Although the valuation method based on transaction price is the most frequently used one in customs valuation, it cannot be used in practice sometimes due to various factors (for example, no transaction price, the transaction price does not meet the conditions, the transaction price cannot be determined, etc.), so it is necessary to re-determine the duty-paid value, and then apply the valuation methods in a sequential order other than the valuation method based on transaction price (hereinafter referred to as “other valuation methods”). In this paper, other valuation methods will be introduced one by one. Considering that the provisions on customs value of exportation are relatively simple, and the exportation is not involved in tax most of the time, we will take importation as an example to introduce other valuation methods.

According to the Articles 19-27 of the Measures for the Customs to Examine and Determine the Duty-paid Value of Imported and Exported Goods (hereinafter referred to as “the Measures”), other valuation methods are as follows: valuation method based on transaction price of identical goods, valuation method based on transaction price of similar goods, deductive price valuation method, computed price valuation method, reasonable price valuation method (as shown below).

When applying to other valuation methods, enterprises need to pay attention to:

1. Other valuation methods shall be considered only when the valuation method based on transaction price cannot be applied.

2. The five methods shall be applied in a sequential order and can not be reversed at will.

That is to say, priority applies to the previous order of valuation methods, and the next valuation methods is applicable only when the current valuation methods cannot be applied.

3. Exceptions for the sequential order of application.

With the application of the taxpayer and the consent of the Customs, the deductive method and the computed value method can be reversed.

Value method based on transaction price of identical and value method based on transaction price of similar goods are introduced together, because the difference between the two methods is only the goods condition The applicable conditions of other aspects are the same.

(Ⅰ) Definition

The valuation method based on the transaction price of identical goods is a valuation method whereby the Customs examines and determines the duty-paid value of imported goods on the basis of the transaction price of identical goods sold for export to the territory of the People’s Republic of China at or about the same time as the imported goods.

The valuation method based on the transaction price of similar goods is a valuation method whereby the Customs examines and determines the duty-paid value of imported goods on the basis of the transaction price of similar goods sold for export to the territory of the People’s Republic of China at or about the same time as the imported goods.

(Ⅱ) Applicable conditions

We summarized the following five considerations in determining the duty-paid value of imported goods according to the identical or similar goods valuation methods:

1. The goods shall be identical or similar to the imported goods.

“Identical goods” refers to the goods which are manufactured in the same country or region as the imported goods and are the same as the imported goods in all aspects including physical characteristics, quality, and reputation with minor differences in appearance permitted. Here is an example.

Example 1: Wallpapers imported by interior decorator and wholesale distributor respectively.

Wallpapers, which are the same in all respects, are still deemed as identical goods even if they are imported by interior decorator and wholesale distributor respectively at different prices.

Although different prices may indicate a difference in quality or reputation, and the difference in quality or reputation is a factor in determining whether the identical or similar goods are considered, the price itself is not a factor in determining the identical or similar goods.

“Similar goods” means goods which are produced in the same country or region as imported goods. Although not identical in all aspects, the goods have similar characteristics and similar component materials, enabling them to perform the same functions and to be commercially interchangeable with each other.

Example 2: Inner tubes of wheel imported from two different manufacturers.

Rubber inner tubes are imported from two different manufacturers in the same country, and the size ranges of rubber inner tubes are the same. Although the two manufacturers use different trademarks, they both produce tubes of the same standard and quality level, enjoy the same reputation, and are both used by motor vehicle manufacturers in the importing country.

According to the Article 15.2 (a) of the WTO Agreement on Customs Valuation, because inner tubes bear different trademarks, they are not identical in every respect and should not be regarded as the same goods.

Although the inner tubes are not identical in every respect, they do share similar characteristics and component materials, so that they can perform same function. Since the goods are produced to the same standard and quality level and have the same level of reputation and bear trademarks (even if the marks are different), they shall be identified as similar goods.

2. Manufacturer and origin: the goods shall be manufactured in the same country or region.

Specifically, the transaction price of identical or similar goods produced by the same manufacturer shall be applied first. Where there is no transaction price of the identical or similar goods produced by the same manufacturer, the transaction price of the identical or similar goods produced by other manufacturers in the same manufacturing country or region can be used.

3. Time: the goods shall be imported at or about the same time as the imports.

“About the same time” means within 45 days before or after the day on which the Customs accepts the declaration of goods.

3. Adjustment matters: it shall be or adjust to the same commercial level and approximately the same quantity.

1) The Customs shall apply to the transaction price of identical or similar goods at the same commercial level and approximately the same quantity as the imported goods.

2) As prviously mentioned, only in the absence of the transaction price of identical or similar goods, the transaction price of identical or similar goods sold at a different commercial level or in different quantities can be adopted.

Tips: The Customs accepts the mentioned 4.1) or 4.2) in the preceding paragraph to determine the transaction price of imported goods. Under this circumstance, relevant differences must be considered, such as differences in prices, costs and charges between the imported goods and the identical or similar goods, resulting from differences in commercial levels, import quantity, distances and modes of transport, and necessary adjustment shall be made on the basis of objective and quantitative data.

5. Where there are more than one price, the lowest shall be applied.

Where there are more than one transaction price of identical or similar goods, the lowest shall be applied to examine and determine the duty-paid value of the imported goods.

(Ⅰ) Definition

The deductive price valuation method is a method whereby the Customs examines and determines the duty-paid value on the basis of the sales price of the imported goods, or their identical or similar goods within China, after deduction of relevant expenses incurred.

(Ⅱ) Applicable conditions

The sales price determined through deductive price valuation method shall meet all of the following conditions:

1. The price is the sales price of the imported goods or their identical or similar goods sold within China at or about the time of the importation of the goods. “About the same time” means within 45 days before or after the day on which the Customs accepts the declaration of goods. If there is no referable sales price at or about the time of the importation of the goods, the price within 90 days after the import of the goods can be applied as the basis of the deductive price.

In terms of the duration, the deductive price valuation method is more flexible than the valuation method based on the transaction price of identical or similar goods. The provision, “If the sales price at or about the time of the importation of the goods can not be found, the price within 90days after the import of the goods can be used as the basis of the deductive value”., can be applied under this condition.

2. The applied price is the sales price of the goods in the same condition as being imported.

Where neither the goods nor identical or similar goods are sold within China in the same condition as imported, if the taxpayer so requests, the Customs may use the sales price of the further processed goods to assess the customs value of the goods , but the value added by such processing shall also be deducted. The value added by processing shall be computed on the basis of objective and quantitative data relating to the processing cost according to the widely accepted industry standards, computing methods and other industry practices.

3. The goods sold at the price are in the largest aggregate quantity.

That is to say, using the deductive price valuation method must base on the price of the imported goods or their identical or similar goods sold to the parties without special relationship in China in the largest total amount.

For example, Company A has sold 200 units of imported goods in six batches at different prices, as follows:

The sales price above is CNY 80, with the largest total unit (see the table below), totaling 70.

Therefore, the goods sold in the largest aggregate quantity is at the price of CNY 80.

4. When applying the deductive price valuation method, in addition to meeting the above three conditions, it shall also meet all of the following conditions: the price shall be the sales price of the goods first-hand sold within China, and the price shall be the sales price sold to persons without special relationships in China. These two conditions are easy to understand from the perspective of fair trade, so we will not   go into more details here.

(Ⅲ) Expenses that shall be deducted

In the examination and determination of the customs value of imported goods by the deductive price valuation method, all of the following costs shall be deducted:

1. Usual profit, general expenses (including direct and indirect expenses) and reasonably paid commissions incurred in the first-hand sales of the same class or same kind of goods within China;

2. The cost of transportation and related charges, as well as the insurance costs incurred after the unloading of goods at the port of entry within China;

3. Import duties, taxes collected by the Customs vicariously at the time of importation, and other domestic taxes.

In the determination of deductions herein, principles and methods consistent with domestic generally accepted accounting principles shall be adopted.

(Ⅰ) Definition

The computed price valuation method is a method whereby the Customs examines and determines the customs value of imported goods on the basis of the sum of the following (II):

(II) Price composition

1. The cost of materials and fabrication or other processing employed in producing the goods.

2. Usual profit and general expenses (including direct and indirect expenses) in sales of the same class or same kind of goods for exporting to China.

3. The cost of transportation and related charges, as well as the insurance costs incurred before the unloading of goods at the port of entry within China.

In examining and determining the customs value of imported goods under the preceding paragraph, the Customs may, with the agreement of the overseas manufacturer and after notifying the government of the relevant country or region in advance, verify the relevant material provided by the manufacturer outside the border. In the determination of the relevant value or cost, principles and methods consistent with the generally accepted accounting principles of the producing country or region shall be adopted.

(Ⅰ) Definition

The reasonable price valuation method is a method whereby the Customs examines and determines the customs value of imported goods on the basis of objective and quantifiable data under the principles of neutrality, fairness, and uniformity if the customs value cannot be determined by the valuation method based on transaction price of imported goods, the valuation method based on transaction price of identical or similar goods, the deductive price valuation method, or the computed price valuation method.

(Ⅱ) The following price shall not be used

In determining the customs value of imported goods by reasonable price valuation method, the Customs may not use the following:

1. Domestic sales price of goods manufactured within China;

2. The higher of two alternative prices;

3. The sales price of the goods in the domestic market of the country or region of exportation;

4. The price of identical or similar goods computed on the basis of values or costs other than those set out through computed price valuation method;

5. The sales price of goods exported to a third country or region;

6. Floor price, or arbitrary or fictitious price.