Transaction Value
Meaning ~ Valuation logic determining duty based on the actual price paid between buyer and seller, incorporating specific additions like royalties, packing, and assists.
Non-Monetary Consideration Check
Meaning
Evaluation of benefits or services provided to a seller as part of a transaction ensures that the value of these items is included in the total price declared to customs authorities. This check is necessary because the price of goods is often reduced when the buyer provides something else of value to the seller, such as free raw materials or specialized equipment or design services. These non-monetary items are considered a part of the total payment for the goods and must be added to the dutiable value.
Non-monetary consideration check involves reviewing the entire relationship between the buyer and the seller to identify any hidden value that is not reflected on the commercial invoice. This process is a primary requirement for ensuring a complete and legal customs declaration.
Evaluation Process
The execution of this check starts with a review of the supply chain contracts and the intercompany agreements. The verifier must look for any clauses that describe the provision of tools or dies or molds or engineering by the buyer. They must also check if the buyer has provided any services like marketing or distribution that would normally be the responsibility of the seller.
Each of these items must be valued and added to the price paid or payable. This valuation can be complex, as it may involve calculating the cost of production or the market value of the item or service. The process also includes checking if the seller has received any other benefits, such as the cancellation of a debt or the provision of a loan at a below market interest rate.
Hidden Liability
Documentation for these items is often found in the internal accounting records and the procurement files of the importer. Auditors will look for payments to third parties for materials or services that were sent directly to the manufacturer. They will also check if the importer has any equipment on its books that is physically located at the supplier’s factory.
If these items were not reported as assists, they represent a hidden liability that can lead to large fines. The documentation must include the original invoices for the items and the freight records for their delivery to the seller. These records prove that the importer has made a full and accurate disclosure of the total consideration for the goods.
Audit Defense
Consequences of failing this check are found in the back duties and penalties that occur during a customs audit. Customs authorities view the failure to report non-monetary consideration as a serious violation of the law. If an auditor finds unreported assists or services, they will issue a demand for the missing duty plus interest and a penalty that can equal the value of the goods.
This can lead to a loss of the importer’s good standing with the authorities and more frequent inspections in the future. The cost of a thorough non-monetary consideration check is a small price to pay for the security and peace of mind it provides. A well documented check is the best defense against a valuation challenge.