Special Report No 23/2000 concerning valuation of imported goods for customs purposes (customs valuation), together with the Commission's replies
Date: 2000-12-14
Institutions: European Court of Auditors
Subjects: European Court of Auditors, customs regulations, customs valuation, report

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I

(Information)

COURT OF AUDITORS

concerning valuation of imported goods for customs purposes (customs valuation), together with
the Commission’s replies

SPECIAL REPORT No 23/2000

(pursuant to Article 248(4), second subparagraph, EC)

(2001/C 84/01)

CONTENTS

Paragraph

Page

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE COURT’S AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The scope of the audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INCORPORATION OF INTERNATIONAL RULES ON CUSTOMS VALUATION INTO
COMMUNITY LEGISLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE PROPER APPLICATION OF COMMUNITY RULES ON CUSTOMS VALUATION . . . . . . . .

Role of the Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Work of the Customs Code Committee (customs valuation section) . . . . . . . . . . . . . . . . . . .

Basic control procedures applied by national customs authorities . . . . . . . . . . . . . . . . . . . .

PARTICULAR ASPECTS OF THE APPLICATION OF COMMUNITY CUSTOMS VALUATION
LEGISLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Valuation decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The role of international organisations and the Commission . . . . . . . . . . . . . . . . . . . . . .

Valuation decisions issued by the Member States’ authorities . . . . . . . . . . . . . . . . . . . . . .

The limited nature of valuation decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Treatment of royalties and licence fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The successive sales provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The relationship between transfer pricing and transaction values . . . . . . . . . . . . . . . . . . . . .

Manufacturers’ guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transport costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exchange of information between Member States’ customs administrations . . . . . . . . . . . . .

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-8

9-12

9-11

12

13-15

16-37

16-22

23-29

30-37

38-82

40-54

40-43

44-47

48-54

55-61

62-65

66-70

71-75

76-78

79-82

83-91

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

3

4

4

4

4

5

5

5

6

6

7

7

7

7

8

9

9

9

10

10

11

13

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SUMMARY

INTRODUCTION

Customs valuation is a procedure applied to determine the value
of imported goods for the purpose of calculating ad valorem duties.
The procedure is intended to provide a fair, uniform and neutral
basis for the valuation of imported goods.

Customs valuation is important to the Community for two rea-
sons. Firstly, customs duties are an important source of European
Community revenue, representing in 1999 some 11 706 million
euro, or 13,5 % of the Community’s total own resources. Sec-
ondly, customs valuation is important for the Member States since
it also provides a baseline for determining national taxes (includ-
ing value added tax and excise duties) on imported goods.

In principle, for all trade in goods the Community should oper-
ate as a real customs union and the Member States’ customs
authorities should act uniformly in their treatment of imported
goods. Consistent application of the customs rules on customs
valuation would be an important component in ensuring that the
customs union operates as intended.

1. Customs valuation is a procedure applied to determine the
value of imported goods where customs duties are calculated in
ad valorem terms, as it is estimated by the Court for about 95 % of
the duties on imports into the European Community.

2. Customs valuation in the European Community can mainly
be affected by two kinds of problems: inconsistencies in the appli-
cation of the Community rules by national customs administra-
tions and irregularities (1). The present report deals only with the
problems of inconsistency. The financial implications of this type
of problem have not been quantified. The major obstacle to any
attempt at quantification is the fact that the choice of a bench-
mark, representing the right administrative practice, is arbitrary.

This audit has identified difficulties experienced by the Member
States in operating uniformly within a customs union and by the
Commission in supervising and monitoring the individual authori-
ties making up the customs union.

3. The rules for calculating customs value are set out in the World
Trade Organisation (WTO) Valuation Agreement on the imple-
mentation of Article VII of the General Agreement on Tariffs and
Trade (GATT) 1994. This lays down the general principles for an
international system of valuation.

Such a lack of uniformity is detrimental to the financial interests
of the European Community.

The Commission and the Member States need to take appropri-
ate legislative and administrative action to overcome the follow-
ing weaknesses:

— the absence of common control standards and working prac-

tices,

— the absence of common treatment of traders with operations

in several Member States,

4. Having been a member of the GATT, the organisation that
preceded the WTO, the European Community approved the origi-
nal GATT Valuation Agreement (2) that is now incorporated in
the Community Customs Code and its Implementing Provi-
sions (3). Under the Valuation Agreement, the World Customs
Organisation (WCO) acts as the technical adviser to the Valuation
Committee of the WTO. The WCO sponsors conclusions on
interpretation of the WTO Valuation Agreement and whilst these
do not have the force of law, they provide persuasive guidance on
how the Valuation Agreement should be applied in specific cir-
cumstances as described in an index of conclusions.

— the absence of Community law provisions allowing the estab-

(1)

lishment of Community-wide valuation decisions,

— the absence of a database of binding valuation decisions.

The Commission needs to strengthen its monitoring and inspec-
tion activities, so that it can contribute more effectively to ensure
a level playing field for Community operators. The Valuation
Committee cannot be relied on to ensure equality of treatment of
operators.

Arrangements must be made for a systematic exchange of infor-
mation on valuation questions between the Commission and the
Member States and among the Member States themselves.

In respect of the irregularities the Commission issued a report on the
communications by the Member States on their inspection activities
(COM(2000) 107 of 29 February 2000). This report indicates that in
1998 the total amount of customs irregularities relating to the release
of goods for free circulation identified across the European Union was
306 860 262 euro of which 52 682 753 euro concerned irregulari-
ties in customs valuation, 28 265 530 euro undeclared imports,
64 327 823 euro wrong tariff classification, 29 774 574 euro origin,
1 412 380 euro quantity and 130 397 205 euro unspecified irregu-
larities.

(2) Council Decision 80/271/EEC of 10 December 1979 concerning the
conclusion of the Multilateral Agreements resulting from the 1973 to
1979 trade negotiations (OJ L 71, 17.3.1980, p. 1).

(3) Respectively: Council Regulation (EEC) No 2913/92 of 12 October
1992 establishing the Community Customs Code (OJ L 302,
19.10.1992, p. 1) and Commission Regulation (EEC) No 2454/93 of
2 July 1993 laying down provisions for the implementation of Coun-
cil Regulation (EEC) No 2913/92 establishing the Community Cus-
toms Code (OJ L 253, 11.10.1993, p. 1).

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5. The Commission and the customs authorities of the Member
States represented in the Customs Code Committee play a major
role in the development of the Valuation Agreement within the
WTO and WCO, and have contributed to the WCO’s index of
conclusions. At the same time they also consider common Euro-
pean customs valuation issues.

6. At the centre of this system is the notion that the value of
imported goods for customs purposes should be based on the
actual value of the imported merchandise: put simply, the price
actually paid or payable for the imported goods. The system is
intended to provide a fair, uniform and neutral basis for the valu-
ation of imported goods.

7. Customs valuation is important to the Community for two
reasons. Firstly, customs duties are a significant source of Euro-
pean Community revenue, representing in 1999 some 11 706 mil-
lion euro, or 13,5 % of the Community’s total own resources. Sec-
ondly, customs valuation is important for the Member States,
since it also provides a baseline for determining various national
taxes (including value added tax and excise duties) on imported
goods.

8.
In principle, for all trade in goods the Community should
operate as a real customs union and the Member States’ customs
authorities should act uniformly in their treatment of imported
goods, thereby contributing to the proper functioning of the
single market. Consistent application of the rules on customs
valuation would be an important component in ensuring that the
customs union operates as intended.

THE COURT’S AUDIT

The scope of the audit

9. The audit took place at the Commission and in all Member
States except the three that joined the Union on 1 January 1995
(Austria, Finland and Sweden). Visits were also made to the World
Trade Organisation and the World Customs Organisation.

10. The audit included an examination of documents handled in
the Commission Valuation Committee, customs authority valua-
tion audit files, written valuation rulings, decisions of appeal tri-
bunals and the actual customs declarations. Files and documenta-
tion concerning customs valuation procedures for more than 200
companies and groups of companies were examined.

11.
In order to select its sample the Court used a predetermined
list of the 50 most important trading companies worldwide, com-
bined with lists, obtained in each Member State visited, of the 50
most important companies in terms of customs duties established.

Audit objectives

12. The general objective of the audit was to examine the accu-
racy and consistency of the valuation for customs purposes of
goods imported into the European Union. The audit sought to
establish:

(a) how international rules on customs valuation have been incor-

porated into Community legislation;

(b) what steps the Commission or Member States take to ensure
proper application of Community rules on customs valuation
and what control procedures the customs authorities of the
Member States have put in place to comply with the require-
ments of Community legislation;

(c) to what extent the Community legislation is applied consis-
tently to imports, in particular to imports by companies with
operations in more than one Member State.

INCORPORATION OF INTERNATIONAL RULES ON CUSTOMS
VALUATION INTO COMMUNITY LEGISLATION

13.
In order to examine the incorporation of the WTO Valua-
tion Agreement into Community law, a comparison was made
between the WTO Valuation Agreement and the corresponding
text as incorporated into Community law.

14. The WTO Valuation Agreement is a single, coherent text
which, in Community legislation, has been split into two texts of
different legal status. A number of articles of the Valuation Agree-
ment have been incorporated into the Community Customs Code
(a Council Regulation). The other articles of the Agreement have
been integrated into the Implementing Provisions (a Commission
Regulation). Finally, the explanatory notes to each article of the
Valuation Agreement have been incorporated into the Annexes to
the Implementing Provisions irrespective of whether the Articles
to which the notes refer are included in the Customs Code or the
Implementing Provisions.

15. The Commission’s justification for the different legal status
in Community law given to parts of the same legal text in the
WTO Valuation Agreement is that when the Community Cus-
toms Code was adopted a decision was made to attain the objec-
tive of creating transparency in Community customs law on an
overall level. The view was that despite their importance, the valu-
ation rules represent only one chapter amongst a total of more
than 25 chapters which make up the Community Customs Code.
Notwithstanding this fragmentation of the text, the Court is satis-
fied that the WTO Valuation Agreement has been duly incorpo-
rated into Community law.

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THE PROPER APPLICATION OF COMMUNITY RULES ON
CUSTOMS VALUATION

Role of the Commission

16. The Commission has three principal responsibilities regard-
ing customs valuation.

17. The first is to participate, as the European Community’s rep-
resentative, in the work of the WTO and the WCO committees on
customs valuation. An important part of this work is to ensure a
common approach to customs valuation by the Community and
its Member States in their dealing with the Community’s major
trading partners.

18. The second concerns the Member States’ customs authori-
ties. Here the Commission needs to obtain assurance that the
Member States apply the rules on customs valuation consistently.
The Commission does so by advising and encouraging the cus-
toms authorities of the Member States in their efforts to develop
a common approach, by adopting implementing legislation, by
identifying best practice, and by ensuring that the customs authori-
ties have the correct legal information and support framework.

19. The third responsibility concerns the protection of the Com-
munity’s financial interests. It is the Court’s view that the Com-
mission should seek assurance that the correct amount of cus-
toms duties (own resources) are established through oversight of
the Member States’ implementation of the customs rules on valu-
ation (1). This involves inspections in the Member States, which
invariably cover aspects of customs valuation.

20. The Commission also considers that one of the objectives
within its own resources inspection role is the maintenance of
equivalent conditions in the Member States to ensure a level play-
ing field for economic operators.

21. Apart from these inspections, the only means the Commis-
sion has of monitoring the extent of Member States’ implementa-
tion of the customs rules on valuation is through the work of the
Customs Code Committee (Valuation Section) (2) and the cases
that are presented to it, normally by the Member States.

It is this Committee that provides the principal vehicle used

22.
by the Commission to carry out its first two responsibilities.

Work of the Customs Code Committee (customs valuation
section)

23. The Commission (DG TAXUD) provides the Chairman and
administrative support to the Customs Code Committee (Cus-

(1) Article 18 of Council Regulation (EEC, Euratom) No 1150/2000 of

22 May 2000 (OJ L 130, 31.5.2000).

(2) Articles 246 and 247(2) of Council Regulation (EEC) No 2913/92 of
12 October 1992 and Rules of Procedure Document XXI/2011/94
adopted 7 April 1997.

toms valuation section), hereafter referred to as the Valuation
Committee. This Committee is made up of representatives from
all Member States and meets six to eight times a year to consider
customs valuation matters. It must give an opinion on proposed
legislation, and can discuss any matter concerning customs valu-
ation. The Court has analysed the work carried out by the Valu-
ation Committee since 1990.

24. WCO and WTO topics constitute significant elements of the
agenda: the Valuation Committee discusses items for the approach-
ing WCO Technical Committee meetings on customs valuation,
as a means of ensuring a common Community position.

25. An important item of work concluded in 1997 was the cre-
ation of a compendium of customs valuation texts (3). Whilst the
document has no legal status it is available to all interested par-
ties and has been used both within the Customs Union (by Mem-
ber States’ customs authorities) and outside as a key reference
document in the valuation field.

26. The Commission uses the Valuation Committee to try to
achieve its objective of ensuring that the valuation rules are
applied correctly and in a uniform manner but has no powers to
direct Member States to adopt a particular interpretation of the
customs valuation legislation. The Commission views its mission
as to encourage any form of convergence of practice between the
administrations represented in the Valuation Committee, and has
to rely on discussion, persuasion and encouragement as the means
of achieving common treatment of identical problems in Member
States. Although the Valuation Committee offers a platform for
the Member States to establish a common approach to similar
individual cases, inevitably, with 15 different customs authorities,
progress towards achieving consensus is slow. The Valuation
Committee frequently becomes entrenched in details and disagree-
ments between the representatives of the Member States.

27. An example of the delays that can occur is represented by a
company subject to a Community-wide customs valuation ruling
concerning royalties expiring at the end of 1996. The revised duty
assessment for the following two years, which involved a dou-
bling of the uplift (increase in value), was not agreed until late
1999, and that for 1999 and 2000 was reached in June 2000.
Some customs authorities had secured potential extra duty pay-
ments by taking guarantees, others had not. In January 2000,
none of the extra duty payments had yet been collected by the
individual customs authorities. In 1997, this company paid over
43 million euro in customs duty in just eight Member States. The
Court estimates that over 4 million euro arrears of duty for that
year have still to be collected.

(3) XXI/1229/96 — compendium of customs valuation texts of the Cus-

toms Code Committee, customs valuation section.

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28. The efficiency of the Valuation Committee could be improved
by better coordinating the work between the Member State rep-
resentatives. For example, where one Member State has expertise
in a particular aspect of customs valuation, this Member State
would be invited to take the lead responsibility for examining and
resolving problems in that aspect and the Valuation Committee
would endorse the conclusions arrived at.

29. Many complex subject matters within the valuation area are
not brought before the Valuation Committee. Besides that, the
Valuation Committee is too cumbersome a vehicle to achieve the
Commission objectives. In any case, the Commission has not the
authority to enforce the results of the Valuation Committee’s
work.

Basic control procedures applied by national customs
authorities

30. Community legislation (1) requires the Member States to put
in place an appropriate framework of customs controls. The
application of the Community Customs Code valuation rules in
individual cases is a matter for, and the responsibility of, the
Member States customs administration.

31. Community law also indicates that in case of doubt about a
transaction value a customs authority has the right to examine
the customs value and to require the declarant to provide further
information in support of the declared value (2).

32. Customs valuation is dealt with as part of the normal cus-
toms clearance procedures. This involves documentary checking
of a risk-based selection of transactions at the clearance stage. All
Member States’ authorities recognise that this is insufficient and
most have developed post-import audit-based controls. The Court
notes and welcomes an increasing trend in most Member States
towards post-import audit (3).

33. However, national authorities organise their customs valua-
tion post-import control work in different ways. For example,
some customs authorities employ qualified accountants to assist
in this work (Belgium, Germany, the Netherlands, the United
Kingdom), whilst at the other end of the scale in one Member
State (Greece) customs officials do not have any legal auditing
rights except in fraud cases. Depending on the complexity of the
case and working methods used, audit visits can range from an
inspection lasting a few hours to an audit lasting several weeks
over several years.

34. The Commission recognises that common working prac-
tices are an essential part of the customs union and the Customs

2000 (4) and Fiscalis Decisions (5) indicate the commitment to
ensure that working practices are of a high standard and based on
best practices.

35. The Court noted (6) that despite its commitment, the Com-
mission has no practical means of ensuring that tools considered
to be well suited for customs valuation controls are used by all
national administrations.

36.
In a customs union that lacks a recognisable single customs
authority it is difficult for the national customs authorities to
apply identical working practices. National authorities’ responsi-
bilities and powers of access are different. Some customs authori-
ties have only recently set up specialist post-import control inspec-
tion units. Others are unlikely to change their established, and felt
to be satisfactory, methods based primarily on examinations at
the time of importation or on a balance between these checks and
post-importation controls.

37. As a consequence of the lack of common working practices,
the individual customs authorities are reluctant to accept each
other’s decisions. This is a hindrance to the development of the
customs union. Even when the customs authorities have agreed
to work together, the different approaches of individual customs
authorities result in inordinate delays for the achievement of com-
monly accepted decisions.

PARTICULAR ASPECTS OF THE APPLICATION OF
COMMUNITY CUSTOMS VALUATION LEGISLATION

38.
In its simplest form the customs value which is used for the
vast majority of imports is based on the transaction that takes
place between importer and supplier. However, this becomes
more complicated when other factors have to be taken into
account (7), for example:

— any influence that the relationship between supplier and

importer might have,

— the various elements that may need to be added in order to
determine the customs value (e.g. goods and services supplied
by the buyer, royalties and licences).

39.
munity customs valuation in these matters

In order to test the consistency of the application of Com-
the Court

(1) Article 8 of Council Decision 94/728/EC and Article 18 of Council

Regulation (EEC, Euratom) No 1150/2000 of 22 May 2000.

(2) Annex 23 to and Article 181a of Commission Regulation (EEC)

No 2454/93 of 2 July 1993.

(3) This trend has increased significantly since the Court’s previous audit
concerning post-import controls in general (see the Court of Audi-
tors’ Annual Report concerning the financial year 1993, Chapter 1,
paragraphs 1.3 to 1.38 (OJ C 327, 24.11.1994)).

(4) OJ L 13, 19.1.2000.
(5) OJ L 206, 23.7.1998, p. 43.
(6) For example at the Matthaeus seminar on customs valuation, Madrid,
July 1998, the conclusion concerning common auditing standards
was that a particular control approach as presented by one Member
State could provide a basis for establishing a common approach
throughout the Member States. However to date no action has fol-
lowed.

(7) Article 32 of Council Regulation (EEC) No 2913/92.

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concentrated its audit on imports by companies with operations
in more than one Member State.

Valuation decisions

The role of international organisations and the
Commission

40. There is a significant body of valuation opinions and conclu-
sions that have been concluded at both WCO (1) and Valuation
Committee level (2). Taken together, these represent a relatively
comprehensive treatment of valuation issues.

41. Such rulings may usefully narrow down the scope for incon-
sistent application in different Member States of valuation rules to
specific cases (for example costs relating to royalties, research and
development, tooling, etc.). However, the results, when set against
the yardstick of the Community working as one single adminis-
tration, remain unsatisfactory. The final responsibility for a trad-
er’s customs debt lies with the individual customs administra-
tions. In valuation matters they are not obliged to accept the
decisions or opinions of any other authority.

42. The Commission does not make or issue valuation decisions
to individual traders. A significant moment in the customs union’s
history was reached in 1975 when a proposal by the Commis-
sion (3), for it to be attributed competence to act in this field, was
rejected by the Council when it adopted the new valuation Regu-
lations (4). The Commission had proposed that it should have the
delegated power to establish, in individual cases, values or uplifts
in order to avoid differences in establishing the customs value.

43. Notwithstanding the legal limitations, the Commission has
over the years obtained the agreement of the national administra-
tions to issue uniform valuation decisions for particular traders,
albeit a diminishing number.

Valuation decisions issued by the Member States’
authorities

44. Whenever the Member States’ customs authorities accept a
customs declaration they are implicitly making a valuation deci-
sion as to the basis on which they will assess liability for customs
duty. However, a ‘valuation decision’, as generally understood by
the trading community and customs authorities, is a written deci-
sion given to an importer on the customs value of the imported
goods. Such decisions can be applied to subsequent imports of
identical goods made in the same circumstances by the same
importer and may be valid for a fixed or indefinite period.

45. Such a written decision is, for example, necessary when an
uplift is applied to the invoice/transaction value to arrive at the
correct customs value. Such an uplift, expressed in percentage
terms, is usual when there are additional dutiable payments, e.g.
dutiable annual insurance premiums, royalty payments, payments
for research and development costs.

46. The Court found noteworthy differences in the number and
circumstances when such written decisions are made and issued.
For example, in Belgium, the customs authority always gives the
trader a written valuation decision following an audit visit. This
decision has a five-year validity and, providing that circumstances
do not change, is binding. The Netherlands’ customs authorities
have a similar procedure. Certain Member States only issue such
decisions when there are specific adjustments that have to be
made (France, Ireland, Portugal, the United Kingdom). Others
rarely make such written decisions (Denmark, Spain, Italy, Lux-
embourg). In Germany, the valuation decision does not exist as a
separate written document. However, the detailed report that is
given to the importer after an audit will normally contain the sub-
stance of a valuation decision.

47. Furthermore, Member States’ customs authorities differ in
how they make available information on valuation decisions to
other interested parts of their customs service. In Belgium and the
Netherlands, the customs authorities have national trader-based
compendiums of valuation decisions with supporting control
notes. These compendiums provide a database for customs offi-
cials to apply as guidance in other cases involving similar circum-
stances. No other Member States have such compendiums. Some
Member States’ customs authorities distribute valuation decisions
within their own administrations, others only inform the importer
and the customs office concerned, on a ‘need to know’ basis. All
these decisions relate to individual traders.

The limited nature of valuation decisions

48. The fact that a valuation decision which is legally enforce-
able in one Member State is not legally binding in all other Mem-
ber States causes problems to the trading community.

49. The Court’s findings indicate that Member States have not
been able to reach uniform conclusions on the valuation deci-
sions to be applied to identical imports by the same companies
in different parts of the customs union.

(1) WCO compendium of customs valuation instruments (advisory opin-

ions, commentaries, explanatory notes and case studies).

(2) Community compendium of customs valuation texts.
(3) OJ L 127, 5.12.1972.
(4) Council Regulation (EEC) No 338/75 of 10 February 1975 (OJ L 39,
13.2.1975, p. 5) amending Regulation (EEC) No 803/68 (the former
basic valuation text) (OJ L 148, 28.6.1968, p. 6).

50.
In one example, a major trading company had since 1992
been attempting to obtain Community-wide valuation decisions.
The Commission advised the company to obtain separate deci-
sions in each Member State. The Court examined the resulting
basis of valuation used in eight Member States. All differed to
some degree despite the fact that the relationship between the
parent company and its European distributors was identical in all
Member States.

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51. Another example involved a company trading in all Member
States and its progress through the Valuation Committee. In 1996
a single audit was requested to satisfy the customs union authori-
ties concerning the proper application of the valuation provi-
sions. This case led to a discussion on the possibility of joint or
multinational controls concerning other candidate companies,
but ended with the members of the Valuation Committee limit-
ing their action to exchanging information concerning proposed
audit visits. By 1999 the particular problem for this company had
been solved, with each Member State working independently of
the other Member States.

52. The lack of Community-wide binding valuation decisions is
one of the problems arising where a customs union does not have
a single customs administration. The Member States should estab-
lish uniform working methods through the application of com-
mon auditing standards, as a step towards the exchange and
acceptance of binding valuation decisions. A thorough treatment
of firms with subsidiaries in several Member States would imply
a comprehensive examination of financial and production records.
The acceptance of results based on audit requires, at least in the
initial stages, a mutually participative approach based on com-
mon, joint audit actions. The long-term solution for the customs
union is to introduce binding valuation decisions, for which at
present there is no provision in Community law.

53.
In the short term, the Court’s view is that the Community
— as a customs union — needs an index of decisions relating to
individual traders. The creation of a Community-wide database of
customs valuation decisions, to cover at least the 50 largest import-
ers of dutiable goods into the Community, would go some way
to addressing this problem and would be a means of ensuring that
consistent valuation treatment is applied by the Member States to
identical imports in similar circumstances.

54. The present system is inefficient and does not ensure that
there is a level playing field for all economic operators. Major
international companies have seized the opportunity offered by
the Member States granting the most favourable valuation treat-
ment and have relocated their import operations accordingly. This
is an example (like the case mentioned in paragraph 58) of how
the absence of valuation decisions that are binding at Community
level may affect the amount of own resources collected.

Treatment of royalties and licence fees

55. Royalties and licence fees may be included in the invoice
price of imported goods or shown separately on the invoice as an
addition to the basic price. They may also be calculated yearly as
a percentage of the total value of sales of imported goods. A high
proportion of the valuation decisions discussed above concerns
royalty payments. The process of determining the correct cus-

toms valuation to be applied to royalties and licence fees and
other payments related to imported goods is complex (1). Legisla-
tion cannot keep up with commercial and financial practices
which are constantly adjusted in order to slip through fences just
set up.

56. The only way for customs authorities to obtain the informa-
tion necessary to deal with royalties is by auditing the importers’
underlying accounts. Most customs authorities are already doing
this. However, such work requires specialist skills and understand-
ing of the principles of accounting, financial reporting and audit-
ing. This work could be assisted by:

(a) encouraging the exchange of customs valuation decisions;

(b) agreeing a legal basis for joint multinational audits.

57. The Commission has invested considerable effort to ensure
uniform application of the rules. Even so the Court found several
cases of apparently different treatment between the Member States.
Given the present diversity of control methods within the cus-
toms union this is not surprising.

In one case, the customs authority of the Member State
58.
where the headquarters of the company was based considered
that three different transaction situations might apply for customs
valuation purposes. All of them were legal and in some cases roy-
alties and other payments would be included in the customs valu-
ation. If the analysis of this customs authority is correct it is quite
likely that the customs valuation of the imports by the company
in six of the seven Member States examined by the Court are
incorrect. In 1997 the company concerned paid more than 43 mil-
lion euro in customs duties in these seven Member States. Uplifts
for royalties applied by the different national customs ranged from
0 % to 10 % of the value of the imported goods.

59. None of the Member States has brought this case up for dis-
cussion in the Valuation Committee. At Community level the
Commission’s current view is that retrospective recovery of duty
would normally be possible only in cases where administrations
had not communicated a decision to the company. It is thus likely
that even where wrong decisions have been made post-importation
recovery of duties is not possible.

60.
In another case the majority of a company’s Community
imports passed through a distribution centre in one Member State.
The customs authority in that Member State decided that none of
the royalty payments made by the company formed part of the
customs value. The Court found that in five of the Member States
to which the importer had previously imported, the customs
authorities had charged duty on at least part of the royalty and
other additional payments made by the importer.

(1) Article 32(1) of Council Regulation (EEC) No 2913/92 of 12 October
1992, Articles 157 to 162 of Commission Regulation (EEC) No 2454/
93 of 2 July 1993 and conclusion No 24 of the compendium of cus-
toms valuation texts.

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In this case some Member States had exchanged information.
61.
However, even taking into account the different solutions and the
extended timescale involved, the Member States authorities clearly
had difficulties in accepting that the principal valuation questions
were the same. The company paid over 33 million euro in cus-
toms duty in 1998. Notwithstanding its declared objective of
maintaining equivalent conditions for operators in the Member
States (see paragraph 20) the Commission did not examine the
valuation treatment of this company.

The successive sales provision (1)

62. An earlier sale in a series of sales can be used as a ‘transac-
tion value’ for customs valuation purposes. The earlier sale can
only be accepted if the declarant can justify the details of the sale
and provide evidence to confirm that at the time of the sale the
goods were destined for export to the Community. Importers,
usually multinationals, use the procedure to obtain a lower cus-
toms valuation of their imported goods. The successive sales pro-
vision is in line with the trade policy guidelines adopted by the
Commission in consultation with the Council (2).

63. The Commission and the Member States’ customs authori-
ties have however endeavoured to limit its impact on the valua-
tion of goods, in view of the consequent reductions in own
resources.

64. The Court was unable to identify the full extent to which
importers use or seek to use the successive sales provision. One
reason for this is that, in order to apply the successive sales provi-
sion, unlike some other customs provisions, there is no legal
requirement for an importer to obtain prior permission or autho-
risation. However, the Court found that, in practice, some cus-
toms authorities do impose a form of prior approval even though
this has no basis in Community law. As in other aspects of cus-
toms valuation the Court found variations in the extent to which
customs authorities allow the use of the provision or consult with
each other. The Court has established that certain importers use
the successive sales provision in one or more Member States but
not in others and has drawn some significant examples of incon-
sistency to the attention of the Commission.

65. As customs procedures move towards less paperwork at cus-
toms clearance stage, the Court considers it essential that prior
notification of the use of the successive sales provision is intro-
duced and that Member State authorities keep records of compa-
nies making regular use of the successive sales provision or where
use of the provision has been disallowed. The maintenance of
such records would allow exchange of information between cus-
toms authorities of Member States.

The relationship between transfer pricing and transaction
values

66. The Customs Code contains provisions under which inter-
company sales transactions (transfer prices) have to be considered
when establishing the value for customs duty (3).

67. Transfer prices that are acceptable under the Customs Code
as a customs value are not necessarily acceptable to the national
tax authorities as a value for company taxation purposes.

68. The Court noted instances where, when considering transac-
tion values, customs services find themselves in conflict with
company taxation services, especially concerning Far East-based
multinationals. The national tax authority is concerned by over-
valuation to avoid high national taxation on company profits, the
exact opposite to the customs valuation problem of undervalua-
tion.

69. Under current Community legislation the customs value and
the national taxation value do not have to be the same. The former
must be established by means of the criteria of the Community
customs legislation and not on the basis of profit tax criteria.

70. Valuation of goods under transfer pricing is an essential ele-
ment in the proper assessment and collection of revenue. The dif-
ferent criteria and methodology will need to be aligned if there is
to be a truly harmonised approach between the Community taxa-
tion of imports and the national taxation of company profits.

Manufacturers’ guarantees

71. Manufacturers often give a guarantee or warranty with their
products. Such guarantees mean that if the goods are later shown
not to be in accordance with the sales specification the buyer will
be compensated. Manufacturers’ guarantees are intended to com-
pensate the importer of goods for defects which can be attributed
to the production process. The Community Customs Code pro-
vides the possibility of rejecting the goods and obtaining repay-
ment of the customs duties on their export. It also allows defec-
tive goods to be temporarily re-exported under outward processing
and,
if repaired free of charge, to be re-imported with total
exemption from duty. In the Customs Code, goods which do not
meet the contractual specifications are distinguished from defec-
tive goods (4).

72. The treatment of manufacturers’ guarantees for imported
cars is a prime example of an area where the individual customs
authorities of the Member States apply different interpretations of
Community legislation.

(1) Article 147 of Commission Regulation (EEC) No 2454/93.
(2) The Committee operating in the Council under Article 133 of the EC

Treaty.

(3) Article 29(2) of Council Regulation (EEC) No 2913/92 of 12 October

1992.

(4) Articles 155 and 238 of Council Regulation (EEC) No 2913/92 and

Commission Document XXI/1038/97.

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In its annual report on the financial year 1990 (1), the Court
73.
drew the Commission’s attention to the practice of the German
customs authority of granting value reductions on imports of
motor vehicles against repair costs covered under warranty
arrangements. The Court considered that these reductions were
outside the provisions of Community law in force at that time.
Ten years later, similar value reductions are still being applied by
the German customs authority. The Court continues to consider
this procedure as not conforming to the provisions of Commu-
nity law.

78. The calculation for air transport made by the Commission is
questionable not only because of its approximation but also
because of its complexity. This system is a source of heavy admin-
istrative work and becomes too cumbersome for many import-
ers. The Court considers that not all modes of transport are treated
on equal terms and questions whether the valuation of air trans-
port costs does not unjustifiably reduce the import duties for the
Community.

74. Similar situations are treated differently in other Member
States. The customs authorities of three Member States (Italy, the
Netherlands, the United Kingdom) have refused similar claims
from importers of motor vehicles. The different approaches of
Member States’ customs administrations to this question may be
one of the elements leading to trade diversion inside the Commu-
nity.

75. This is a clear indication of the lack of cohesion within the
customs union, and one which may have resulted in losses of own
resources. Regardless of any ultimate revision of the regulations,
the fact remains that for over 10 years a practice of rebates,
unchallenged by the Commission, has existed.

Transport costs

76. The WTO agreement on customs valuation allows members
to provide for the inclusion in or the exclusion from the customs
value, in whole or in part, of transport and related costs (2). The
Community and the majority of WTO members include the cost
of transport to the port or place of importation. Thus the cost of
transport of imported goods to the place of introduction into the
customs territory of the Community is one of the additions to the
price paid for the goods when determining the customs value.

77. Compared to road and sea transport, the case of air transport
is less clear as to where the Union frontier is crossed. The Com-
mission regards this as the point in mid-air where a Community
frontier is crossed and has made calculations of the proportions
of air freight costs to be included in the customs value on routes
between approximately 230 non-Community airports (or groups
of airports) and around 60 Community airports; altogether about
14 000 routes are covered (3). Difficulties arise because on occa-
sion routes pass over Community territories situated far from the
European continent: for example, goods arriving in France (Paris)
from Brazil (São Paulo) are regarded as arriving in the Union as
the aircraft overflies the Azores.

(1) The Court of Auditors’ Annual Report concerning the financial year

1990, Chapter 2, paragraph 2.52(a) (OJ C 324, 13.12.1991).
(2) Article 8.2 of the General Agreement on Tariffs and Trade 1994.
(3) Annex 25 to Commission Regulation (EEC) No 2454/93.

Exchange of information between Member States’ customs
administrations

In several Member States visited during the audit, the Court
79.
found little evidence of contacts between authorities of different
customs administrations of the Member States. However there are
some notable exceptions, such as bilateral cooperation agree-
ments (Spain, Portugal) and spontaneous information exchanges
concerning the completion of company audits.

80. Much of the information that the customs authority obtains
in order to reach a customs valuation decision comes from the
trader. Given that it is likely that traders will only volunteer infor-
mation that is favourable to themselves, it is important that cus-
toms authorities exchange information for companies trading in
several Member States.

81. A particular area that at present is not fully addressed is the
situation of an importer based in one Member State but releasing
goods for free circulation in another. The importer avoids having
to have an office in the port of entry by employing the services of
a fiscal representative empowered to make the customs declara-
tion. However, any audit-based control work would need to be
done by the customs authority in the Member State where the
importer is based. The Court found little evidence that the Mem-
ber State customs administrations are addressing this situation,
even though in some cases information is available. For example,
in two Member States the respective customs authorities estab-
lished, as a result of analysing value declarations, that a significant
number of declarations were made by operators based in other
Member States (Belgium, Luxembourg). This basic information
was not passed on to the Member States where the importers
were based, except in a few irregularity cases.

82. An example of the use of exchanges of information concern-
ing fiscal representatives was a case examined in Denmark by the
Court during the audit. It involved a fiscal agent representing
63 different traders. What started out as a fairly routine enquiry
involving two other Member States eventually became a case
involving 10 Member States. Although the case has not yet been
concluded, the Danish customs estimate that between 2,5 and
3 million euro of customs duties will be recovered.

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CONCLUSION

83. The Court’s audit has identified difficulties for the Member
States in operating uniformly and for the Commission in super-
vising and monitoring the individual authorities making up the
customs union.

84. Further action is required if the Commission intends to
ensure equivalent trading conditions in the Member States. To
date not enough has been done in the field of customs valuation.
This is underlined by the results of the audit, in particular with
regard to the treatment applied to companies trading in more
than one Member State. The Community is still some way from
achieving the harmony of approach to customs valuation implied
by the creation of the customs union.

85. The Commission needs to establish a proper monitoring
role. The Commission considers that its role is to contribute to a
level playing field for operators within the Community through
its inspection procedures. The Court considers that the Commis-
sion should strengthen this aspect of its inspection role. Using the
Valuation Committee as its main monitoring tool is no longer
viable (see paragraphs 16 to 29).

86. The Commission and the Member States need to take appro-
priate legislative and administrative action to overcome the fol-
lowing weaknesses:

— the absence of common control standards and working prac-

tices (see paragraphs 30 to 37),

— the absence of common treatment of traders with operations

in several Member States (see paragraphs 55 to 61),

— the absence of Community law provisions allowing the estab-
lishment of Community-wide valuation decisions (see para-
graphs 48 to 52),

— the absence of a database of binding valuation decisions (see

paragraph 53),

— the absence of prior notifications and records of the use of the

successive sales provision (see paragraphs 62 to 65).

87. The Commission needs to take urgent action to resolve the
question of manufacturers’ guarantees (see paragraphs 71 to 75).

88. The customs treatment of air transport costs needs to be
reconsidered (see paragraphs 76 to 78).

89. The Commission and the Member States should encourage
a greater level of exchanges of information on valuation questions
(see paragraphs 79 to 82).

90. The report also draws attention to the fact that in the case
of ‘transfer pricing’ the value taken into consideration for customs
purposes may differ from the value used for the calculation of
direct national taxes (see paragraphs 66 to 70).

91. As a final conclusion, the Court stresses that the Community
can only operate as a real customs union if the Member States
customs authorities act uniformly in their treatment of imported
goods.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 14 December 2000.

For the Court of Auditors

Jan O. KARLSSON

President

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THE COMMISSION’S REPLIES

SUMMARY

Even if the customs valuation procedure is intended to provide a
fair, uniform and neutral basis for the valuation of imported
goods, the rules adopted in 1980 give increased emphasis to trade
policy considerations.

The objective that for all trade in goods the Community should
operate as a real customs union with uniform treatment of
imported goods can be fully obtained only if this customs union
is operating on the basis of a single customs administration, which
is not the case.

The Commission agrees that lack of uniformity in application
would be detrimental to the financial interests of the European
Community in cases where a customs authority deviates from
established practice or standard norms of interpretation with
respect to the rules in force.

As regards the legal and administrative actions requested by the
Court of Auditors:

— in the framework of Decision No 210/97/EC of the European
Parliament and of the Council, the Commission within the
means at its disposal, supports and encourages the develop-
ment of common control standards and working practices,

— on the basis of its legislative and administrative action, the
Commission’s Customs Code Committee will act in order to
overcome the absence, where duly established, of common
treatment of traders operating in several Member States,

— the Commission takes the view that ‘Community-wide’
approaches (‘decisions’) in individual case management can
only best be attained by the agreement of all national authori-
ties concerned on the handling of the case in question,

— the Commission does not see the significant added value a
‘database of binding valuation decisions’ would confer in the
context of the working of the Customs Code Committee. Fur-
thermore its creation, maintenance and operational exploita-
tion would exceed the Commission’s resources.

With regard to the role that the Customs Code Committee can
play in order to ensure equality of treatment of operators, the
Commission is of the opinion that within the limits of the condi-
tions of its functioning, this Committee can and does make a
valuable contribution to consistent application of the customs’
valuation rules.

on-the-spot inspections. However, faced with limited resources
and a great variety of possible topics the Commission uses risk-
analysis techniques to allocate its resources to the areas consid-
ered to present the highest risk in terms of own resources. Valu-
ation is and will continue to be included in this selection process.
Over the last few years, valuation has been addressed in around
one quarter of the Commission inspection reports.

The Commission will continue to encourage information exchange
with the Member States and among the Member States them-
selves.

INTRODUCTION

1 and 2. The Commission shares the view of the Court of Audi-
tors on the difficulties which can sometimes arise in choosing a
benchmark representing the right administrative practice or pre-
cise interpretation. It appears therefore that there is no general
possibility of deducing negative financial implications from incon-
sistencies in the application of such rules. In other words, if dif-
ferent customs administrations do not apply the rules in the same
way, it is not necessarily the valuation determination that gives
rise to the highest duty amount that is to be considered the cor-
rect one.

The Commission interprets the word ‘irregularity’ to also include
the concept of fraud.

5. Community customs valuation issues represent in fact the
most important part of the Community Customs Code Commit-
tee’s activities; coordination of valuation issues dealt with in the
WTO and WCO also falls under its responsibilities.

6. As an explanation of the ‘system’ of customs valuation this
point calls for further development. Indeed the basic notion of
‘actual value of the imported merchandise’ is found in Article VII
of GATT (1947 and 1994). Community legislation was based until
1980 on the ‘Brussels definition’ of 1950 (1) which defined the
notion of ‘actual value’ as the ‘normal price’ of the imported mer-
chandise.

The GATT Agreement referred to in point 4 replaced this defini-
tion by the notion of the ‘transaction value’ which introduced a
major change in the underlying philosophy, trade policy consid-
erations (including trade facilitation) being seen as largely domi-
nating.

The Commission uses a panoply of tools to monitor uniform
application of Community rules thus contributing to equality of
treatment between economic operators. Amongst these tools are

(1) Convention on the Valuation of Goods for Customs Purposes, Brus-

sels, 15 December 1950.

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It is not surprising that the shift in approach that materialised
under the GATT Agreement has had an impact also on the
administrative environment. The introduction of the ‘transaction
value’ criterion had the probably intended effect of inverting the
‘balance of power’ between the operators and the customs admin-
istrations in this field. No longer is it in principle the declarant’s
burden to prove that the paid price is in agreement with the
notion of a ‘normal price’, but the price indicated by the declarant
is in principle the correct one unless challenged by customs.

Such basic considerations cannot be left aside when addressing
questions relating to the application of customs valuation in gen-
eral.

8. The Commission agrees with the Court of Auditor’s views.
However, inconsistent application of rules may cause concern
only in so far as it leads to significant competitive distortions or
has financial implications.

THE PROPER APPLICATION OF COMMUNITY RULES ON
CUSTOMS VALUATION

Role of the Commission

19. Under the current Community legislation providing for
transaction-oriented compliance controls, the Commission can-
not give the assurance that the correct amount of customs duties
(own resources) is established in all cases. Nevertheless, in spite of
the enormous quantity of underlying transactions and the limited
number of inspections, the Commission, using system-based con-
trols, can give a fair indication about the situation in the Member
States regarding the application of Community law.

Work of the Customs Code Committee (customs valuation
section)

23 to 26. Since as the Court states (point 30) the application of
the valuation rules in individual cases is a matter for, and the
responsibility of, the Member States’ customs administrations, the
Commission’s role must be to narrow down as much as possible
the scope of divergent or incorrect application by agreeing on
common rules or guidelines in the Customs Code Committee.

This policy, however, is not facilitated by the particular nature
that characterises the basic valuation rules. These rules are to a
large extent based on simple but imprecise concepts which the
WTO legislator has tried to clarify in particular by establishing a
range of subconcepts, without however the margin of apprecia-
tion for the customs authorities being in reality significantly
reduced.

Article 141 CCC-IR referring to Annex 23 of that Regulation,
indicate that such an influence does not exist e.g., ‘if the price has
been settled in a manner consistent with the normal pricing prac-
tices of the industry in question’ or if it contains, besides the costs, ‘a
profit which is representative of the firm’s overall profit’ (interpreta-
tive notes, point 3 to Article 29(2)).

The declarant for his part may demonstrate that the ‘transaction’
value closely approximates other reference values. For this to be the
case a ‘number of factors’ must be taken into consideration accord-
ing to point 4 of the interpretative notes to Article 29(2). These
conclude by indicating that: ‘Since these factors may vary from
case to case, it would be impossible to apply a uniform standard such
as a fixed percentage, in each case. For example, a small difference
in value in a case involving one type of goods could be unaccept-
able while a large difference in a case involving another type of
goods might be acceptable’.

Guidance to be obtained from such rules being limited, in ‘bor-
derline situations’ the authority competent to decide such cases
has the entire responsibility for their interpretation in individual
cases. Competent customs authorities may, even within a single
Member State, have different appreciation of the same case. Total
consistency in application can only be reached either by invest-
ing in one authority the competence to decide, or, if different
authorities are to decide, by providing for a common approach
among themselves.

The conclusion to be drawn from this is that, since individual case
management is a matter for the Member States’ customs admin-
istrations, the Customs Code Committee does not represent the
appropriate structure for such management to occur on a
Community-wide basis. This Committee can only offer the plat-
form for the Member States to establish common approaches to
a certain number of questions, and this under difficult conditions
as the Court of Auditors has already ascertained.

The Commission furthermore observes that inspections of tradi-
tional own resources are also aimed at verifying that equal treat-
ment is applied to identical problems by the Member States in the
respect of the current Community legislation.

27.
In this case, the Committee took up a comprehensive review
of the existing arrangement which comprised a Community-wide
uniform valuation treatment of the firm as coordinated by the
Committee. As a separate matter, a number of administrations
decided to carry out their own investigations at national level in
order to ensure that own resources were being protected. Difficul-
ties relating to information and audit data were encountered by
the national authorities in concluding these investigations, so that
delegations to the Committee had to delay several times their
agreement to a revised arrangement. A revised basis of assessment
was reached at the end of 1998, but this was in turn appealed by
the company. A new arrangement applied retrospectively (from
1997) was subsequently concluded in 1999 on the basis of a pro-
posal from the Commission.

As an example may be given the rule that when established
between related parties, the transaction value must be ‘acceptable’.
That is the case when the relationship has not influenced the price.
The interpretative notes set up under the GATT Agreement,

Concerning the collection of own resources, the Commission is
giving proper follow-up to the fact mentioned by the Court and
intends to charge belated interest where applicable.

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28. The ‘lead responsibility’ approach, whose results cannot of
course be made compulsory for other administrations, has already
been tried by the Customs Code Committee in its current exami-
nation and review exercise of particular cases highlighted by the
Court (see points 58 to 61). Experience has however shown that
administrations are often reluctant to give up their autonomy of
decision and take shelter behind stated concerns relating to com-
mercial secret protection and lack of a legal basis. This ‘lead
responsibility’ approach provides a solution on a very selective
basis only. Experience shows that its dynamic and its benefits are
easily nullified as soon as an appeal is introduced against the lead
administration’s action.

29. Under the rules of the Customs Code regarding the Valua-
tion Committee the Commission has no power to ask Member
States’ administrations to render account of the treatment applied
to a given operator in each of these States. The Code Committee
tries to establish rules, guidelines or other conclusions, usually
without examining individual cases.

Basic control procedures applied by national customs
authorities

31. Article 181a CCC-IR, applicable since 1995, followed an
agreement concluded at GATT level during the Uruguay Round
to accommodate concerns of developing countries. Member States’
administrations do not always have totally identical views on the
degree of trade facilitation that is appropriate.

34 and 35. Seminars offer to the participating national and
Commission officials the opportunity to learn from each other.
Although Member States are solely competent to adopt or modify
their working practices, the Customs Code Committee has in ear-
lier meetings made provision for the consideration of appropri-
ate follow-up to seminar activities.

36 and 37. Post-import audit-based controls undertaken by Mem-
ber States are best suited to control customs valuation. Accep-
tance of each other’s decisions does not necessarily bring about
more consistency in the nature of the decisions taken. For that to
be achieved, certain decisions should not be accepted in the first
place, while others deserve to be widely promulgated. The fact
that one decision has been adopted first, is not in itself considered
sufficient legitimacy for compliance by other decision-makers.

PARTICULAR ASPECTS OF THE APPLICATION OF
COMMUNITY CUSTOMS VALUATION LEGISLATION

Valuation decisions

The role of international organisations and the
Commission

41 to 43. The Commission has promoted and facilitated, in cases
where this was requested by operators, the adoption of adminis-
trative arrangements on common treatment of specific valuation
questions.

However, the Member States’ administrations are responsible for
the application of the valuation rules to individual cases.

Since there is no hierarchical relationship between Member States’
customs administrations, there is no way to oblige them to fol-
low each other’s opinions or decisions.

Valuation decisions issued by the Member States’
authorities

44 to 47.
In the relationship between the customs administra-
tion and the operator, the Code recognises decisions which consist
in the communication of the amount of duty entered into the
accounts (Article 221(1)) in relation to the normal release-for-
free-circulation procedure. The customs value is one of the fac-
tors that determine the amount of duty. Whether the valuation
factor can in itself be made the subject of separate decisions is a
question of administrative practice in the Member States.

The interest of the operators to obtain legal security with regard
to valuation questions may be satisfied by ‘decisions’, written
information, audit reports, statements or similar acts constitut-
ing self-binding administrative activity. Such self-binding action
may however have an affect on the financial interests of the Com-
munity. By virtue of the principle of legitimate expectation even
administrative practice which is non-compliant with the correct
application of the rules may have to be tolerated under certain
conditions. Under point 58, the Court has pinpointed such a
situation. The form in which administrative practice of a self-
binding nature is cast is not of a primary importance. What is
important for obtaining consistent application of the customs
valuation rules in different Member States is that, with regard to a
similar individual case, the appreciation margins in the applicable
rules are all interpreted in an identical way.

The limited nature of valuation decisions

In the Customs 2002 programme (monitoring exercises and
project groups), the Commission continues to bring together the
relevant functional resources of Member States’ administrations in
order to identify, establish and develop common working meth-
ods and best practice.

48. With the exception of the few cases where the Commission
has explicitly been asked to promote administrative arrangements
of the kind referred to under point 27, the Commission has no
manifest evidence that the trading community has a strong inter-
est in the availability of such ‘binding decisions’.

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Such binding effect would not always mean that the correct inter-
pretation of the rules would be applied Community-wide; it would
indeed have a negative multiplicator effect on correct interpreta-
tion in the case of an incorrect ‘decision’. Generally speaking, the
‘legitimacy’ in other Member States of a binding decision should
flow from the mutual confidence that a ‘decision’ is based on a
prior agreed common approach. However once such an approach
has been reached among the Member States’ administrations, then
the point could be made that the taking of a ‘decision’ that should
be ‘binding’ becomes a tautological issue.

50. The Commission gave the advice to seek separate value
determinations in a case where the question asked was whether
sales between an American company and its Swiss subsidiary
were acceptable as a basis for the determination of the customs
value. The Commission at that time considered that a review of
the provisions on successive sales was necessary (the debate in
fact only started one year later) and that an agreement on Com-
munity level in that case would pre-empt the outcome of the
review (see also points 62 to 64).

51 and 52. Single audit operations in which all or groups of
Member States’ administrations participate were always recom-
mended as an ideal solution to delegations in the Customs Code
Committee. The Commission shares the view (52) that acceptance
of results based on audit requires a mutually participative approach
based on common, joint audit actions. The exchange of control
programmes among the Member States was an initial step sug-
gested by the Commission to go in this direction. Acceptance of
the results of an audit without participating in the audit action
itself would represent an advanced level of result-sharing, equiva-
lent more or less in its effect to what the Court propagates as
‘binding decisions’.

53 and 54.
first place, one of lack of information.

In the Commission’s view, the problem is not, in the

For consistent application in different Member States to be always
guaranteed, valuation issues must be examined together and coher-
ent approaches established among the administrations concerned
by the individual important cases. The Customs Code Committee
represents a platform to set up solutions when significant cases
are brought before it. There is however a quantitative problem. It
has to be kept in mind that each of the 50 largest importers per
Member State of dutiable goods may have a large range of goods
sourced according to varying commercial arrangements. The case
referred to under point 27 illustrates the diversity of circumstances
that may exist. In this case, the national subsidiaries import inter-
mediate products under four different types of possible commer-
cial arrangement in some Member States, while in others the
respective national subsidiaries imported only finished goods with
a more limited range of possibilities.

Consistent application of valuation rules in individual cases can
only be achieved if decisions are supported by the administrations
involved which have to reach agreement among themselves.
Within the limits determining its functioning, the Customs Code
Committee can make a valuable contribution in this context.

Within the context of the working of that Committee, a compre-
hensive database of value determinations would not be of signifi-
cant usefulness and its creation and continuous updating accord-
ing to rapidly changing commercial circumstances would exceed
the Commission’s resources.

Treatment of royalties and licence fees

55. The difficulties mentioned by the Court for legislation to
keep pace with the constant adjustment of business practices
under the guidance of financial consultants are confirmed by the
Commission.

56. With regard to joint multinational audits, some Member
States voice reservations about confidentiality and the safeguard-
ing of commercial secrecy, and this concern requires in their
opinion an additional legal basis in Community law. In the Com-
mission’s view Article 10 of the Treaty constitutes a sufficient
legal basis.

57. The efforts of the Commission aim at assisting the national
administrations to put into place an adequate infrastructure for
the uniform application of Community rules in order to avoid
system errors. However even the most adequate infrastructure
cannot prevent isolated errors occurring.

58 and 59. The Commission first obtained a picture of this situ-
ation in spring 2000. The information was circulated among the
administrations and initial orientations with a view to ensuring
consistent application in the Community were given in May 2000.
The discussions will continue on the basis of a more detailed
report submitted by one Member State.

60 and 61. The differences in appreciation with regard to this
case are more reduced than in the case referred to under point 58.
The Commission was first informed of this case by the Court’s
findings and noted that one Member State’s practice was at vari-
ance with the general approach. The Member State in question
was invited to justify its approach and its report, recently received,
will be examined within the Customs Code Committee.

The successive sales provision

62 to 64. The successive sales situation is covered by the general
terms in the Valuation Agreement: ‘the price actually paid or pay-
able for the goods when sold for export to the country of impor-
tation’. An important policy debate took place in 1994 at the
Commission’s initiative. As a result of this debate, Article 147
CCC-IR was amended. On the basis of the text adopted in 1995,
the importer availing himself of an earlier sale has to demonstrate
that the sale took place for export to the customs territory of the
Community.

The Court suggests that such a burden-of-proof provision is not
enough and acceptance of an earlier sale should be made subject

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Official Journal of the European Communities

C 84/17

to notification. Under current customs legislation, the Commis-
sion is not aware that such a requirement can be imposed in a
similar situation. Anyway, according to the terms of the Valua-
tion Agreement, there would be no justification for the singling
out of the ‘earlier sales’ scenario in this way.

by Article 152. This Article allows such guarantees to be fully
exploited for the purposes of repair free of charge outside the
Community of goods without incurring import duties on reim-
portation.

The Commission’s view is that customs authorities in some Mem-
ber States do not ‘impose’ such a notification.

The practice can be explained by the importer’s interest to obtain
legal security because otherwise he bears the risk that a declared
price is rejected as transaction value for the entirety of the pre-
scription period. To avoid later negative surprises of this kind,
operators prefer in certain cases to get information (ruling) from
the customs administration as to whether the price fixed in an
earlier sale’s contract will be accepted. Similar situations of ins-
ecurity arise also in the field of tariff preferences but without war-
ranting the introduction of prior authorisation in order to grant
the preference in question.

The relationship between transfer pricing and transaction
values

66 to 70. The general problem of identifying reliable criteria in
the field of transfer pricing has already been mentioned under
point 26. The challenge that transfer pricing represents with
respect to customs valuation is one of avoiding systematic under-
valuation of the imported goods. Operators that see an interest in
such a strategy, accept at the same time the possible negative con-
sequences if this leads to the assessment of higher profits on the
side of direct taxation. There may also be a reverse strategy to
inflate the value of the goods in order to reduce the effects of
direct taxation. This however would fall outside the scope of the
valuation rules with regard to sales between related persons as
addressed by Article 29(2) CCC. In that sense, ‘overvaluation’ is
not a concern of customs valuation, as the European Court of Jus-
tice has already ruled in Case 65/79 (judgment of 24 April 1980)
that the determination of the value for customs purposes in
accordance with the Community’s valuation law ‘cannot have the
effect of requiring the fiscal and financial authorities of the Mem-
ber States to accept that valuation for purposes other than the
application of the Common Customs Tariff’.

In terms of consistency in the legal order, it would be a funda-
mental contradiction to this approach if customs valuation rules
were considered to penalise the same economic operations tak-
ing place inside the Community without duty exemption. This
consideration gives further support to the view that in the con-
tractual situation, the declared value for the initially imported
goods, if otherwise acceptable, contains as a price element the
potential cost of operations which may be undertaken in the
import country under warranty. In this context the relevant repair
costs incurred may give rise to adjustment of the declared value
by way of reimbursement of duties.

Considering the question of legality answered on this basis, the
Commission since 1997 has attempted to align by means of
implementing legislation diverging practices in the Community.
In the absence of a qualified majority in the Code Committee in
favour of a legal text confirming the position outlined above, a
case study was initiated and is close to finalisation.

Transport costs

76 to 78. Differences in approach to the treatment of costs in sea
and air transport raises in formal terms the question of equal
treatment. The customs value of goods transported from New
York to Hamburg by sea bear the full cost of that transport opera-
tion, whereas goods transported between the same locations by
air bear only a proportion of that transport operation (established
at 68 % of the costs). Such percentages are based according to
long-established practice, in each case on the most direct air route,
unless a less direct air route crosses the Community frontier at a
place nearer the airport of departure (1). Before the accession of
Portugal to the Community, the percentage in the abovemen-
tioned route was established at 80 %.

Manufacturers’ guarantees

71 to 75. The Commission followed up the question on a factual
basis, but however experienced difficulties in coming to a clear
position in the absence of strong arguments related to valuation
rules, including rulings or case-law on this question even at the
international level. Codification of customs legislation led the
Commission to situate the question in a wider context, leaving
behind the mere valuation sector specific approach. On this basis
the Commission considers the practice in question as being in
compliance with Community customs legislation.

Whilst it may be argued that there is formal discrimination
between the two modes of transport, it is probably also true that
the full cost of transport of e.g., a car by sea between New York
and Hamburg is still much lower than 68 % of the cost that would
be incurred by the same product in case of transport by air.

The Commission does not see ways of altering the present situa-
tion without getting either into conflict with the Valuation Agree-
ment or making the system more complex than it is today.

The Community’s position on repairs under warranty has been
settled as regards its customs aspects at the level of the Code itself

(1) For an early example of this approach, see Commission Regulation

(EEC) No 1033/77 (OJ L 127, 23.5.1977).

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Official Journal of the European Communities

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Exchange of information between Member States’ customs
administrations

79 to 82. The Commission encourages, within the means at its
disposal, such exchanges of information concerning Member
States’ administrations.

CONCLUSION

83 and 84. The difficulties identified result to a large extent from
the particular nature of the valuation rules which can contain
considerable appreciation margins in particular when innovative
and diverse commercial practices arise.

Besides the competences of the Commission, in the field of own
resources control (Council Regulation (EC) No 1150/2000), the
Commission can use the Customs Code Committee as a coordina-
tion platform whenever important cases are brought to its atten-
tion by Member States’ administrations.

85. The Commission underlines the importance of a level play-
ing field for economic operators. This objective is entirely coher-
ent with the other main objective underlying its control activities,
i.e. the protection of the financial interests of the Union. The
Commission continues to explore how to improve the effective-
ness of its actions.

86.

— Together with the Member States, the Commission is also
involved in developing common audit standards. As a result
of this voluntary cooperation, a number of structured audit
modules on customs subjects have been obtained, which
should contribute to improve working practices.

Common control standards and working practices are a field
where the Commission’s activities in the context of the Cus-
toms Code Committee are determined by Decision No 210/
97/EC of the European Parliament and of the Council, in par-
ticular Articles 5 and 9. According to these rules the
Commission can ‘support’ actions of the Member States and
‘encourage’ coordinated development by them of new work-
ing methods.

The particular nature of the valuation rules and the complex-
ity and variety of the commercial circumstances to be appre-
ciated in a great number of cases (even if only firms operating
in more than one Member State are taken into account), call
for permanent adjustment of past determinations in the light
of changing commercial practices.

— The Commission takes the view that ‘Community-wide bind-
ing valuation decisions’ in individual case management can
only be attained by the agreement of all national authorities
involved.

The Customs Code Committee can make a valuable contribu-
tion to reaching consistency in application. It can however
only deal with a limited number of important cases that are
brought before it.

— The setting-up, maintenance and operational exploitation of
a database of valuation determinations would not be of sig-
nificant usefulness in the context of the working of the Cus-
toms Code Committee and exceeds the Commission’s
resources.

— With regard to successive sales the Commission feels that the
principle of a posteriori controls of import operations should
not be deviated from because it is an essential element of trade
facilitation policy.

The introduction of prior notification as a procedural require-
ment would logically call for extension to other ‘critical’ fields
such as entitlement to preferential origin and would considerably
complicate the system of procedures.

In addition, justifications for successive sales in individual cases
are part of the normal records to be kept by the administrations
in accordance with the rules applicable.

87. The Commission has resolved the question of manufactur-
ers’ guarantees in reaching agreement on guidelines on the basis
of a case study.

88. The Commission will further examine alternative solutions
with regard to the question of air transport costs.

89. The Commission will continue to encourage information
exchanges on valuation questions among Member States.

— On the basis of its legislative and administrative action, the
Commission’s Customs Code Committee acts and will act in
order to overcome instances of the absence of common treat-
ment of traders operating in several Member States.

91. The Commission is acting, within the means at its disposal,
to attain that the Member States’ customs authorities act uni-
formly in their treatment of imported goods.