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The transaction value – the Customs Act, Section 7-10

In order to use the transaction value to determine the customs value, you need to know the price of the goods, and this price must be the price in sales for export to Norway. Furthermore, there are some other conditions that must be met in order to be able to employ the transaction value.

It is important to note that you first have to assess whether Section 7-10 can be employed as a method at all in the determination of the customs value in a specific case. If Section 7-10 can be used, you must then assess what the customs value is pursuant to this provision.

Restrictions

In the Customs Act, Section 7-10, first paragraph (a) no. 1-3, it is noted that there are some restrictions as to the disposal or use of the goods by the buyer. This is only in circumstances where other restrictions apply than those mentioned therein, entailing that the transaction value cannot be employed in the determination of the customs value.

Restrictions that do not significantly affect the value of the goods shall not result in the inapplicability of the transaction value in the determination of the customs value.

The term “transaction value”

Simply put, the transaction value is based on two elements: the price of the goods (cf. Section 7-10) and possible adjustments pursuant to sections 7-17 and 7-18. This can be illustrated as follows:

The price of the goods plus Section 7-17 elements minus Section 7-18 elements = the transaction value.

The key element in the transaction value is the price of the goods. As a rule, the price will be stated in the contract between the parties or in the invoice. If these documents do not indicate the actual value, they cannot be used. It is always the actual price that should be applied.

One of the considerations behind this rule is that the determination of the customs value shall be neutral in relation to how the parties in a purchase actually conduct themselves. It may vary what elements are part of the purchase agreement and what elements the buyer chooses to purchase from parties other than the seller. To the extent certain elements are not already included in the price, they shall, on more detailed conditions, be added to the price. Had it been the case that the transaction value only consisted of the price you pay to the seller, this could result in random outcomes depending on whether or not, e.g., freight was included in the price.

Commissions, except buying commissions, shall also be included in the customs value. The reason for this is that commission is compensation that in most cases is included in the seller’s price.
Compensation for intellectual property rights is in most cases included in the price you pay for the goods. If it is not included, this shall be added if more detailed conditions are met. 

If compensation for freight, insurance etc. is not already included in the price of the goods, costs up until the border associated with such services shall be added to the transaction value.

The term “price of the goods”

It is important to note that this is a legal term. Therefore, the content may differ from the meaning the term might have in a business economics contexts.

Looking at the wording, it indicates a situation pertaining to commercial law. We are looking for the sum of the compensation you as buyer must pay in order for the seller to deliver the goods. Often it is the purchase agreement that indicates the price that is paid for the goods. It is the actual circumstances that shall be considered. If the purchase agreement does not indicate the actual sum that is paid, it also cannot be applied as documentation of what price has been paid for the goods.

The term “goods”

The goods are normally the physical object that you are clearing for free circulation. If payment is attempted split up, e.g., in that a warranty is separated from the goods, the question arises as to whether the compensation for the warranty shall be included in the customs value. The question becomes whether the compensation for the warranty is part of the price of the goods. If the seller demands compensation for the warranty, this is included in the transaction value. This is because no service is provided that is actually anything other than the goods.

A similar problem arises if you, in addition to the goods, are required to pay for a service, e.g., marketing. If the marketing concerns goods that the seller is selling, such costs will, in principle, be considered to be a part of the price of the goods.

lagmannsrettsdom_2004_67545.pdfSee Borgarting Court of Appeal’s judgement of 15 September 2006 (20.7 MB) (LB-2004-67545) 

Changes to the price, discounts etc.

The legal basis for accepting a price change relates to the fact that it is the price you will actually be paying that is decisive. If you and the seller have agreed a price of NOK 500 but then agree on a reduction to NOK 450, the latter is what you will actually be paying. The same applies correspondingly in case of a price increase.

In order for this problem to become relevant at all, it must be the price of the imported goods that is changed. Furthermore, it is the situation at the time of the goods being cleared for free circulation that is decisive. The price must, in other words, be changed with legal effect no later than at the time of the goods being cleared for free circulation. An exception from the main rule is cash discounts where the buyer can pay the compensation (and thereby achieve the discount) before clearing the goods for free circulation. This entails that when the “event” in the form of payment occurs after the time of clearing the goods for free circulation, the agreement can nevertheless be accepted so that the cash discount is taken into consideration in the determination of the customs value. However, the agreement must be valid/genuine and entered into before the time of the goods being cleared for free circulation. 

The term “sale for export to Norway”

It is not just any price that is paid for the goods that applies in the determination of the transaction value. It is the price that is paid in “sale for export to Norway”.

“Sale for export to Norway” means that the sale is the reason for the goods being brought into the Norwegian customs territory.

In accordance with the WTO Agreement, the term “sale” shall be interpreted broadly. This is to increase the likelihood of equal treatment. 

Thus, there must exist a transaction that falls under the term “sale”. In addition, this sale must be “for export to Norway”. It must concern a sale that results in an international transfer of goods, i.e., that the goods must cross the border into the Norwegian customs territory. It is not a condition that the export occurs from a country. For example, fish caught in international waters and brought into the Norwegian customs territory will meet the conditions of “sale for export to Norway”.

In order for the export to be “to Norway”, two conditions must be met:

  • the goods must be sent to Norway (forwarding condition)
  • the sale must be to a buyer in Norway

See LB-2001-3102 (Selected Brands judgement)
See LB-2004-9512 (Modern Kjolestoffer)

Costs that are to be added to the transaction value – the Customs Act, Section 7-17

The background for Section 7-17 is that the determination of the customs value shall to the greatest extent possible be neutral in relation to how the parties in a purchase conduct themselves. The additions that are to be made pursuant to Section 7-17 contribute to goods of the same value being given approximately the same customs value, regardless of how the purchase is organised.

Commissions and brokerage

In order to be able to assess additions for commission pursuant to Section 7-17, it is a condition that it concerns an intermediary that purchases the goods on a third party’s behalf. If he makes the purchase on his own behalf, he is considered to be the seller of the goods and the compensation will then be the price of the goods. In the latter case, the compensation will be included in the customs value as the price of the goods pursuant to Section 7-10.

If the intermediary is making the purchase on a third-party’s behalf, the next step will be to clarify whether the compensation falls under the exception for buying commission. Buying commissions shall not be added to the price pursuant to Section 7-17. The key element is whether the intermediary has made the purchase on behalf of the buyer. If so, the starting point is that the compensation is buying commission. If the intermediary is making the purchase on behalf of the seller or himself, the starting point will be that it concerns seller commission that is to be included in the customs value.

Packaging

In most cases, the compensation for packaging will be included in the price of the goods, and additions pursuant to Section 7-17 will then not be relevant. If the buyer has provided the seller with the packaging, either on their own or via a third party, the value of the packaging shall be added to the price that is paid for the goods, to the extent the packaging and the imported goods are regarded as a single item of goods for customs purposes. This will, e.g., be the case for beverages in bottles or food in jars. If the packaging has to be considered as an independent item of goods, the price shall not be supplemented pursuant to Section 7-17. In such circumstances, the packaging is treated as an independent item of goods and the customs value is therefore determined separately.

Packing costs

Additions pursuant to Section 7-17 will be relevant if someone other than the seller has performed and invoices for the packing of the goods.

Assists

Assists concern services that the buyer of the imported goods provide to the seller. Goods that are delivered to the seller shall be added to the price regardless of where the goods are produced or whence they are delivered, whereas services that are provided to the seller shall not be added if they are performed from Norway.

Delivery of goods may, e.g., be goods that shall be incorporated into the goods that are to be imported, goods that are used in the production of the goods that are to be imported, or goods that are included in the production.

The actual determination of value of the assists will depend on the circumstances. If the buyer has purchased input materials from a third party which the third party has delivered directly to the seller, it is the price that is paid to the third party that is to be added. If freight is included in this price, this shall also be included. If the goods are delivered to the seller and the buyer himself has been responsible for the freight, the freight shall not be added.

If the buyer has produced the assists, the value shall be set as full cost. Freight to the producer shall not be added.

The value of services the buyer provides to the seller shall only be added to the transaction value if the services are performed in places other than Norway. What types of services this concerns is listed in Section 7-17. The determination of value of the services will occur according to the same principles that apply to goods delivered from the buyer.

It is not the value of all goods and services the buyer delivers to the seller that shall be added to the price. A basic condition is that the contributions have a sufficient connection to the production of the goods that are to be imported.

The value of goods and services that the buyer is delivered must be distributed among the goods that are produced. If it concerns delivery of goods that are actually included in, or form part of, the production of the imported goods, it is the actual share that is to be added.

The goods that are used will in principle be intact after the production, e.g., casting moulds, master tapes and similar. The value of these goods must be distributed among the goods that are produced.

For services that are provided, the principle is the same. If the service concerns a single item of goods or consignment, the entire value of the service is assigned to these goods. If it concerns more continuous provisions of services, that are more difficult to connect to the production of individual goods, a distribution must be made where the individual products are assigned a proportionate share.

Compensation for intellectual property rights

Often, the value of intellectual property rights will be included in the price that is paid for the goods. In other cases, the buyer pays compensation for intellectual property rights to someone other than the party that sells the goods.

In order for the value of such a compensation to be added to the price of the goods, three conditions must be met. Firstly, the compensation must not be included in the price; second, the intellectual property rights must be connected to the goods in question and; third, the compensation for the intellectual property rights must be a condition for the sale.

Proceeds of resale

If the value of the proceeds of a resale accrue to the seller, this shall be added to the price of the goods, unless this has already been included. If the scope of the proceeds is unknown, Section 7-10 can normally be applied in the determination of the customs value.

Transport, handling and insurance

Transport-related costs that accrue up until the place of importation shall be included in the customs value. The condition for adding such costs to the price pursuant to Section 7-17 is naturally that they are not already included in the price of the goods.

Transport-related costs are firstly all costs for loading and handling of the goods at the place where the transport commences. Second, costs associated with the actual transport of the goods shall be included. This will e.g., be the actual freight, unloading, handling, storage etc. If the loading is delayed and the transport therefore becomes more expensive, these costs shall also be included in the customs value. Costs for unloading at the place of importation shall not be included.

For goods that arrive by ship, the first place of call for the ship is considered the place of importation. There must be a genuine possibility to unload the goods. For goods that arrive by aircraft, the first place where the aircraft lands is considered the place of importation. If the goods are transported by rail, the place of importation is the first place where the train stops, provided the goods could have been unloaded there. For road transport, the point of entry at the border is considered to be the place of importation.

If the freight costs encompass both transport up until the place of importation and onward into the realm, the costs shall be distributed based on the distance prior to and after the place of importation. If a different distribution is substantiated, this can be applied.

For importing of passenger vehicles that are imported by driving the vehicle from certain areas, Norwegian Customs has determined fixed rates for freight.

From Sweden: NOK 500
From Denmark: NOK 1500
From Germany: NOK 2500

The fixed rates must be considered to be an offer to the declarant. If the declarant believes a different amount shall be applied, he will have the opportunity to substantiate this. In the standard manner, it is up to Norwegian Customs to assess the stated customs value.

Insurance costs are added on the same conditions and in the same manner as the transport costs.

Costs that are not to be added to the transaction value – the Customs Act, Section 7-18

In order to deduct costs from the price that is paid for the goods, the importer must be able to document that the conditions in Section 7-18 are met.

Construction, installation, etc. that is carried out in Norway

Costs for work that is carried out on the imported goods in Norway (and that are included in the price of the goods) can be deducted from the customs value. It is decisive that the work is carried out in Norway.

Transport and insurance in Norway

Costs associated with transport and insurance after the place of importation can be excluded from the customs value. The prerequisite is that the costs can be identified and thereby separated from the price that is paid for the goods.

Customs duty and excise taxes in Norway

Interest

This rule concerns circumstances where the parties in the purchase agreement have agreed a payment plan. The buyer has e.g., been granted deferred payment in return for paying interest to the seller. In such circumstances, the interest is payment for the credit, not for the goods. If the buyer can prove that the interest in reality is not payment for the goods, and that the interest rate does not exceed ordinary interest levels, the interest costs can be deducted from the customs value.

Buying commission

Compensation for reproduction

Excise taxes in the export country

If the buyer is not to pay excise taxes in the export country or is entitled to a drawback of such taxes, the taxes will not form part of the price of the goods. The foreign excise taxes shall in such circumstances not be included in the customs value.

If conditions are listed in the agreement that the price shall not include foreign excise taxes, the conditions must be met at the time of importation in order to be of significance for the customs value.

Example 1:
A has purchased a motor vehicle abroad and in the clearance for free circulation an invoice with the vehicle’s price plus value added tax is presented. A has been granted a credit by the seller and shall pay the purchase price within two weeks. Whether the foreign value added tax is to be included in the customs value depends on the agreement the buyer has with the seller.

If A does not have to pay the foreign value added tax when the vehicle is cleared for free circulation in Norway (and this is sufficiently documented by A), the condition must be considered met once the clearance for free circulation commences. The foreign value added tax shall in such circumstances not be included in the customs value.

Example 2:
A has purchased a motor vehicle abroad and in the clearance for free circulation an invoice with the vehicle’s price plus value added tax is presented. A has already paid the entire amount, but states that he will be refunded the value added tax. Whether the foreign value added tax is to be included in the customs value depends on the agreement the buyer has with the seller.

What is decisive here, as always, is whether the conditions for exemptions are met at the time of clearance for free circulation. If it is unclear at the time of clearance for free circulation, or has not been sufficiently documented, that A will be refunded the foreign value added tax, this must be included in the customs value.

An application for recalculation and refund can be submitted once there is sufficient documentation that foreign value added tax has been refunded. However, the prerequisite is that it can be documented that the conditions for a refund were met at the time of clearance for free circulation. If A enters into an agreement with the seller for a refund of foreign value added tax after the importation to Norway, A will not be entitled to a recalculation.

Circumstances where the transaction value cannot be used to determine the customs value

Compensation of unknown value

If there are conditions or compensation for the sale of the goods for which a value cannot be determined, the transaction value cannot be used as the method for determining the customs value.

For example, the transaction value cannot be used if the seller determines the price of the goods you import on the condition that you will also purchase other goods in determined quantities.

The transaction value also cannot be used if the price is determined based on a form of payment that is not connected to the goods you are importing. An example of this is when the imported goods are semi-finished products that are supplied by the seller on the condition that he receives a certain quantity of the finished goods.

Conditions or compensation that relate to manufacturing or marketing of the imported goods shall not, per se, result in the transaction value being dismissed as method.

Part of the proceeds

The transaction value cannot be used as a method if the seller receives a part of the proceeds for the resale or use of the goods in Norway, unless this can be adjusted in that the price is entered in accordance with the Customs Act, Section 7-17.

Dependence

The transaction value can be used if the relationship of dependence has not affected the price. Even if there is a dependence between the parties, the starting point is that the dependence per se is not sufficient to determine that the price is affected.

Much of global trade occurs within groups of companies. This can result in a dependence between buyer and seller.

Persons and companies that have a financial commonality of interest, in that one is the sole agent, sole distributor or sole importer for the other, are also considered to be dependent on each other if they are covered by the provisions in Section 7-10, first paragraph (d). A financial commonality of interest is, per se, not sufficient to dismiss Section 7-10 as the method of determination. See the Customs Act, Section 7-10, first paragraph (e).