Import Entries: A framework for declaring and adjusting the value of goods NOT GOVERNMENT POLICY Feedback from submitters Customs should issue valuation rulings to give importers certainty about the correct methodology to value goods There should be acknowledgment in guidance or legislation that Advance Pricing Agreements (between IRD and businesses) are taken into account when Customs considers whether the relationship between related parties has influenced the price of goods There needs to be a framework to allow adjustments to the value declared on import entries to allow for transfer pricing adjustments The Uplift Programme works well but there needs to be more transparency, certainty, and consistency. Current system and issues The Legislation: Doesn’t clearly allow for a provisional value to be declared on a standard import entry No explicit framework for adjustments to value Sets out when an administrative penalties will not apply to voluntary disclosures The Uplift Programme: Treats adjustments as voluntary disclosures Allows adjustments to value due to transfer pricing, royalty payments, or the use of the deductive method to value goods From 1 July 2014-mid June 2015 under the Uplift Programme 79 companies made valuation adjustments that affected the value declared on import entries during the year. Why are adjustments required? Transfer pricing: Transfer pricing adjustments are common features of pricing strategies by multinational enterprises (MNEs). Under an Advance Pricing Agreement, Inland Revenue and an MNE will come to agreed methodologies for the treatment of transactions between related parties. Adjustments to the Customs value of goods may need to occur on a quarterly or annual basis for an MNE to achieve an ‘arms length price’, required by Inland Revenue and OECD. Royalty payments: Can be determined as a percentage of the value of the goods when sold in NZ. This value may not be known at the time an import entry is required. Deductive Value Method: The price of goods sold in NZ after importation. Many importers using this method will declare an estimate on an import entry because the resale of the goods may not have occurred at the time an import entry is required. The importer may need to make an adjustment to the declared value. Objective: The Act takes modern business practice and the realities of trade into account, while balancing the need for Customs to obtain accurate valuation information for revenue, risk management, and statistical purposes. Proposed Changes Import entry is submitted ahead of arrival of goods Final or provisional values can be declared on an import entry Provisional values can only be declared by importers that meet prescribed criteria An adjustment to value must be made by an importer within 30 days of becoming aware of the final value Requirement for importer to confirm the provisional value within a specific timeframe. Valuation rulings Time Border Final value Provisional value can be declared * No errors or omissions Error or omission identified The final or provisional value must be: reasonable having regard to the information available when the entry is made determined in accordance with the World Trade Organization’s Customs Valuation Agreement No adjustment Adjustment No action required Importer must confirm the value within a specific timeframe Importer makes re- assessment within 30 days of becoming aware of the final value * The importer must meet prescribed criteria (to be determined). For example, an importer must: have a valid Advance Pricing Agreement with Inland Revenue, or be a recognised trusted importer, or be on a deferred payment scheme with Customs. Key: Current and not changing Customs Policy Group proposed changes Will provide certainty for importers about the correct methodology to value goods. Customs cannot increase value after 4 years unless entry was fraudulent or wilfully misleading Customs can decrease value, but application must be within 4 years 4 years from original import entry 30 days Becomes aware Re-assessment required Many countries report that the Transaction Value Method is used in 90 – 95% of importations. Advance Pricing Agreements Taken into account by Customs on a case-by- case basis. Required disclosure Voluntary disclosure Under the current Act, an importer is not liable to a penalty if the error or omission is voluntarily disclosed before Customs notified the importer: that the goods have been selected for examination asking for documentation in relation to that entry that Customs intends to conduct an audit or investigation which covers that entry Error or omission identified Final value System A3 number 4 NOT GOVERNMENT POLICY