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HMRC internal manual

Guidance on the Audit of Customs Values

Method 1 (transaction value): practical application

Price review clause

Where the price review clause has already produced its full effect by the material time for valuation (that is, time of entry of the goods to free circulation), no problems should arise since the price actually paid or payable is known. However, if, for some reason, the effect of the price review clause is not taken into account when the customs value is declared, it would be necessary to take remedial action at the post-importation stage.

Potential difficulties

Potential difficulties arise where price review clauses are linked to variables which come into play some time after the goods have been imported. This means that, at the time of entry to free circulation, the invoice price for the goods concerned would, in effect, be provisional. One practical solution is for the importer to arrange for the goods to be released under ‘security arrangements’ (that is, duty would be taken on deposit).

Establishing the final price

When the final price is established in accordance with the contractual arrangements, the duty legally owed can be determined. Then the duty ‘on deposit’ can be adjusted upwards or downwards as appropriate.

An alternative solution is for the importer to seek a formal agreement with us whereby duty is taken outright on an agreed basis. This is subject to the importer notifying us of any retrospective price adjustment. Then the duty payment position can be rectified accordingly. Any such agreement may also involve a periodic review or reconciliation.

Security arrangements

Cases may arise where the goods have not been released under ‘security arrangements’ and there is no formal agreement with us. Nevertheless, the importer may notify us post-importation that a retrospective price adjustment has taken place. Alternatively Customs may find that the price has been adjusted retrospectively when Customs carries out a post-importation audit/verification.

In such cases Customs will examine all the contractual arrangements between the buyer and the seller. Where it can be shown that these arrangements provided for a retrospective price adjustment, Article 48 of the UCC is the legal basis for remedial action to rectify the duty payment position. This would involve either the importer making a formal claim for a refund of duty or Customs issuing a post clearance demand for arrears of duty and import VAT, as appropriate.

Retrospective price adjustment

In cases where, either Customs consider that the trading arrangements do not provide for a retrospective price adjustment or no contractual arrangements exist but the price is adjusted upwards retrospectively, Customs will take action to collect arrears of duty and import VAT. The fact that the buyer agrees to pay such a price increase is regarded by Customs as confirmation that there was an implicit understanding between the buyer and the seller when the goods were ordered or purchased (that is, prior to entry to free circulation) that such an adjustment may occur.

In similar circumstances but where the price is adjusted downwards, the importer may submit a claim for a refund of duty. Such claims will be regarded as being the result of post-importation bargaining out with any contractual arrangements. Thus the claims will be rejected by Customs.