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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 5

Practical application

This method is rarely used because of the difficulties in obtaining relevant information. Both the importer and Customs have to rely on the producer of the imported goods to provide detailed ‘costings’.

Customs cannot require or compel any person not resident in the EC to produce for examination, or to allow access to, any account or other record, for the purposes of determining the computed value. However, information supplied by the producer of the goods may be verified in a non-EC country by Customs with the agreement of the producer. This is subject to the proviso that Customs give sufficient notice to the authorities of the country in question and they do not object to the investigation (Article 153.1 of the CCIP refers).

Normally use of Method 5 will be limited to those cases where the importer and supplier are related.

Cost or value of materials and fabrication or other processing

The ‘cost or value’ is to be based on the commercial accounts of the producer. This is subject to the proviso that such accounts are consistent with the generally accepted accounting principles applied in the country where the goods are produced (Interpretative Note 2 to Article 30.2(d) of the Code in Annex 23 to the CCIP and Annex 24 to the CCIP refer).

The ‘cost or value’ is to include selling commissions, brokerage, the cost of containers treated as one with the goods and the cost of packing plus the value of any ‘assists’. However, no cost element shall be counted twice (Article 153.2 of the CCIP and Interpretative Note 4 to Article 30.2(d) of the Code in Annex 23 to the CCIP refer).

Profit and general expenses

The amount of profit and general expenses is to be taken as a whole. It represents the gross margin of the producer. General expenses are to include all direct and indirect costs of both producing and selling the goods, which have not already been included under ‘cost or value’ (Cost or value of materials and fabrication or other processing above).

Where the producer’s profit figure is low but the general expenses are high, the amount for profit and general expenses taken together may nevertheless be acceptable. This would depend on the producer being able to demonstrate that he is taking a low profit on his sales of the imported goods because of particular commercial circumstances. Such a situation might occur where:

  • a product is being launched in the EC. The producer may accept a nil or low profit to offset high general expenses associated with the launch
  • producers have been forced to lower prices temporarily because of an unforeseeable drop in demand or
  • producers supply goods to complement a range of goods being produced in the EC and accept a low profit to maintain competitivity.

When determining the usual profits and general expenses, sales for export to the EC of the narrowest range of goods, which includes the goods to be valued, for which the necessary information can be provided, should be examined (Interpretative Note 5 to Article 30.2(d) of the Code in Annex 23 to the CCIP refers).

Goods of the same class or kind

Whether certain goods are ‘of the same class or kind’ as other goods is to be determined on a case-by-basis with reference to the circumstances involved. However, they must be from the same country as the goods to be valued (Interpretative Note 6 to Article 30.2(d) of the Code in Annex 23 to the CCIP refers).