Brief Background. The customs valuation system presently being implemented at the Bureau of Customs is the Transaction Value (TV) System, which is principally based on the WTO Agreement on Customs Valuation (Agreement on Implementation of Article VII of the GATT/Customs Valuation 1979).
Prior to adoption of the WTO Agreement on Customs Valuation, most countries around the world had varying valuation systems and as a result, many companies experienced difficulties in their cross border activities due to disputes and conflicts on the treatment of their exported goods. Thus, under the auspices of the administrators of the GATT, a uniform international system was established to promote and facilitate trade by ensuring that customs valuation is simple, transparent and predicable. The system was likewise designed to ensure that governments are able to easily administer the same. Under the new system, countries expect that their exports would have the same treatment as imports entering their countries.
In 1995, the Philippines became one of the member countries of the World Trade Organization (WTO). Along with the WTO membership was the accession of the Philippine government to various trade agreements pertaining to, among others, customs valuation, tariff restructuring, dumping, countervailing, safeguards, rules of origin, and the intellectual property rights.
Comparison with the Export Value (EV) System. The Transaction Value system was first implemented in January 2000 as provided under RA 8181. RA 8181 was subsequently amended with the passage of RA 9135 in June 2001. Prior to the adoption of the TV system, the customs valuation system that was in operation was known as the Export Value (EV) System. In contrast to the present system, the EV system was criticized for many reasons, among them:
- Customs provided a minimum value on imports without clear basis and standards as to the source of said value.
- Customs value was not based on actual commercial terms and conditions.
- Customs values were considered arbitrary and fictitious.
The adoption of the TV system thus provided the trading community with a fair, uniform and neutral rule on customs valuation. In contrast to the previous system, the present system now supports business reality and commercial reasons as basis for the customs value.
What is the Transaction Value? Under Section 201 of the Tariff and Customs Code (TCCP), the dutiable value of an imported article is the “transaction value, which shall be the price actually paid or payable for the goods when sold for export to the Philippines”. Stated otherwise, the primary basis for determining the customs value is the price paid or payable (Method 1 – Transaction Value).
The acceptability of the transaction value is, however, subject to certain conditions. Likewise, certain elements, which are considered to form part of the value for customs purposes, may be added to the price paid or payable.
RA 9135 and its implementing rules (CAO 5-2001) provide that in determining the transaction value certain adjustments may be made to the price actually paid or payable for the imported goods being valued. These adjustments are as follows: (a) commissions and brokerage fees (except buying commissions); (b) cost of containers; (c) cost of packing; (d) assists; (e) royalties and license fees; (f) subsequent proceeds that directly or indirectly accrue to the supplier; (g) cost of transport to the port of entry; (h) loading and handing charges to the port of entry; and (i) cost of insurance.
Under the TV system, there is a strong policy in favor of applying the transaction value to the greatest extent possible, and the grounds for departure should be narrowly construed as much as possible. There are also very few instances for departing from the price paid or payable. Other than the conditions for the acceptability of the transaction value, there are no other grounds for departing from the transaction value. Where the transaction value cannot be applied, the various alternative methods shall then be followed in sequential order.
Grounds for Rejecting the Transaction Value. For the Transaction Value to be acceptable, the following conditions must be present:
- There must be a sale for export to the Philippines.
- There must be no restrictions as to the disposition or use of the goods by the buyer, which substantially affect the value of the goods.
- The sale or price must not be subject to some conditions or considerations for which a value cannot be determined with respect to the goods being valued.
- No part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller.
- The buyer and the seller are not related, or if they are related, the importer must be able to demonstrate that the relationship did not influence the price actually paid or payable.
When the above conditions are not met, the transaction value cannot be accepted as customs value and as such, the subsequent methods must then be applied.
CAO 5-2001 elucidates further on the process for proceeding to alternative methods of determining customs value when the transaction value is not applicable. [Our subsequent articles will discuss in more detail the concept of the Transaction Value and the other methods of valuation.]
The author is an international trade, indirect tax (customs) and supply chain expert. He is the Editorial Board Chairman of Asia Customs & Trade, an online portal on customs and trade developments affecting global trade and customs compliance in Asia. He was also Bureau of Customs Deputy Commissioner for Assessment and Operations Coordinating Group (2013-2016). He is author of “Understanding International Trade, Tariff and Customs“. For questions, please email at firstname.lastname@example.org and email@example.com