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HMRC internal manual

Guidance on the Audit of Customs Values

Assists: research and development

The law

Article 71 of the UCC states:

‘1. In determining the customs value under Article 70, the price actually paid or payable for the imported goods shall be supplemented by:

b. The value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at a reduced cost for use in connection with the production and sale for export of the imported goods to the extent that such value has not been included in the price actually paid or payable.

iv. Engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than in the Union and necessary for the production of the imported goods;’

(Note: during its Sixth Meeting held on 3 March 1983, the WTO Committee on Customs Valuation agreed that in the context of Article 8.1(b)(iv) of the WTO Valuation Agreement the English word ‘undertaken’ is to be understood as meaning ‘carried out’).

Article 135.5 UCC IA states:

‘For the purpose of Article 71.1(b)(iv) of the UCC, the costs of research and preliminary design sketches shall not be included in the customs value’.

The above contain the only specific references to ‘research and development’ in the law. These provisions relate to circumstances where ‘research’ and ‘development’ are provided by the buyer (that is, assists).

Where ‘research and development’ costs are charged by the seller of the imported goods, it is necessary to consider other provisions within the law.

Article 70.1 of the UCC states:

‘The primary basis for the customs value of goods shall be the transaction value, that is the price actually paid or payable for the goods when sold for export…’

Article 70.2 of the UCC states:

‘The price actually paid or payable shall be the total payment made or to be made by the buyer to the seller or by the buyer to a third party for the benefit of the seller for the imported goods and include all payments made or to be made as a condition of sale of the imported goods.’

‘Research and development costs’ may also be recovered within ‘royalties and licence fees’. It is then necessary to refer to Article 71 of the UCC which states:

‘1. In determining the customs value under Article 70, the price actually paid or payable for the imported goods shall be supplemented by:

c Royalties and licence fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and licence fees are not included in the price actually paid or payable’.

Article 136 of the UCC IA also concerns royalties and licence fees.

It is also possible to consider ‘research and development’ costs under the provisions of Article 71.1(d) of the UCC which refers to:

‘the value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller’.

In addition it may be necessary to consider ‘research and development’ costs under the provisions of Article 74.2(d) of the UCC (that is, the computed value method). This Article states that the computed value consists of the sum of:

  • the cost or value of materials and fabrication or other processing employed in producing the imported goods;
  • an amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of export for export to the Union; and
  • the cost or value of the elements referred to in point (e) of Article 71.1.

The inclusion of ‘research and development’ costs in the computed value falls to be considered under the term ‘general expenses’.