July 1998

by Alexander Bychkov

Customs valuation is one of the key steps in clearing goods through customs in any country. In the Russian Federation, Russian laws and regulations define a valuation methodology similar--but not identical--to that used in many other countries. While valuation itself is best carried out by customs agents, freight forwarders, and other logistics professionals, a general knowledge of how these laws and regulations are applied is important for any U.S. company exporting to Russia.

The Russian Federation law "On Customs Tariff" stipulates six methods for determining the customs value of imported goods, each of which uses a different basis for valuation:
1.) value of the transaction (contract amount);
2.) value of transactions with identical goods;
3.) value of transactions with similar goods;
4.) value subtraction;
5.) value addition; or
6.) reserve method.

The Contract Method
The Contract Method (Method One, above) is the principal method of valuation and defines the customs value of imported goods according to the value of the relevant import contract. Other methods can be applied only if Method One cannot. Included in the valuation under this method are any royalties or similar payments (see below).

The Contract Method calculates the value of imported goods as the goods' contractual value, plus the following costs (unless already included in the contract value): transportation to the port of entry into Russia (border, seaport, airport, etc.); transshipment of goods; insurance; all other importer's costs directly related to the transaction; license and other fees; direct or indirect income to the exporter from future resale of the goods.

Other Methods
In cases where the Contract Method is not practical, the customs authorities can apply Method Two, which defines the customs value of the imported goods based on the customs value of the same goods imported into Russia by another company under the same conditions (same country of origin, means of transportation, terms of delivery, etc.). If this approach is not practical, either, the customs authorities can try Method Three, which defines the customs value using information the customs authorities may already have on importation of goods they consider similar to the goods to be cleared.

If information on similar goods is not available, the customs authorities may apply the subtraction method, Method Four. Using Method Four, the customs authorities take the price of the same or similar goods sold on the Russian domestic market within 90 days as of being imported into Russia and extract from that the domestic price distributors' markup, the customs duty paid, and the cost of transportation inside Russia.
Method Five, the value addition method, is based on: the sum of expenses incurred by the foreign seller to produce or purchase this type of product; expenses normally incurred by the foreign seller in exporting the goods to Russia, including transportation to the Russian border, insurance, transshipment, and related costs; and the amount of profit the foreign seller could normally expect to receive for exporting such goods to Russia. Documentation disclosing this cost information must be provided to the Russian Customs authorities by the importer if the value addition method is used.

The Reserve Method (Method Six) can only be used if none of the other methods can be applied. This method allows the customs authorities to define the customs value of the imported goods by taking into account "international practice." The State Customs Committee defines "international practice" as a combination of criteria used in methods one through five, or pricing information from independent international price catalogues (such as Eurotax, OTTO, etc.). The following prices cannot be used to calculate customs value under the reserve method: the price of the goods on the Russian market; the price of the goods exported from the country of origin to a third country; the price of similar Russian goods in Russia; an average price for a group of goods, or a price without a documentary confirmation. Also, when applying the reserve method, the customs authorities must consider the specific circumstances of delivery and the relevant contract provisions which may influence the price of the imported goods (terms and method of payment, amount of the delivery, obligations of the parties, condition of the goods, etc.).

If the customs authorities decide that the customs value of imported goods declared by the importer is too low, they can calculate the amount of import customs duty themselves using the price for the same or similar goods stated in one of the international price catalogues recognized by Russian customs. There is no precise definition for the term "too low," and its meaning is entirely up to the discretion of the individual customs officer. In practice, however, the customs authorities regard as "low" a price that is more than 30 percent below the average market price on the same product.

Alexander Bychkov is an attorney with Baker & McKenzie in Moscow.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)