Author: Oleksandr Fedoryshyn, Managing Partner at F&P
Adjustment of the customs value of goods is a common practice among customs authorities, which can significantly affect the tax liabilities of importers. Determining the customs value is a key element in the customs clearance process, as the amount of customs duties, excise taxes, and value-added taxes depend on this indicator.
In many cases, customs authorities recognize the declared value of goods as understated and make adjustments, leading to increased payments. However, such decisions are not always justified. Therefore, entities engaged in foreign economic activity find it necessary to challenge them.
In this article, we will examine the legal aspects of customs value adjustment, the grounds for its appeal, and the mechanisms for protecting the interests of importers.
The customs value of goods imported into Ukraine is determined in accordance with the provisions of the Customs Code of Ukraine and international agreements ratified by Ukraine.
The primary method for determining customs value is the contract price method; however, customs authorities may apply alternative methods if:
- The submitted documents contain discrepancies or conflicting data;
- there is no reliable confirmation of the transaction price;
- The declared value significantly differs from the market value of similar goods;
- A connection has been established between the seller and the buyer, which could have influenced the price of the product.
If customs authorities believe that the declared value of the goods does not correspond to the actual value, they have the right to adjust it. This leads to an increase in customs duties, which is a basis for a dispute between the importer and the customs authority.
In our practice, we recommend appealing decisions on the adjustment of customs value of goods in court, as this significantly increases the importer’s chances of obtaining a positive result.
The analysis of judicial practice that has developed over the past few years allows for the identification of several specific grounds on the basis of which courts annul decisions on the adjustment of the customs value of goods.
I. Unjustified demand for additional documents by customs
The Customs Code provides for three grounds for requesting additional documents from a declarant:
- the presence of discrepancies in the documents;
- the presence of signs of document forgery;
- the absence in the documents of all information confirming the numerical values of the components of the customs value of the goods, or information regarding the price that was actually paid or is payable for these goods.
Exclusively conclusions based on the examination of documents attached to the customs declaration may be the basis for requesting additional documents.
At the same time, customs authorities often do not provide any confirmed information about discrepancies and deficiencies in the documents submitted by the declarant in their decisions on the adjustment of customs value, nor do they provide information about specific facts or circumstances established during customs clearance, which, when assessed collectively, led the customs authority to decide that the first method for determining the customs value of the goods imported by the plaintiff could not be applied.
Indeed, customs authorities have the right to control the accuracy of the customs value calculated by the declarant, but these powers are exercised in a manner defined by law. In particular, the request for additional documents to confirm the declared customs value may only occur in the presence of reasonable doubts about the accuracy of the information provided by the declarant. Such doubts may arise from the incompleteness of the submitted documents to confirm the declared customs value of the goods, discrepancies between the characteristics of the goods specified in the submitted documents and the customs inspection of these goods, the comparison of the level of the declared customs value of the goods with the level of the customs value of identical or similar goods for which customs clearance has already been completed, and so on.
The presence of reasonable doubts regarding the accuracy of the declared customs value of goods is an imperative condition, as the law associates this circumstance with the possibility of requesting additional documents from the declarant and grants the customs authority the right to take subsequent actions aimed at determining the actual customs value of the goods. Such doubts are justified if the documents provided by the declarant contain discrepancies, signs of forgery, or do not contain all the information confirming the numerical values of the components of the customs value of the goods, or information regarding the price that was actually paid or is to be paid for these goods. In this regard, the customs authority is obliged to specify the specific circumstances that caused the respective doubts, the reasons for the impossibility of verifying them based on the documents provided by the declarant, as well as to justify the necessity of verifying the doubtful information and indicate the documents whose provision can eliminate doubts about the reliability of this information.
That is, the customs authority is obliged to provide the declarant with a comprehensive list of documents regarding which there are doubts, as well as a list of documents that must be provided to resolve such doubts. Failure to comply with these requirements may be grounds for canceling the decision on the adjustment of the customs value of goods.
II. Failure to specify in the adjustment decision the detailed information about the product to the level of its value to which the adjustment is made
The Supreme Court has established a consistent judicial practice according to which a formally lower level of customs value of the goods imported by the plaintiff compared to the customs value of other customs clearances cannot be considered as an undervaluation of the customs value by the plaintiff and does not constitute an obstacle to the application of the first method of determining the customs value of the goods, nor can it be a sufficient and independent basis for refusing to carry out the customs clearance of the goods according to the first method of determining their customs value.
The decision to adjust the customs value of goods cannot be based solely on information from the UAIS, as the procedure for its formation, maintenance, and obtaining information, as well as the procedure for using its data by economic entities during their foreign economic activities, is not provided for by the Customs Code of Ukraine. It should also be taken into account that the UAIS lacks information on the adjustment of the declared customs value of goods, as well as information on court decisions regarding the determination of the customs value of goods and the methods for its determination, which means that such an information base does not contain all objective data on goods imported into Ukraine, which are documented and subject to calculation.
At the same time, if the customs authority nevertheless decides to adjust the customs value of goods, such decision, in addition to referring to the number and date of the declaration under which the same/similar goods were imported, must contain information on: the country of origin of such goods, the basis of delivery, the procedure applied, the quantity and value of the goods, the supplier and the country of shipment.
A number of resolutions of the Supreme Court have established the practice that if the decision on adjustment of the customs value contains only references to the numbers and dates of customs declarations used by the customs authority as a source of information when adjusting the customs value of the disputed goods, without explanations of the adjustments made to the volume of the consignment of identical or similar goods, delivery terms, commercial terms, it indicates the unlawful nature of the disputed decision on adjustment of the customs value of the goods.
Thus, the failure to provide detailed information on the terms of delivery of the goods to which the adjustment was made is an independent ground for cancellation of the decision on adjustment of the customs value of goods.
It is worth emphasising that it is important to follow the following recommendations when conducting import operations:
- 1) Documentary confirmation of the customs value: a full package of documents (contracts, invoices, payment orders) should be provided.
- 2) Preliminary verification: check the value of similar goods using open sources (customs statistics, stock exchange quotes).
- 3) Legal support: in case of adjustments to the customs value, engage customs brokers and lawyers to prepare a reasonable position.
- 4) Timely appeal: comply with the statutory appeal deadlines in order not to lose the opportunity to protect your rights.
Appealing against a decision to adjust the customs value of goods is an effective way to protect the rights of importers. It is important to properly substantiate your position and provide proper evidence of the real customs value. The main thing to remember is that an appeal requires a clear legal strategy and timely response, which can be provided by the specialists of FEDORYSHYN&PARTNERS.
