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HMRC internal manual

Guidance on the Audit of Customs Values

From
HM Revenue & Customs
Updated
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Free of charge (foc) goods

Introduction

Goods may be supplied ‘free of charge’ (value for customs purposes only) for a variety of reasons (for example gifts, samples, promotional items). Such goods may be shipped separately or as part of a larger consignment. ‘FOC’ goods are often of low value. However, capital equipment, especially ‘used’ machinery, may also be shipped ‘free of charge’ in particular by a head office to a branch or a parent company to a subsidiary. The equipment concerned may be of high value.

Note: The valuation of ‘foc’ goods should not be confused with ‘assists’ that is, goods supplied ‘free of charge’ by the buyer for use in the production of the imported goods.

Basis of value

General

Where goods are supplied without charge (that is, without having been the subject of a sale or any other consideration), Method 1 cannot be used. It is sometimes possible to apply Methods 2 or 3 and, exceptionally, Methods 4 or 5. However, normally it is necessary to determine the value of the goods under Method 6 by reference to the price that would have been paid for the goods if they had been purchased. This may be substantiated by, for example, a price list for the goods provided by the supplier.

In all cases freight, insurance, and loading and handling charges associated with the transport of the goods to the EC, are to be included in the customs value.

In the case of regular shipments of ‘foc’ goods between the same supplier/importer combination, a formal agreement between Customs and the importer as to the appropriate method of valuation is desirable.

Replacement goods in the same shipment

With certain types of goods it is trade practice for the sellers to include in their shipments a quantity of items ‘free of charge’ as replacements for items which experience shows are likely to be defective or damaged in transit. Similarly materials somewhat in excess of the ordered measurements may be sent, for example because the edges are known to be liable to damage in transit.

In these cases the sale price is to be regarded as covering the total quantity shipped. No attempt is to be made to value separately the ‘free replacements’ or to take account of the additional quantity for valuation purposes.

(In a subsequent shipment) Where replacement goods are sent ‘free of charge’ and it is clear from the contractual arrangements that this shipment is in fulfilment of the original transaction, the customs value is to be based on the unit price in that transaction. An adjustment to the customs value of the original shipment is to be considered separately.

Where replacement goods are invoiced at the original unit prices, those prices would form the basis for determination of the customs value. Any arrangements regarding credit for the original goods would need to be considered separately (WCO EN 3.1 paragraph 12 refers).