As tariffs and trade wars increase, clients of shipping companies are looking to reduce duty costs.

While there are many ways to achieve this, Philip Brigstock-Bates, who manages Tariff AXe Services, wrote in that a reduction is based on four “what’s”: What the goods are determined their tariff code and duty rate; what the origin of the goods is determines whether preferential, standard, or additional duties are payable; what the transaction is determines customs value; and what happens to the goods once imported determines whether various reliefs are available.

A major under-utilized approach to reducing duties is to look at the customs valuation.

“A key provision in both U.S. and EU customs law permits the customs value to be based on any earlier sale of the same goods in a chain of transactions prior to importation,” stated Brigstock-Bates. “For this reason it is variously described as the ‘prior sale,’ ‘earlier sale’ or ‘chain of sales’ opportunity. They all mean the same thing, i.e. lower duty!

“For example, if goods are sold by a manufacturer in the U.S. for $60 to a U.S. export company which, in turn, sells them to an importer in the EU for $100, duty can be paid on a value of $60, providing certain conditions are met. The savings achieved are the difference between duty on the $100 and the duty on $60. Savings of up to 40% on the duty costs are possible.”

The benefit is to save on customs duties by excluding the costs and profits of non-manufacturing activities undertaken in the country of export from the customs value declared at import in the destination country.

The approach also uncouples the value of the imported goods for customs valuation purposes from their inventory value for corporate income tax purposes.

“That’s good because tax and customs values are often in tension. Tax authorities tend to favour a low import value (i.e. more profit to tax), whereas customs favour a higher import value (more import duty to collect),” stated Brigstock-Bates.

“Using an earlier sale approach, the price paid by the importer is no longer relevant for customs purposes, so that any increase in that price will not cause an increase in the amount of customs duty.”

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