Korea: Amendments to “Method 4” for determining customs value
Improving procedure for calculating “comparable ratio” when determining customs value applying “Method 4”
Amendments to “Method 4” for determining customs value
Korea Customs Service issued an administrative notice amending the “Notice of Customs Valuation Operation” to improve the procedure for calculating the “comparable ratio” when determining the customs value applying “Method 4” pursuant to Article 33 of the Customs Act and to specify the cases in which “Method 4” cannot be applied.
Background
Article 33 of the Korea Customs Act stipulates the method of determining the customs value by deduction from the domestic selling price, referred to “Method 4.” In applying “Method 4,” customs authorities determine the customs value of imported goods by calculating “comparable ratio” corresponding to the profit or general expenses of the comparable company and deducting it from the price at which the goods are resold in Korea after importation.
In several cases where the Korea Customs Service has made a determination by applying “Method 4,” importers have filed appeals on the grounds that the comparable companies selected in the process of determining the “comparable ratio” are significantly less comparable to the imported goods, and the courts have mostly sided with the importers on the grounds of errors in the process of calculating the “comparable ratio.”
Amendment
If the importer is unable to calculate the ratio of the importer’s profit and general expenses (“importer’s ratio”), “Method 4” may not be applied by using “comparable ratio” calculated by Customs.
Improvements to the procedure for calculating “importer’s ratio” and “comparable ratio” include:
- Specifically stipulates the criteria for determining the product group to be calculated and the procedure for determining HS Code of comparable items
- Removes the limits on the number of comparable companies per stage of comparable companies’ selection
- Stipulates transaction amount criteria to ensure that comparable companies with similar import amounts to the importer are selected
- Prescribes a formula for calculating the “importer’s ratio” based on sales and cost of goods sold for each category of imported goods subject to “Method 4”
- Rationalizes the procedure for selecting comparable companies by fiscal year of importation
KPMG observation
The amendment is expected to increase the number of cases in which “Method 4” cannot be applied and determination of customs value based on reasonable standards (“Method 6”) is used.
Read a July 2023 report [PDF 910 KB] prepared by the KPMG member firm in Korea
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