Customs Valuation of Imported Goods for Customs Procedures (Part 3)

Currently, Thailand applies customs values based on the GATT Valuation System of the World Trade Organization (WTO) to determine the value of imported goods, in accordance with the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (“GATT”), as reflected in Section 16 of the Customs Act B.E. 2560 (2017) (“Customs Act”), as follows:

“Section 16 For a purpose of calculation of duty under this Act, “customs value” shall mean the following values:

(1) In case of importation, means a value of goods for a purpose of duty collection in accordance with one of the following values: 
(a) a transaction value;
(b) a transaction value of identical goods;
(c) a transaction value of similar goods;
(d) a deductive value;
(e) a computed value;
(f) a fall back value;”

The customs value is determined on a case-by-case basis in accordance with the six methods prescribed by law. Typically, the customs value is  based on the transaction value of imported goods — that is, the price actually paid or payable by the buyer to the overseas  seller. The value must be that of an arm's length transaction, in which the buyer and seller are independent parties, dealing in good faith, without any special relationship that could influence the price.

Therefore, key conditions for use of the transaction value method include the fact that the buyer and seller are not related, or, if they are related, that their relationship has not influenced the transaction price. The transaction also must be free of any conditions or considerations that cannot be quantified with respect to the goods being valued. 

Customs valuation using GATT principles is based on the following six methods, which are applied sequentially:

Method 1: Transaction value

The price actually paid or payable by the buyer to the overseas seller for the imported goods, adjusted to included certain costs and expenses established by law.

The criteria for price adjustments include:

1. Expenses or income, direct or indirect, that must be included in the transaction value of imported goods when determining customs value:

• Royalties and licensing fees related to the imported goods — even if the parties have agreed that these fees shall be paid separately from the price of the goods, they must be included in the customs value for duty calculation purposes
• Proceeds from resale or use of imported goods that accrue directly or indirectly to the seller
• Costs related to the transportation of imported goods that accrue directly or indirectly to the seller
• Insurance
• Freight charges
• Loading, unloading, and handling charges incurred prior to arrival at the port or place of import

Note: The basic formula for customs valuation is Cost, Insurance, Freight’ (CIF). Where goods are imported under other Incoterms, the transport costs must be adjusted to reflect CIF values for inclusion in the customs value.

• Costs or charges incurred by the buyer, including:
  • Commissions and brokerage fees, excluding buying commissions
  • The cost of containers treated as part of the imported goods for customs purposes
  • Packing costs (both labor and materials)
• The value of materials,  components, equipment, or services supplied by the buyer free of charge or at a reduced cost for use in the production and sale of the imported goods for export purposes, including:
  • Materials, components, parts, and similar items incorporated into the imported goods
  • Tools, dies, molds, and similar items used in the production of the imported goods
  • Materials consumed in the production process
  • Engineering, development work, artwork, design work, and plans or sketches carried out outside the Kingdom and necessary for necessary for the production of the imported goods

2. The following expenses must be deducted from the transaction value of the imported goods when determining the customs value using Method 1 (Transaction Value Method):

• Expenses related to construction, installation, assembly, maintenance, or technical assistance performed after the goods were imported
• The cost of transport after import has been completed
• Duties and taxes payable in connection with importing the goods

3. Basis for Inclusion or Deduction

Expenses, income, and/or the value of materials, equipment, or services that are either included in or deducted from the transaction value must be based on factual information and must be quantifiable.

4. Conditions for Acceptance of Transaction Value

The transaction value of the imported goods may be accepted as the customs value only if the following conditions are met:
4.1 The buyer must not be restricted in the resale or use of the imported goods, except in the following circumstances:

• Restrictions imposed by law or government authorities, such as:
  • Prohibiting sales to minors
  • Requiring inspection or testing before use
  • Mandating specific labeling or packaging
  • Circumstances similar to the foregoing
• Geographic restrictions on resale, such as conditions permitting the buyer to sell the goods only within the Bangkok metropolitan area
• Restrictions that do not substantially effect the transaction price, such as prohibiting display or sale of automobiles before the official model year launch date

4.2 The sale or the sale price must not be subject to conditions or considerations that cannot be valued, such as:

• Requiring the buyer to purchase other goods from the seller in a specified quantity
• Requiring the buyer to sell other goods to the seller

4.3 The seller must not receive any direct or indirect proceeds from resales and/or use of the imported goods, except where those proceeds are included in the customs value under Clause 1.
4.4 The buyer and the seller must not be related, unless their relationship has no influence on the transaction price.

5. Relationships That Impact Customs Valuation

The following relationships between persons are deemed to have a potential effect on customs valuation:
5.1 One person is a director or executive officer in the business of another person.
5.2 One person is a partner in a joint business venture with another person.
5.3 One person is an employer or an employee of another person.
5.4 One person owns, controls, or holds at least five percent (5%) of the voting rights in the business of another person, either directly or indirectly.
5.5 One person controls another person, either directly or indirectly.
5.6 Both persons are controlled by the same third party, either directly or indirectly.
5.7 Both persons jointly control a third party, either directly or indirectly.
5.8 One person is a member of the same family as another person.

For purposes of Clauses 5.4 to 5.7, the term “control” means the power to restrain or direct the other person, either de jure or de facto.

We provide the full range of legal services related to Thai and international taxation and customs. Our team consists of highly experienced and capable tax lawyers and consultants with  knowledge and expertise in Thai tax matters. Our services include, but are not limited to, tax advice, tax planning and restructuring, tax compliance, tax audit support, tax health checks, tax due diligence, tax refund requests, tax appeal and litigation as well as customs advice and appeals.

This article is intended as merely a regulatory overview, and is not intended to be comprehensive or to constitute legal advice. If you have any questions on this or on other areas of tax law, please do not hesitate to contact our Tax Team at SCL Nishimura & Asahi Limited.

Budhima Kerdsiri
Counsel

Hatairat Sukprasert
Associate

Authors