Australia: Valuing imported goods, disclosure of post-import adjustments

Customs valuation can be technical, particularly when there are amounts required to be included in the customs value that aren’t invoiced with the goods being imported.

When the price can be used as the basis for the customs value, the legislation requires certain amounts to be added to the price to determine the customs value upon which duty and goods and services tax (GST) are levied. These amounts may include (but are not limited to):

• Changes to the price, for example, post-importation transfer pricing adjustments
• Price-related costs (even if paid to parties other than the supplier), such as:
  • Production assist costs including design costs, artwork, inputs to manufacture etc.
  • Commissions
  • Royalties or licence fees

Regardless whether the imported goods incur customs duty, undervaluation of imported goods, including a failure to disclose post importations adjustments to the price, may result in penalties for false and misleading statements under sections 243T and 243 of the Customs Act 1901 (Cth) (Customs Act).

Transfer pricing adjustments received by importer distributors are generally required to be disclosed to the Australian Border Force (ABF) as they often relate to the imported goods. These need to be reported by way of a customs voluntary disclosure in line with an importer’s financial reporting obligations. 

Broadly, production assist costs are when the purchaser provides goods, materials or services—either free of charge or at a reduced cost—to use in the production of the imported goods. These costs might include services, inputs or materials (including transportation of these materials), equipment or tooling, and engineering and design undertaken outside Australia, required for production of imported goods—all of which must be included in the customs value of those goods. 

Commissions and brokerage paid in relation to imported goods are generally required to be included in the customs value, with the exception of buying commissions that meet the strict definition of a buying commission in the Customs Act.

As a result of prior case law, many Australian importers take the position that the royalties or licence fees they pay are not required to be included in the customs value. However, the customs legislation provides three means by which royalties and licence fees paid in relation to imported goods are required to be included in the customs value. Broadly, they are:

• Royalty payments meeting the definition as price-related costs
• Production assist costs in respect of the goods
• As a component of price, when there is sufficient nexus between the licence agreements and the import sales transaction

It is therefore important to understand the agreements in terms of what the payments are made for, what is received in return, and any link those agreements have to the contract of sale for importation in order to sufficiently support a position to not include these payments in the customs value of imported goods. 

To determine whether transfer pricing adjustments, royalties, commissions or production assist costs are captured by any of these provisions, a thorough assessment of the relevant agreements and international supply chain should be undertaken. Certainty the ABF’s position whether the Customs Act requires any of these amounts to be included in the customs value can be obtained via an Advance Ruling (Valuation) which remains valid for five years, provided the facts and circumstances relevant to the ruling remain the same.

Importers need to consider undertaking periodic reviews of declared customs values and additional payments and actively consider the implications of any international supply chain changes or amendments to relevant intercompany agreements in order to remain compliant with customs valuation laws.

For more information, contact a KPMG trade and customs professional in Australia:

Leonie Ferretter | lferretter@kpmg.com.au

Daniel Rae | drae1@kpmg.com.au