the duty equal to 10% of that value. Therefore:
8,800 / 1.10 = RUB 8,000.
The duty is RUB 800. Check the calculation in reverse:
8,000 + 800 + 2,500 + 500 + 200 = RUB 12,000.
If 10% is simply deducted from the Russian sale price of RUB 12,000, the base will be wrong: in our example the duty is calculated on the customs value.
For goods that are sold only after processing, paragraph 4 of Article 43 provides a separate procedure. It applies at the declarant's request if neither the goods being valued nor suitable identical or similar goods are sold in the EAEU in the condition in which they were imported. The sale of the goods being valued after processing to an unrelated buyer may then be used as the basis, with an additional deduction for the value added by that processing, as well as the other amounts listed in paragraph 2 of Article 43.
The value of the processing must be documented and calculated accurately. If the imported goods lose their identity after processing, this option remains available only if the value added can nevertheless be determined accurately. If the imported component remains identifiable but forms such a small part of the finished product that it has practically no effect on its value, paragraph 4 cannot be applied.
A sales register makes it possible to see how much of the goods was sold at each price and which buyers were involved in those transactions. For this purpose, it links the date, buyer, model, quantity, price, invoice and import shipment. The documents for each deduction show where the amount of the expense came from.
If customs determined the customs value using its own information, paragraph 9 of Article 43 provides for the declarant to be informed of the sources and calculations. Those can be compared with the importer's own sales and deductions. Even in the example above, choosing the largest invoice instead of the aggregate quantity would produce a different price, while deducting 10% from the entire Russian sale price would produce a different customs value.
Andrey Bernev, customs lawyer