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HMRC internal manual

Guidance on the Audit of Customs Values

Other customs systems: Outward Processing Relief (OPR) and Standard Exchange System (SES)

Goods repaired or replaced in return for payment

When EU goods are exported for repair or replacement for a consideration, import duties are calculated on the cost of the repair or replacement, plus any freight and insurance charges made for the return of the repaired goods or the replacements. This is conditional on the repair or replacement costs not being influenced by any relationship between the authorised person and the processor.

All other processes

Duty relief is calculated in the following way:

Import duty due on the full customs value of the compensating product minus Import duty which would have been payable on the exported goods if they had been imported at the same time and from the same country as the compensating product.

Import procedures

The value placed upon the exported goods affects the amount of duty relief which can be claimed when the compensating products are reimported. Since the exported goods may be incorporated into other goods during processing, the imported products normally have a different tariff classification from that of the exported goods. It is therefore essential that the exported goods are correctly classified in their own right, so that the amount of duty applicable to them can be correctly established. The following examples show the effects of differing values and duty rates for the exported goods.

Value of exported goods = £250
Cost of processing = 750
Value of compensating product = £1000
Duty rate of compensating product = 10%
Duty due before OPR relief = £100
  1. duty rate of the exported goods = 10% (the same as the compensating product). Actual duty paid is:

£100 - (10% of £250) = £100 - £25 = £75

  1. duty rate of the exported goods = 15% (higher than the compensating product). Actual duty paid is:

£100 - (15% of £250) = £100 - £37.50 = £62.50

  1. duty rate of the exported goods = 5% (lower than the compensating product). Actual duty paid is

£100 - (5% of £250) = £100 - £12.50 = £87.50

As can be seen from examples (a) to (c) above, the higher the duty rate of the exported products, the lower the actual duty liability on the compensating product. Similarly, the value of the exported goods can affect the actual duty liability. If the exported goods at example (c) were valued at £50 instead of £250, the value of the compensating product would be £800. The actual duty paid would be:

£80 - (5% of £50) = £80 - £2.50 = £77.30

As demonstrated, the actual duty paid is lower if the value of the exported goods is significantly lower. Conversely, if the value of the exported goods is increased to £500, the actual duty paid would be

£125 - (5% of £500) = £125 - £25 = £100

Valuation of the compensating product

Where goods are supplied directly or indirectly free of charge or at reduced cost by the buyer to the processor for use in connection with the production of the imported goods. The customs value under the provisions of Method 1 may be ‘built up’ or ‘constructed’ as follows:

Step Value build of up details
1. Payments to the ‘processor’ (who in this situation constitutes the ‘seller’ for the purposes of Article 71(1)(a) of the Code) (This is an example interpreting the term ‘seller’ in the widest sense. CO AO 1.1 refers). The payments may relate only to the cost of processing (that is, a labour/service charge). However, the processor may also provide some parts/components and charge for them
2. The value of any assists set out in Article 71(1)(b) of the Code supplied directly or indirectly by the buyer/importer. This is to include the value of any materials rejected, lost or wasted before, during or after the process. (This equates to consumed in Article 71(1)(b)(iii)). The value is to be determined by reference to either the cost of acquisition or the cost of production (Interpretative Note 2 to Article 71(1)(b)(ii)  refers. EU CVS Comm 1 paragraph 3 indicates that this should be applied by analogy to the other provisions of Article 71(1)(b))*
3. Any third country customs duty or similar levy.
4. Any other necessary Article 71(1) adjustments (for example delivery costs. However, outward freight and insurance is not to be included providing it is separately distinguished. EU CVS Comm 1 paragraphs 5 and 6 refer)
5. any necessary Article 72 adjustments.

*Note: this could involve materials/services supplied from third country sources. For more information on ‘assists’ see paragraph 1.9(d).

Sell and buy back arrangements

In some cases the importer may sell materials to the processor and then buy back the compensating product. The importer may also sell the temporarily exported goods to another trader established in the EU.

Where the buyer is also the manufacturer of the exported goods, the customs value will normally be based on the total amount paid for the compensating product plus delivery costs to the EU border. In such cases no addition is required under Article 71.1(b)(i) of the Code for materials and components supplied. The value for relief purposes is the difference between the value of the compensating product and the processing charge. However, an addition is required where goods are supplied to the processor at a reduced cost. (ECJ Case No C-16/91 Wacker Werke GmbH and Co KG refers).