TRECE MARTIRES CITY COLLEGE

TARM 103: CUSTOMS VALUATION SYSTEM

METHOD 1: TRANSACTION VALUE AS PRIMARY METHOD OF VALUATION

(WVA, CAO 4-2004, CMO 16-2010, CA0 9-2020, SEC. 700 & 701, CMTA)

WTO VALUATION AGREEMENT (WVA) – lays down rules and guidelines on how members of the WTO shall determine
customs value which refers to the value of imported merchandise for the purpose of assessing customs duties and taxes to be
paid on such merchandise.

Major economies and trading partners of the Philippines have adopted the Agreement. Along with many developing
countries, the Philippines has committed to implement the Agreement thus congress enacted RA 9135 on April 27, 2001
adopting the Transaction Value System.

On May 30, 2016, RA 10863 also known as the CMTA under Sec. 700 to 706 thereof provides the sequential application of
Methods 1 to 6. CAO 4-2004 (amended CAO 5-2001) was issued to implement RA 9135 while CMO 16-2010 provided
specific rules and regulations to implement CAO 9-2020 the 6 methods of valuation.

ARRIVING AT THE TRANSACTION VALUE OF IMPORTED GOODS - Method 1 or transaction value requires a sale
between an exporter (seller) of the goods from a foreign country and an importer (buyer) in the Philippines.

Transaction value looks at the price agreed upon between the seller and the buyer - a price that is generally shown on the
invoice - with certain adjustments because the Agreement recognizes that in any international transaction, there may be several
components that make up the total cost.

Transaction value should therefore also include additions for certain elements or costs that may not have been included in the
price or invoice.
In this sense transaction value is not equal to the invoice, unless the invoice reflects all the dutiable elements as defined
under Articles 1 and 8 of the Agreement.

ADJUSTMENTS (ART. 8, SEC. 3.2.8, CMO 16-2010/SEC 701, CMTA)

In framing its legislation, each Member shall provide for the inclusion in or the exclusion from the Customs value, in whole or in
part, of the following:

a) the cost of transport of the imported goods to the port or place of importation; (Pre-Carriage/Main Carriage)

b) loading, unloading and handling charges

associated with the transport of the imported
goods to the port or place of importation (Origin Other Charges); and

c) the cost of insurance (Dutiable Insurance).

Note:
The Philippines opted to include the said costs in the determination of the dutiable value thus the Philippines is regarded
as a “CIF COUNTRY” (Sec. 2, CAO 4-2004).

RULES ON BOC VALUATION

SEC. 700, CMTA, R.A. 10863 (May 30, 2016)

BASIS OF VALUATION:

Sequential Application of Valuation Methods -

“

Imported goods shall be valued in accordance with the provisions of Section 701 of this Act whenever the conditions prescribed
therein are fulfilled.
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TARM 103: CUSTOMS VALUATION SYSTEM
Where the customs value cannot be determined under the provisions of Sec. 701 (Method 1) of this Act, it is to be determined
by proceeding sequentially through the succeeding sections hereof to the first such section under which the customs value can
be determined.”

“Except as provided in Sec. 704 (Method 4) of this Act, it is only when the customs value cannot be determined under the
provisions of the particular section that the provisions of the next section in the sequence can be used ”
.

“If the importer does not request that the order of Sections 704 and 705 (Methods 4 & 5) of this Act be reversed, the normal
order of the sequence is to be followed.
If the importer so requests but it is impossible to determine the customs value under Section 705 (Computed Value) of thus
Act, the customs value shall be determined under Section 704 (Deductive Method).”

NOTE:
Sec. 3.1, CMO 16-2010 provides that the reversal in the sequential use of Method 4 and 5 shall take place only upon
request of the importer to do so and eventually approved by the Commissioner of Customs.

I. PRIMARY METHOD OF VALUATION

(ART. 1) 1) Method 1, Sec. 701 (Transaction Value based on PAPP)

II. 5 ALTERNATIVE METHODS OF VALUATION

(ART. 2) 2) Method 2, Sec. 702 (Transaction Value of Identical Goods)
(ART. 3) 3) Method 3, Sec. 703 (Transaction Value of Similar Goods)
(ART. 5) 4) Method 4, Sec. 704 (Deductive Value)
(ART. 6) 5) Method 5, Sec. 705 (Computed Value)
(ART. 7) 6) Method 6, Sec. 706 (Fallback Value)

“When the customs value cannot be determined under Sections 701 (Methods 1) through 705 (Method 5), it may be
determined under Section 706 (Method 6) of this Act .”

Method One: The Transaction Value

The dutiable value of imported goods shall be the transaction value, that is, the price actually paid or payable for the goods when
sold for export to the Philippines adjusted in accordance with conditions.

Price Actually Paid or Payable – the price actually paid or payable is the total payment made or to be made by the buyer to or for
the benefit of the seller for the imported goods. The payment need not necessarily take the form of a transfer of money. Payment
may be made directly or indirectly.

CONCEPT OF SALE
(Sec. 3.2.2.1, CMO 16-2010)
The transaction Value of imported goods is based on the PAPP for those goods when sold, hence there must be a sale for
export to the Philippines as one of the conditions for the application of Method 1.

The WVA provides no definition of a sale but merely states that there must be specific commercial operation that meets
certain requirements and conditions.

WCO Advisory Opinion 1.1 provides guidance on the concept on SALE as it appears in the WVA. It states that a sale is to be
described as follows:

1) A commercial operation involving a Buyer & Seller;

2) The Buyer agrees to obtain the imported goods;
3) An agreement to exchange ownership of goods at a time and place and for a specific price;
4) A compensation occurs when ownership is transferred and goods are acquired;
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TARM 103: CUSTOMS VALUATION SYSTEM
5) Both Buyer and Seller acknowledge that the transaction constitutes a commercial operation. CRITERIA TO BE

CONSIDERED WHEN GOOD ARE SOLD FOR EXPORT TO THE PHILS.

a) Goods must be sold

b) For export to the Philippines
c) To a purchaser in the Philippines

DOCUMENTARY PROOF TO SUPPORT DECLARED VALUE

a) Proforma/Commercial Invoice & Pa ck in g L ist
b) Sales Contracts or Agreements
c) Foreign Purchase Order
d) Bills of Lading/Air Waybills
e) Proof of Payment by buyer to seller
f) Other types of certification required for entry in the Philippines (certificate of origin, mill certification,
fumigation certificate, phytosanitary certificate, MSDS, etc.)

Note:
In using Method 1, it must be shown that the import sales had been made under an “arms length transaction”.

METHOD 1, SEC. 3.2.2.2, CMO 16-2010

NO SALE SITUATIONS: (Method 1 Not Applicable)
a. Imported gifts, samples and promotion items furnished free of charge
b. Imported goods shipped on consignment basis which will be sold after importation for the account of the supplier.
c. Goods imported under leasing contract or are loaned (subject to re-export bond) and therefore remains as property of
the shipper abroad;
d. Goods imported by intermediaries, who do not purchase the goods but sells them after importation;
e. Goods imported by branch offices which are not separate legal entities with their suppliers.

Series of Sale:

(Sec. 3.2.2.4. CMO 16- 2010)

In situations where there is more than one sale and more than one agreement to sell prior to exporting the goods to the
Philippines, the sale for exportation would be the “last sale” to the Philippines.

METHOD 1: THE TRANSACTION VALUE PER PAPP (SEC. 701,

CMTA/Sec. 3.2.3 - CMO 16-2010)

1. There must be no restrictions as to the disposition or use of the imported goods by the buyer other than the following
restrictions:
a) those that are imposed or required by Philippine Authorities; (These refer to licenses, import permits, labeling and testing
required by concerned government agencies such as the Food and Drugs Authority (FDA), Bureau of Animal Industry
and the Bureau of Product Standard (BPS), to name a few.)
b) those that limit the geographical area in which the goods may be resold. (Regional Distributorship)
c) those that do not substantially affect the value of the goods. (An example of such restrictions would be the case where a
seller requires an importer of automobiles not to sell or exhibit them prior to a fixed date which represents the beginning of
a model year.)

2. No part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or
indirectly to the seller, unless an appropriate adjustment can be made in accordance with CAO 4-2004, CMO 16-2010, Sec.
4.9.2 of CAO 9-2020 and Article 8 of the WTO Valuation Code.
NOTE:
A price should not be calculated on the basis on how much the goods will sell when subsequently resold (a common
example is “consignment” goods).
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TARM 103: CUSTOMS VALUATION SYSTEM

It does not matter whether the proceeds are a condition of a sale for export to the Philippines, mere existence of the
proceeds requires an adjustment to the price.

3. The sale or price must not be subject to some conditions for which a value cannot be determined with respect to the goods
being valued. Examples of these conditions or considerations include the following:
a) The seller establishes the price of the imported goods on condition that the buyer will also buy other goods in specified
quantities.
b) The price of imported goods is dependent upon the price or prices which the buyer of the imported goods sells other
goods to the seller of the imported goods.

c) The price is established in the basis of a form of payment extraneous to the imported goods, such as where the imported
goods are semi-finished which have been provided by the seller on condition that the seller will receive a specified
quantity of the finished goods.

4. The buyer and seller are not related or where they are related, such relationship did not influence the price of the goods.
The buyer and the seller shall be deemed to be related only under the following circumstances:
4.1 they are officers or directors of the another’s businesses; 4.2 they are legally
recognized partners in businesses;
4.3 they are employer or employee;
4.4 any person directly or indirectly owns, controls or holds 5% or more of the outstanding voting stock or shares of
both of them;
4.5 one of them directly or indirectly controls the other;
4.6 both of them are directly or indirectly controlled by a third person; 4.7 together they
directly or indirectly control a third person; or

4.8 they are members of the same family including those related by affinity or consanguinity up to the 4th civil degree.
Note: (When buyer and seller are related)
Persons who are associated in business with one another in that one is the sole agent, sole distributor or sole concessionaire,
however described, of the other shall be deemed to be related for the purposes of this Act if they fall within any of the eight
(8) cases cited in the preceding paragraph.
In a sale between related persons, the transaction value shall be accepted as basis for customs valuation whenever the importer
demonstrates that such value closely approximates one of the following occurring at or about the same time: (a period
extending to 45 days prior to exportation and 45 days after exportation of the goods being valued with the B/L or AWB date
or reckoning date)
a) The transaction value in sales to unrated buyers of identical or similar goods for export to the same country of importation;
b) The customs value of identical or similar goods as determined under the provisions of Sec. 704 (Deductive value) of this
Act; or
c) The customs value of identical goods or similar goods are determined under the provisions of Sec. 705 (Computed Value)
of this Act.
Note: A business relationship exist between buyer & seller up to the 4th degree either by affinity (by marriage) or by
consanguinity (by blood)

REQUIREMENT IN APPLYING REFERENCE VALUES WHEN BUYER AND SELLER ARE RELATED
a) Importer must present to customs how buyer and seller organized their relationship; and
b) Importer must show to customs how the invoice price was derived and proved that:
i. the price is the normal industry price
ii. the price is the same to non-related parties
iii. the price represents recovery of all cost plus average profit
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TARM 103: CUSTOMS VALUATION SYSTEM

REFERENCE VALUE AS RISK MANAGEMENT TOOL

(Sec. 3, par. A, CAO 4-2004)
Published or established customs value, or any other value reference for whatever source, cannot be used as substitute
value for customs valuation. However, such value information maybe be used as a risk management tool to establish doubt
or to alert customs to do a value verification check either upfront thru a system created for the purpose or on a post-entry
basis through the Port Entry Audit Infrastructure.

WTO VALUATION AGREEMENT

(Agreement in Implementation of Article VII of the General Agreement on Tariff and Trade 1994)
Article 13:
If, in the course of determining the customs value of imported goods, it becomes necessary to delay the final determination of
such customs value, the importer of the goods shall nevertheless be able to withdraw them from customs if, where so
required, the importer provides sufficient guaranty in the form of a surety, a deposit or some other appropriate instrument,
covering the ultimate payment of customs duties for which the goods may be liable. The legislation of each Member shall
make provision for such circumstances.
BOC initially implemented Article 13 of the WVA by allowing the TENTATIVE RELEASE of goods with valuation issued
under CMO 37-2001. This issuance had now been revied and referred to as release of goods under tentative assessment as
provided for in CAO 02-2020.