Legal basis, relationship, and repeals
- Republic Act No. 9135 amends Presidential Decree No. 1464, known as the Tariff and Customs Code of the Philippines, as amended (Customs Code), and authorizes customs valuation implementation through Section 18.
- The Order amends Customs Administrative Order 5-2001.
- The Order expressly aligns valuation principles with the WTO Valuation System, including the rules consistent with GATT 1994 and the implementation of Article VII contained in the Uruguay Round Final Act under Method Six.
Objectives and policy statements
- The Order establishes valuation objectives requiring a fair, uniform and neutral system that precludes arbitrary or fictitious customs values (Section I.A.1).
- The valuation basis should be the transaction value of the goods being valued to the greatest extent possible (Section I.A.2).
- Customs value must be based on simple and equitable criteria consistent with commercial practices, and valuation procedures must be of general application without distinction between sources of supply (Section I.A.3).
- Valuation procedures must not be used to combat dumping (Section I.A.4).
- The Order implements record keeping and post-entry audit systems to facilitate importation while protecting government revenue (Section I.B).
Customs valuation coverage and valuation methods
- The dutiable value of imported goods shall be determined using the six (6) methods listed in Section II, applied sequentially in the order provided by law (Section II.A).
- Method 1 is used as the primary valuation basis through the transaction value method (Section II.B).
- If Method 1 cannot determine dutiable value, the sequence proceeds to Method 2, then Method 3, then Method 4, then Method 5, and finally Method 6 (Section II.B through II.G, and the sequencing language in Section II.D).
- If customs value cannot be determined under the sequential methods, Method Six allows other reasonable means consistent with the WTO valuation principles, using data available in the Philippines (Section II.G).
Method 1: Transaction value rules
- Method 1 defines the dutiable value as the Transaction Value, i.e., the price actually paid or payable for the goods when sold for export to the Philippines, adjusted in accordance with Section II.B.3, subject to conditions in Section II.B.2 (Section II.B.1).
- The Transaction Value method applies only if all conditions in Section II.B.2 are satisfied, including:
- There is a sale for export to the Philippines (Section II.B.2.a).
- There are no restrictions on disposition or use except restrictions imposed or required by law or Philippine authorities, limiting geographical area of resale, or not substantially affecting the value (Section II.B.2.b).
- The sale or price is not subject to conditions/considerations for which value cannot be determined (Section II.B.2.c).
- No part of proceeds of subsequent resale/disposal/use accrues to the seller, unless an appropriate adjustment can be made (Section II.B.2.d).
- Buyer and seller are not related; or if related, the relationship did not influence the price, with further acceptance rules (Section II.B.2.e and Section II.B.2.f).
- The law deems parties related only if one of the enumerated relationship conditions exists, including, among others, ownership/control thresholds of 5% or more of outstanding voting stock/shares (Section II.B.2.e.4) and relationships by affinity or consanguinity up to the fourth civil degree (Section II.B.2.e.8).
- If customs authorities have grounds to consider relationship influenced price, the Bureau must:
- communicate the grounds to the importer;
- give a reasonable opportunity to respond; and
- provide written communication of grounds if the importer requests (Section II.B.2.f last paragraphs).
- Transaction value adjustments must be added to the price actually paid or payable if not already included (Section II.B.3), including:
- commissions and brokerage fees (except buying commissions) (Section II.B.3.a);
- cost of containers treated as one for customs purposes (Section II.B.3.b);
- cost of packing (Section II.B.3.c);
- Assists (value apportioned appropriately), including enumerated assist categories (Section II.B.3.d, including materials/components/parts and engineering/design/plans undertaken elsewhere than in the Philippines);
- royalties and license fees related to the goods (Section II.B.3.e);
- value of any part of proceeds accruing directly or indirectly to the seller (Section II.B.3.f);
- transport to the port of entry in the Philippines (Section II.B.3.g);
- loading/unloading/handling charges from country of export to port of entry (Section II.B.3.h);
- cost of insurance (Section II.B.3.i).
- Transaction value must not include certain charges/costs if distinguished from the price actually paid or payable, including:
- construction/erection/assembly/maintenance/technical assistance undertaken after importation (Section II.B.4.a);
- transport after importation (Section II.B.4.b);
- duties and taxes of the Philippines (Section II.B.4.c);
- other permissible deduction under the WTO Valuation Agreement (Section II.B.4.d).
- The importer must pay the required adjustments for Assists, Royalties/License Fees, and the value of any part of subsequent proceeds accruing to the seller within forty-five (45) days from the date of importation or forty-five (45) days from the time payment has been made (Section II.B.5).
- The law defines Assists as the value apportioned as appropriate of certain goods and services supplied free of charge or at a reduced cost by the buyer for use in production and sale for export of the imported goods, to the extent not incorporated in the price actually paid or payable, and it expressly enumerates the categories of assists (Section II.B.3.d).
Methods 2 and 3: Identical and similar goods
- Method 2 applies when dutiable value cannot be determined under Method 1, using the transaction value of identical goods sold for export to the Philippines and exported at or about the same time, at the same commercial level and in substantially the same quantity (Section II.C.1).
- Identical goods are goods that are the same in all respects, including physical characteristics, quality, and reputation; produced in the same country; and produced by the same producer (Section II.C.2.a).
- Identical goods exclude imports where engineering/development/artwork/design work/plans and sketches are undertaken in the Philippines and provided by the buyer to the producer free of charge or at a reduced cost (Section II.C.2.b).
- If no identical goods produced by the same person are available, identical goods produced by a different person in the same country may be used (Section II.C.2.c).
- Minor differences in appearance do not preclude goods from being regarded as identical (Section II.C.2.d).
- If no sale of identical goods at the same commercial level and substantially the same quantity is found, customs may use identical goods at a different commercial level and/or quantity, but the transaction value must be adjusted up or down for demonstrated differences, including:
- commercial level differences;
- quantity differences; and
- significant differences for transportation costs due to variances in mode and/or distance (Section II.C.3.a–c).
- If more than one transaction value is found under Method 2, the lowest transaction value is used (Section II.C.4).
- Method 3 applies next when dutiable value cannot be determined under the preceding methods, using the transaction value of similar goods sold for export to the Philippines at or about the same time, same commercial level, and substantially the same quantity (Section II.D.1).
- Similar goods are goods that, although not alike in all respects, have like characteristics and like component materials; can perform the same functions; are commercially interchangeable; are produced in the same country; and are produced by the producer of the goods being valued (Section II.D.2.a).
- Similar goods exclude imports where engineering/development/artwork/design work/plans and sketches are undertaken in the Philippines and provided by the buyer to the producer free of charge or at a reduced cost (Section II.D.2.b).
- If no similar goods produced by the same person exist, similar goods produced by a different person in the same country may be used (Section II.D.2.c).
- If no similar goods at the same commercial level and substantially the same quantity are found, customs may use similar goods at different levels/quantities, with required adjustments for demonstrated differences, including commercial level, quantity, and significant transportation-cost differences (Section II.D.3.a–c).
- If more than one transaction value is found under Method 3, the lowest transaction value is used (Section II.D.4).
- If dutiable value still cannot be determined through Methods 2 and 3, the sequence proceeds to Method Four, and then Method Five, subject to a limited importer-request reversal:
- At the importer’s request, the order of application of Method Four and Method Five may be reversed.
- If the Commissioner deems that real difficulties will be experienced in determining dutiable value using Method Five, the Commissioner may refuse the request and dutiable value is determined under Method Four if possible (Section II.D last provisos).
Methods 4, 5, and 6 rules
- Method 4 (Deductive Value) determines dutiable value based on sales in the Philippines of the goods being valued or identical/similar imported goods, less specified expenses from importation and sale (Section II.E.1).
- Deductive sales must meet conditions including:
- sales are of goods sold in the same condition as imported;
- sales take place at or about the time of importation; or if none, sales at the earliest date after importation but before expiration of 90 days;
- if no sales meeting requirements exist, the importer may choose sales after further processing;
- the purchaser must not be related to the importer from whom he buys;
- the Philippine purchaser must not have supplied assists (Section II.E.2.a–g).
- The law defines “at or about the same time” for deductive method as a period extending 45 days prior to and 45 days following the importation of the goods being valued (Section II.E.2.g).
- Deductive value is computed by deducting from the established price per unit the aggregate of:
- commissions generally earned on a unit basis;
- additions usually made for profit and general expenses;
- usual transport, insurance and associated costs within the Philippines; and
- customs duties and other national taxes payable in the Philippines by reason of importation or sale (Section II.E.3.a–d).
- Method 5 (Computed Value) determines dutiable value based on the cost of production of the goods being valued, plus an amount for profit and general expenses usually reflected in sales from the country of export to the Philippines (Section II.F.1).
- The computed value calculation requires:
- determining relevant costs/expenses or value of materials employed and production/processing costs (direct and indirect labor, factory overheads) (Section II.F.2.a);
- adding enumerated items if not included, including containers treated as one with the goods, packing, assists apportioned under generally accepted accounting principles, and engineering/development/artwork/design work/plans and sketches undertaken in the Philippines and charged to the producer (Section II.F.2.b);
- adding profit and general expenses usually reflected in export sales by producers in the country of export (Section II.F.2.c);
- adding transport, insurance, and related charges to the port or place of importation (Section II.F.2.d).
- Method 6 (Fallback Value) applies when dutiable value cannot be determined under any prior methods; it uses other reasonable means consistent with WTO principles and on data available in the Philippines (Section II.G).
- If the importer requests, the Bureau must inform the importer in writing of the dutiable value determined under Method Six and the method used (Section II.G, second paragraph).
- Method Six must not use any of the following bases:
- the selling price in the Philippines of goods produced in the Philippines;
- acceptance of the higher of two alternative values;
- the domestic market price of the country of exportation;
- cost of production other than computed values determined under Method Five;
- the price of goods for export to a country other than the Philippines;
- minimum customs values; or
- arbitrary or fictitious values (Section II.G, prohibitions 1–7).
Handling doubts, release, currency conversion, and appeals
- Inability to accept or doubts over transaction value documents applies to import releasing procedures including tentative release under sufficient guarantee (Section II.H.1).
- When the Bureau cannot accept transaction value or has reason to doubt the truth or accuracy of the particulars or supporting documents, it must:
- notify the importer and give an opportunity for further explanation;
- communicate grounds in writing if the importer requests; and
- provide a reasonable opportunity to respond (Section II.H.2).
- If doubts remain after further information, or if there is no response, it is deemed that customs value cannot be determined under Method One, and customs proceeds sequentially to alternative methods under the law (Section II.H.3).
- Upon written request, the importer has a right to a written explanation of how customs value was determined, and once a final decision is made, the Bureau must communicate the decision and grounds in writing (Section II.H.4).
- This procedure is without prejudice to an importer’s right to appeal pursuant to Article 11 of the WTO Agreement on Customs Valuation (Section II.H.5).
- Published or established customs value or any other value reference cannot substitute for customs valuation; however, such value information may be used as a risk management tool to establish doubt or alert customs to do a value verification check upfront through a system or through post-entry audit (Section III.A).
- For currency conversion, the exchange rate must be that duly published by the Bangko Sentral ng Pilipinas and must reflect as effectively as possible the current value of the currency in commercial transactions in terms of the currency of the Philippines (Section III.B).
- The conversion rate is that in effect as provided for in Customs Memorandum Order No. 24-95 (Section III.B, last sentence).
- Release under sufficient guarantee is allowed only when delay will necessarily ensue in the final determination of dutiable value, subject to:
- payment of duties and taxes due based on the declaration; and
- posting a sufficient guarantee determined by the Commissioner in an amount equivalent to the additional duties and taxes due, computed by customs using the alternative methods sequentially and in order of succession, and approved by the Collector of Customs concerned (Section III.C.1–2).
- Goods whose importation is prohibited by law cannot be released under any circumstance (Section III.C, proviso).
- If the importer is not satisfied with the dutiable value, the importer must file an appeal in the form of a formal protest pursuant to Section 2308 of the Customs Code within fifteen (15) days from the date additional duties and taxes are paid or collected from the guaranty posted, and upon payment of the appropriate docket fee required under existing regulations (Section III.D).
- Liquidation of an import entry is final and conclusive after three (3) years from the date of final payment of duties due, except where any of the listed exceptions apply (Section III.E):
- fraud as defined in Section VI.C.1.c;
- a protest has been filed under Section 2308 of the Customs Code;
- selection for post audit within the three-year period with possible completion beyond that period; or
- liquidation was merely tentative (Section III.E.1–4).
Recordkeeping and compliance audit powers
- Importers must keep records at their principal place of business for three (3) years from the date of filing of the import entry, covering:
- all records of importations/books of accounts/business/computer systems and all other customs commercial data in any form, including payment records relevant to verification of transaction value accuracy (Section IV.A.1.a).
- “Importer” includes the importer of record/consignee, beneficial owner, agent of the persons effecting importation, or any other person/entity who knowingly causes the goods to be imported (Section IV.A.1.b).
- “Knowingly causes the goods to be imported” covers scenarios where terms and conditions are controlled by the person placing the order with the importer, and scenarios where technical data, molds, equipment, production assistance, or components/parts are furnished with knowledge they will be used in manufacturing imported goods (Section IV.A.1.b, examples).
- Required importer records include (to the extent relevant for verification of transaction value accuracy and collection of proper duties/taxes), including:
- company/entity structure documents (e.g., articles of incorporation/partnership, registration certificates, incorporators/stockholders/partners, organizational structure, management/key personnel with authorized declarants and specimen signatures, capital composition, principals/subsidiaries, and list of related exporter/suppliers) (Section IV.A.2.a);
- ordering and purchase documentation including sales agreements and communications (e.g., distribution, royalty, agency, warranty, terms of payment; purchase orders, vouchers, proforma invoices, and acknowledgments; product descriptions/specifications) (Section IV.A.2.b);
- shipping/import/export/transportation documentation including entries, invoices/consignment notes, licenses/permits, bills of lading/air waybills, certificates of origin/eligibility/inspection/loading, freight and insurance contracts, packing lists, transshipment permits/boatnotes/special permits, quota and certificates, brokerage agreements/accounting, arrastre/storage receipts, short shipped/bad order reports, tally records, letters of credit applications, remittance advice, credit card transactions, telegraphic transfers, offshore monetary transactions, and evidence of non-cash compensation transactions (Section IV.A.2.c);
- manufacturing/stock/resale documentation including inward goods registers, stock register/inventory records, production records, and costing records and sales records (Section IV.A.2.d);
- bank documents/financial statements/accounting information including receipts/cashbooks, schedules of payables/receivables, and cheque records (Section IV.A.2.e);
- accounting instruction manuals and system documentation describing the accounting system used, where relevant (Section IV.A.2.f);
- records stored on devices/media such as discs/films/tapes/sound tracks and other storage devices (Section IV.A.2.g).
- Customs brokers must keep copies of importation records for transactions they handle for three (3) years from the date of importation, including the covered items enumerated in Section IV.A.2.c (items 1 to 13) (Section IV.A.3).
- The Bureau of Customs keeps audit-result records in a database of importer and broker profiles including articles of incorporation, company structure (incorporators/board, key officers, organizational structure), key importations, privileges, penalties, and risk category/categories (Section IV.A.4).
- Foreign-language documents submitted for customs purposes must be accompanied by a translation in English or Filipino, certified correct under oath by the translator (Section IV.A.5).
- Compliance audit requires importers/customs brokers to allow any authorized customs officer to enter premises during office hours to audit examination/inspection/verification/investigation of:
- document flow;
- financial flow;
- goods inventory; and
- other business processes,
to determine adequacy and integrity of manual/electronic record systems and ensure compliance relating to customs valuation, tariff classification, and country of origin (Section IV.B.1).
- The authorized customs officer may require the importer and/or broker to make certified copies of documents or extracts (Section IV.B.2).
- A certified copy of a document by or on behalf of importer/broker is admissible in evidence in all courts as if it were the original (Section IV.B.3).
- An authorized customs officer must produce, before entry:
- a duplicate original of the AUDIT NOTIFICATION LETTER (ANL) issued by the Commissioner addressed to importer/broker; and
- an official Customs identification card (Section IV.B.4).
- The person in charge must provide reasonable facilities and assistance to enable effective exercise of powers (Section IV.B.4 last sentence).
- No audit may commence without issuance of an ANL by the Commissioner of Customs (Section IV.B.5).
- If there is disobedience, customs may invoke the aid of the proper regional trial court; the court may punish contumacy or refusal as contempt (Section IV.B.6).
- Denial of full and free access during post-entry audit creates a presumption of inaccuracy in the transaction value declared and constitutes grounds for re-assessment using alternative valuation methods as applicable (Section IV.B.6, last sentence).
- Refusal or denial is without prejudice to criminal sanctions and administrative sanctions, including authority to hold delivery or release of imported articles (Section IV.B.7).
- Compliance audits of importers are undertaken when:
- firms are selected by a computer-aided risk management system using parameters based on objective and quantifiable data including revenue magnitude, import duty rates, compliance track record, and risk to revenue (Section IV.C.1.a);
- errors in the import declaration are detected that would cause substantial revenue loss or grave distortion of relevant statistical data (Section IV.C.1.b);
- firms voluntarily request audit subject to Commissioner approval (Section IV.C.1.c).
- Brokers are audited only to validate audits of importer clients and/or fill in information gaps revealed during importer audits (Section IV.C.2).
- The Commissioner prepares compliance audit guidelines/manual to govern audit system and procedure, covering at least profiling/information analysis, audit notification, audit preparation/audit plan, pre-audit conference, audit proper, exit conference, audit reporting, and audit monitoring (Section IV.D.1).
- The audit may be staged or varied in scope; initially the importer provides documents enumerated in Section IV.A.2(a), (b), and (c), and the audit may be expanded to include Section IV.A.2(d), (e), (f), and (g) (Section IV.D.2).
- Nothing restricts the Bureau’s authority to satisfy itself as to truth/accuracy of statements/documents/declarations for customs valuation purposes to collect proper duties and taxes (Section IV.D.3).
Compulsory acquisition of undervalued goods
- To protect government revenue against undervaluation of goods subject to ad valorem duty, the Commissioner may acquire grossly undervalued goods for a price equal to:
- declared Customs value; plus
- any duties already paid on the goods (Section V, first paragraph).
- Payment for acquired goods must be made within ten (10) working days from issuance of a warrant signed by the Commissioner (Section V, first paragraph).
- “Gross undervaluation” exists when the discrepancy between declared Customs value and sequentially applied test values under Section II.B paragraph f.2.1 to iii is two hundred percent (200%) or higher, computed by the provided formula (Section V, gross undervaluation definition).
- “Gross undervaluation” also requires that the importer fails to satisfactorily explain or justify the difference as resulting from an arms length transaction (Section V, formula context).
- An importer dissatisfied with the Commissioner’s decision under this Section may appeal within twenty (20) working days from notice of the decision to the Secretary of Finance, and thereafter to the Court of Tax Appeals as provided in Section 2402 of the Customs Code (Section V, appeal procedure).
- If no appeal is filed, or if the Commissioner’s decision is reaffirmed during appeals, customs or its agent shall sell the acquired goods pursuant to existing laws and regulations (Section V, sale clause).
- The Commissioner’s right under this Section is without prejudice to other BOC powers on disposition and any liability of the importer or other person for offenses committed in importation (Section V, last paragraph).
Administrative and criminal offenses and penalties
- Failure to keep records required under Section IV.A subjects the offender to:
- an administrative fine equivalent to twenty percent (20%) ad valorem on the article/s for which no records were kept, under Section 2504 of the Customs Code (Section VI.A.1);
- hold delivery or release of subsequent imported articles to answer for the fine and any revised assessment, and as a penalty for failure to keep records, with the Commissioner signing the order after proper hearing (Section VI.A.2);
- criminal prosecution punishable with a fine of not less than PHP 100,000.00 but not more than PHP 200,000.00 and/or imprisonment of not less than two (2) years and one (1) day but not more than six (6) years (Section VI.A.3).
- Failure and/or refusal to give full and free access to authorized officers under Section IV.B subjects the importer and/or broker to:
- punishment for contempt for contumacy/refusal by the proper court with criminal jurisdiction (Section VI.B.1);
- re-assessment applying the correct valuation method using available data, with declared transaction value presumed inaccurate (Section VI.B.2);
- an administrative fine equivalent to twenty percent (20%) ad valorem on article/s for which no records were kept, as in Section 2504 of the Customs Code (Section VI.B.3);
- hold delivery or release of subsequent imported articles to answer for the fine and revised assessment, and as penalty for failure/refusal, with Commissioner signing after proper hearing (Section VI.B.4);
- criminal prosecution punishable with fine of not less than PHP 100,000.00 but not more than PHP 200,000.00 and/or imprisonment of not less than two (2) years and one (1) day but not more than six (6) years