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.
Proceeds of Subsequent Resale
Meaning
Portions of the revenue generated from the sale of imported goods that flow back to the original foreign seller must be identified and added to the dutiable value of the initial entry. This requirement ensures that the customs value captures the full economic benefit that the seller receives from the transaction. Proceeds of subsequent resale are common in industries where the seller and buyer share the risks and rewards of the market, such as in fashion or electronics.
If a contract specifies that the importer will pay the seller a percentage of the final retail price, that payment is a dutiable addition. This rule prevents importers from lowering their duty costs by pushing a part of the payment into a future profit sharing arrangement.
Flowback Tracking
The execution of this rule involves a sophisticated tracking system that links the final sales data to the original import entries. The importer must be able to identify which shipments resulted in the profit sharing payments and calculate the amount that should be added to each entry. This calculation often happens months after the goods have been cleared and sold.
The importer must then use a reconciliation process or a post entry amendment to report the additional value and pay the duties. This process requires a close coordination between the sales and the accounting and the trade compliance departments. Any failure to track these payments accurately will lead to an underpayment of duties and a violation of the law.
Valuation Inclusion
Rules for these additions are found in the national customs regulations and are based on the global standards of the WTO Valuation Agreement. The law states that any part of the proceeds of any subsequent resale or disposal or use of the imported goods that accrues directly or indirectly to the seller must be added to the price. This includes not only direct payments but also any credits or offsets that the buyer provides to the seller.
The challenge for the importer is to determine if a particular payment is actually a proceed of the sale or a separate business transaction. This often requires a detailed legal analysis of the distribution agreement and the commercial relationship between the parties. These records must be available for audit by the customs authorities.
Underpayment Consequence
Financial risks of missing these payments are found in the significant back duties and interest that can accumulate over time. Because these payments are often not known at the time of entry, they are a frequent target for customs auditors. If an auditor discovers unreported proceeds, the importer will be liable for the missing duty plus interest and a penalty that can be a multiple of the unpaid amount.
These penalties can be particularly high because the failure to report proceeds is often seen as a failure of reasonable care. Furthermore, a history of unreported proceeds can lead to a complete audit of all the company’s import entries and a loss of trusted trader status. Accurately identifying and reporting proceeds of subsequent resale is the only way to avoid these cumulative costs.