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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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Method 4: deductions

Usual

The meaning of this term has not been defined in the Law. However, for administrative purposes, it is to be taken to mean consistent with the normal range of margins for profit and general expenses of unrelated importers trading in imported goods of the same class or kind, as those to be valued, and at the same commercial level as that at which the importer is operating. However, in order for a range to be acceptable, it should be neither too wide nor too deficient in population. The range should be obvious and easily discernible in order for it to be the ‘usual’ amount. Other approaches might also be possible (for example the use of a preponderant amount (where such an amount exists) or an amount derived by simple or weighted averaging).

Profit and general expenses

These should be taken as a whole (Interpretative Note 1 to Article 152.1(a)(i) in Annex 23 of the CCIP).

Goods of the same class or kind

This is defined in Article 142 of the CCIP. However, in the context of Method 4, Interpretative Note 2 to Article 152.1(a)(i) in Annex 23 of the CCIP, indicates that whether goods are of the same class or kind as other goods must be determined on a case-by-case basis by reference to the circumstances involved. Sales in the EC of the narrowest group or range of imported goods of the same class or kind, which includes the goods being valued, for which the necessary information can be provided, should be examined. This term includes goods imported from the same country as the goods being valued as well as goods imported from other countries.

Commission

Commission is paid by overseas suppliers/exporters to their agents (selling or consignment agents or commissionaires) in the EC. Where the commission payment includes reimbursement for all the costs and expenses allowable under Method 4 the full amount is deductible as ‘profit and general expenses’.

Where commission is paid separately from the reimbursement of costs and expenses, both amounts are deductible. The commission represents the profit element (an example is provided in GACV41050).

Allowable deductions

Deductions are allowed in respect of post-importation (but pre-sale) costs and expenses. This is on the proviso that they are consistent with those usually incurred by buyers running an established business selling imported goods similar to those being valued. In particular, this includes expenses relating to the cost of storing and preserving the goods prior to sale, preparing them for market and other expenses incidental to the marketing of the goods, including administration.

Non-allowable expenses

Non-allowable expenses include:

  • those arising in the setting up of a business or in exceptional litigation
  • cost of materials used or of process performed in the manufacture and packing of the goods outside the EC
  • royalties and licence fees paid in respect of the manufacture of goods before importation
  • post-sale expenses properly charged against gross profits such as income tax (and other direct taxation), write off of capital and goodwill, expense of financing loans (other than interest paid to finance the purchase of the imported goods to be valued), investments, losses by speculation (for example on rates of exchange) and sums placed to reserve and
  • gains or losses resulting from the fluctuation of exchange rates.

Expenses

Allowable only within certain usual limits. These include:

  • depreciation of equipment (for example machinery, tools, cars, furniture) which is allowable only insofar as it is appropriate to the period in question and relates to equipment used in the country of importation
  • depreciation of buildings used for the purpose of a business which should be limited to the average annual cost of upkeep and
  • bad debts which are allowable within the limit of actual losses averaged over a period of years, but should exclude any particularly heavy loss which is clearly abnormal.

Import duties and other charges

The term ‘other charges’ includes anti-dumping or countervailing duties or levies payable in the EC (WCO AO 9.1 refers). This is the last item to be deducted.