Shipping a small batch by air can cost more per unit than moving a large batch by rail. A seller may also set different prices for one hundred and one thousand units. So carrying the value of one shipment over to another can increase the amount payable at customs because of costs and terms that the buyer never had at all.
Methods 2 and 3 allow these differences to be taken into account. This requires data that make it possible to justify and calculate the adjustment. If both shipments are suitable for comparison, a difference in quantity or transport costs may change the calculation in either direction.
Method 2 is based on the transaction value of identical goods, and method 3 on the transaction value of similar goods. Similar goods may differ, but under Article 37 of the Customs Code of the Eurasian Economic Union (EAEU Customs Code) they must have similar characteristics and components, be made of the same materials, perform the same functions and be commercially interchangeable. This means that one product can be used instead of another, taking account of its properties and position in the market.
Method 2 applies when the customs value cannot be determined from your own transaction under method 1. Method 3 is used when neither method 1 nor method 2 is applicable. The basis is the customs value of a suitable shipment determined under method 1 and accepted by customs. The procedure is set out in Articles 41 and 42 of the EAEU Customs Code.
In the starting amount, it is important to distinguish the price of the product from costs already included in that amount. Stating the declaration number, item number, unit of measurement and composition of the value helps avoid two errors: comparing a per-unit price with a price per package, and adding transport costs twice.
The hypothetical calculation below compares two shipments of the same goods. We assume that the earlier shipment is suitable in terms of characteristics, country of production, manufacturer and import period. The preceding methods are justifiably inapplicable, and there are no other suitable transactions. The only differences are quantity and delivery costs.
The earlier shipment contained 100 units. The accepted customs value of the shipment was RUB 1,200,000, or RUB 12,000 per unit. Of that amount, RUB 10,000 was the goods themselves, RUB 1,500 was transport, RUB 300 was related loading operations, and RUB 200 was insurance.
| Goods | 10,000 |
|---|---|
| Freight / handling / insurance | 1,500 + 300 + 200 |
| Total | 12,000 |
The new shipment contains 1,000 units. For methods 2 and 3, the first step is to look for sales at the same commercial level and in substantially the same quantity. The commercial level is the position of the seller and buyer in the chain of sales. For example, the terms of a sale to a large wholesale buyer may differ from the terms of a small shipment to an end user. These circumstances are taken into account under the Rules approved by Decision No. 202 of the Board of the Eurasian Economic Commission (EEC) dated 30.10.2012.
In our example, the commercial level is the same. No separate adjustment is needed for it. But the seller has a price scale: for an order of 100 units, the goods cost RUB 10,000 per unit; for an order of 1,000 units, RUB 9,000. This means the documented difference attributable to quantity is RUB 1,000 per unit.
It is easy to make a mistake here. The discount applies to the price of the goods themselves - RUB 10,000. If all RUB 12,000 are reduced by ten percent, transport, loading and insurance will be reduced together with the goods, even though the seller's price scale has nothing to do with those costs.
The amount of the adjustment must follow from verifiable information. This may be a contract term, an annex with a price scale, or a price list that was in force, if it shows which goods, period and quantity the price applies to. A supplier's statement that “large customers usually receive a discount” does not produce an exact figure. Articles 41 and 42 require the justification and accuracy of such an adjustment to be documented. The adjustment may either reduce or increase the value.
The earlier shipment in the example was delivered by air, while the new one is delivered by rail. Paragraph 2 of Articles 41 and 42 of the EAEU Customs Code provides for an adjustment for a significant difference in the costs of transport, related operations and insurance caused by distance or mode of transport.
The relevant segment is the segment up to the place of arrival of the goods in the customs territory of the EAEU, or up to another place if one has been designated by the Commission. If the carrier issued one invoice for the entire route to a warehouse in Russia, it will be necessary to determine what part of the amount relates to the relevant segment. In one case this may be clear from the invoice itself; in another, from an annex to the contract or the carrier's calculation. Simply dividing the total amount by kilometres may give the wrong result if the tariff includes a fixed charge, terminal costs or separate services.
For the earlier shipment, transport was RUB 1,500 per unit, loading operations RUB 300, and insurance RUB 200. For the new shipment, the documented amounts are RUB 600, RUB 100 and RUB 100 respectively. The difference is RUB 900 for transport, RUB 200 for loading operations and RUB 100 for insurance. The total is RUB 1,200 per unit.
From the starting RUB 12,000, RUB 1,000 is deducted for the quantity difference and RUB 1,200 for the difference in transport, operations and insurance costs. After both adjustments, the result is RUB 9,800 per unit.
For a shipment of 1,000 units, that is RUB 9,800,000. If the original RUB 12,000 is simply carried over to the new shipment, the result is RUB 12,000,000. The difference is RUB 2,200,000. This is a change in customs value. It is not the amount of customs duty, tax or a possible refund. Customs payments are calculated separately.
It is useful to check the arithmetic another way. The earlier shipment of 100 units had a value of RUB 1,200,000. The total adjustment is RUB 2,200 per unit, so for 100 units it is RUB 220,000. After deduction, RUB 980,000 remains for 100 units. Divide by 100 and the result is again RUB 9,800 per unit. For the new shipment of 1,000 units, the result is again RUB 9,800,000.
This check helps identify a double deduction. For example, the original transport cost was first removed in full from the starting value and then the difference between the old and new transport costs was deducted again. That cannot be done in our example. After the adjustment, the costs of the new shipment must remain in the value: RUB 600 for transport, RUB 100 for loading operations and RUB 100 for insurance, a total of RUB 800 per unit.
The calculation can be traced using the official DTS-2 form. DTS is a customs value declaration. It shows the starting value, adjustments, quantity and final amount. But the form itself does not prove that the figures are correct. Every amount must be supported by the documents on the basis of which it was included in the calculation.
If several suitable transactions are found for comparison, each is first brought to comparable conditions through the necessary adjustments. Only after that do paragraph 3 of Articles 41 and 42 of the EAEU Customs Code require the lowest of the suitable customs values to be used. The cheapest figure in a database is not suitable if the shipment itself does not meet the conditions of the relevant method.
The reverse problem is also possible: it is clear that quantity affected the price, but there is nothing that can document the exact amount of the adjustment. The Code does not allow a discount to be estimated approximately. If an adjustment is required but there is no information documenting its justification and accuracy, the customs value of that shipment cannot be used as the basis for method 2 or 3.
In this example, the RUB 2,200,000 difference arose from two documented differences - purchase volume and delivery. The figures will be different for another shipment. After the adjustments, the costs of the new shipment must remain in the customs value, while the discount is calculated only on the amount to which the seller applied it.
Andrey Bernev, customs lawyer