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HMRC internal manual

Guidance on the Audit of Customs Values

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HM Revenue & Customs
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Assists: research and development

The law

Article 32 of the Code states:

‘1. In determining the customs value under Article 29, there shall be added to the price actually paid or payable for the imported goods:

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 Community 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 155 of the CCIP states:

‘For the purpose of Article 32.1(b)(iv) of the Code, the cost of research and preliminary design sketches is not to 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 29.1 of the Code states:

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

The interpretative note to that Article in Annex 23 of the Implementing Provisions states:

‘The price actually paid or payable refers to the price for the imported goods. Thus the flow of dividends or other payments from the buyer to the seller that do not relate to the imported goods are not part of the customs value’.

Article 29.3(a) of the Code states:

‘The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods and includes all payments made or to be made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller…’

‘Research and development costs’ may also be recovered within ‘royalties and licence fees’. It is then necessary to refer to Article 32 of the Code which states:

‘1. In determining the customs value under Article 29, there shall be added to the price actually paid or payable for the imported goods:

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’.

Articles 157 to 162 of the CCIP also concern royalties and licence fees.

It is also possible to consider ‘research and development’ costs under the provisions of Article 32.1(d) of the Code 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 30.2(d) of the Code (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 exportation for export to the Community; and
  • the cost or value of the items referred to in Article 32.1(e).

The note to Article 30.2(d) of the Code in Annex 23 to the CCIP and Article 153 of those provisions also refer.

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