Since China became a member of World Trade Organization (WTO) in 2001, the PRC General Administration of Customs (GAC) has put a lot of efforts to align itself with the WTO's Customs Valuation requirements. This includes the execution of "Measures on the Dutiable Price of Imports" (GAC Order [2002] 95) on 1 January 2002 and "Measures on the Dutiable Price of Domestic Sales" (GAC Order [2006] 148) on 1 May 2006. Nevertheless, a lot of uncertainties still exist in the areas related to customs valuation on general trade imports, bonded domestic sales, customs special supervision zone as well as transactions between related parties.
To clarify some of the above unclear areas, the GAC released the following 2 new customs valuation regulations on the valuation treatment of bonded and non-bonded goods on 25 December 2013:
- "Measures of the Customs of People's Republic of China for Assessment of Dutiable Price on Domestic Sale of Bonded Goods" (GAC Order[2013] 211); and
- "Measures of the Customs of People's Republic of China for Assessment of Dutiable Price on Imports and Exports" (GAC Order [2013]213).
In this Tax Flash, we aim to provide you with the salient points of these two Measures.
1. GAC ORDER [2013]211 AND GAC ORDER [2013]213
GAC Order [2013]211 and GAC Order [2013]213 retained most of the core elements of Article VII of the WTO's General Agreement on Tariffs and Trade 1994. Customs valuation treatment on bonded goods for domestic sales (including processing trade and bonded goods imported from Customs Special Supervision Areas) are covered by GAC Order [2013]211, whilst the general customs valuation provisions of GAC Order [2006]148 for domestic and non-bonded goods are retained by GAC Order [2013]213.
These two Orders took effect from 1 February 2014 and superseded GAC Order [2006] 148.
2. KEY CHANGES OF GAC ORDER 2013]211 – THE CUSTOMS VALUATION RULE FOR THE DOMESTIC S ALES OF BONDED GOODS
The following table summarises the salient points of GAC Order [2013]211:
|
Type of Enterprises |
Domestic Sales Transaction |
Old Treatment under GAC Order[2006] 148 |
New Treatment under GAC Order [2013] 211 (Note 2) |
|
Enterprise under Import Processing Arrangement |
Bonded raw materials or bonded goods sold domestically |
Dutiable value = |
Dutiable value = If the original import price of raw materials cannot be determined: Dutiable value = weighted average import price of the raw materials |
|
Domestic sales of scraps/by-products |
Dutiable value = |
Dutiable value = (a) domestic sale price (Note 1) (taken into account the proportion of the bonded materials used); or (b) auction price |
|
|
Domestic sales of goods through bonded factory "transfer" |
Not stipulated |
Dutiable value = |
|
|
Enterprise under Contract Processing Arrangement |
Bonded raw materials or bonded finished goods sold domestically |
Dutiable value = |
Dutiable value = |
|
Domestic sales of scraps/by-products |
Dutiable value = |
Dutiable value = (a) domestic sale price (Note 1) (taken into account the proportion of the bonded materials used); or (b) auction price |
|
|
Domestic sales of goods through a bonded factory "transfer" |
Not stipulated |
Dutiable value = |
|
|
Enterprise located within Free Trade Zone |
Domestic sales of bonded raw material imported for processing of bonded finished goods |
Dutiable value = If finished goods consumed some domestically purchased raw material: Dutiable value = original import price of the raw materials |
Dutiable value = (a) domestic sale price (Note 1); or (b) price of similar/identical bonded goods sold domestically If finished goods consumed some domestically purchased raw material: Dutiable value = |
|
Domestic sales of scraps/by-products |
Dutiable value = (a) domestic sale price; or (b) price of similar/identical goods; or (c) reasonable methods determined by Customs |
Dutiable value = (a) domestic sale price (Note 1); or (b) auction price |
|
|
Enterprise located within Customs Special Supervision Areas other than FTZ (除保稅區外海關特殊監管區域) |
Domestic sales of bonded raw materials imported for processing of bonded finished goods |
Dutiable value = |
Dutiable value = (a) domestic sale price (Note 1) ; or (b) price of similar/identical bonded goods sold domestically; or (c) customs computed price (including cost, profit and general expense) |
|
Domestic sales of scraps/by-products |
Dutiable value = (a) domestic sale price; or (b) price of similar/identical goods; or (c) reasonable methods determined by Customs |
Dutiable value = (a) domestic sale price(Note 1); or (b) auction price |
|
|
Enterprise located in Customs Special Supervision Areas / Bonded Supervision Locations (海關特殊監管區域、保稅監管場所) |
Domestic sales of bonded logistics goods in Customs Special Supervision Areas / Bonded Supervision Locations |
Dutiable value = |
Dutiable value = |
Note
1. Domestic sale price is defined as the total amount actually paid or payable by the PRC enterprise for the purchase of the bonded goods/scraps/by-products, excluding the custom duties and taxes.
2. If dutiable value for domestic sale of bonded goods cannot be determined using the methods stipulated in GAC Order [2013]211, the transaction value of (i) identical goods; (ii) similar goods; (iii) deductive price; (iv) computed price; and (v) other reasonable methods (in that order of preference) will be used to determine the dutiable value.
3. KEY CHANGES OF GAC ORDER [2013]213 – GENERAL TRADE FOR NON-BONDED GOODS
GAC Order [2013]213 covered most of the contents of the old GAC Order [2006]148. Major updates of GAC Order [2013]213 include:
Arm's length pricing - "Consistent with Commercial Practice"
Article 18 of GAC Order [2013]213 introduces the 'consistent with commercial practice' approach to determine whether transaction pricing is set at arm's length. Provided that the pricing of the goods is consistent with common commercial practice after conducting a "circumstances of sale test", the tax authority will accept that:
(i) the declared transaction price is arm's length and acceptable; and
(ii) special relationship (if any) between the buyer and the seller did not influence the transaction value.
Freight Charges and related fees
For freight charges and related fees of imported goods incurred prior to unloading, GAC Order [2013]213 revised the dutiable basis from "the expenses actually paid" to "the expenses actually paid or payable by the buyer". In case the freight charges and related expenses cannot be determined, Customs shall base its assessment on comparable transportation expenses at the time the goods are imported.
Dutiable price of exports
Under GAC Order [2006]148, commission can be excluded from the dutiable value of the exported goods if it is separately listed with the price of goods. Such provision is repealed by GAC Order [2013]213, i.e. commission will now be included in the dutiable value of the exported goods effective 1 February 2014.
Definitions of Key terms
- Definitions of "before discharging" (for determining the dutiable price of imports) and "before embarking" (for determining the dutiable price of exports) has been added
- Definitions of "about the same time" (for the price evaluation of identical and similar goods) and "media" (for software importation) has been revised
4. GAC ORDER [2014]14
On 7 February 2014, GAC further released GAC Order [2014]14 to clarify the following:
- Valuation queries, consultations and notifications related to the determination of the dutiable value of bonded goods sold domestically shall be referenced to GAC Order [2013]213; and
- In cases of violation of customs supervisory rules, the dutiable value of bonded goods sold domestically shall be determined in accordance with the GAC Order [2013] 211.
GAC Order [2014]14 took effect on its promulgation date and superseded GAC Order [2005]33 – "Notice regarding issues for the determination of the dutiable value of goods under processing trade but sold domestically".
5. POINTS TO NOTE
Customs valuation can considerably impact a company's overall tax burden (e.g. customs duty and import VAT etc.). The issuance and implementation of the two GAC Orders will likely bring new opportunities and challenges to those companies with cross border trade, under processing arrangement or located in the Customs Special Supervision Areas.
On one hand, the issuance of these updated customs valuation regulations is expected to enhance China's cross border trade environment. On the other, such new development has made it even more imperative for companies (especially those engaged primarily in related-party transactions) to conduct a specific review of their existing transfer pricing policies and relevant procedures from the Customs' perspective so as to mitigate risks of future customs challenges. It is expected that further practical implementation guidance would be introduced, and management should discuss with professional advisers to understand the key changes in the new Measures and the impact on their companies. Taxpayers should also discuss and clarify with the local customs on uncertain areas in relation to the interpretation and implementation of these circulars at an early stage.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
