I received a discount on the invoice price of imported machinery from the seller, on the condition that I pay third-party damages instead. Can the customs dutiable value be declared at this discounted price? Released

The determination of the customs value of imported goods is very important as it serves as the basis for calculating taxes, including customs duties and value-added tax imposed upon import. Especially when the payment method with the seller is not typical, as in your case, it is crucial to clearly understand the principles of customs valuation under the Customs Act.

Article 30 of the Customs Act stipulates that the customs value of imported goods shall, in principle, be the 'transaction value'. This transaction value is based on "the price actually paid or payable by the buyer for the goods sold for export to Korea (hereinafter referred to as 'price actually paid or payable')", and is calculated by adjusting the additions prescribed by law.

The core lies in the scope of this 'price actually paid or payable'. The price actually paid or payable does not simply mean the amount stated on the invoice or the amount directly remitted by the buyer to the seller. It refers to the total amount paid or payable by the buyer as consideration for the imported goods, and includes not only direct payments but also indirect payments. Representative examples of indirect payments include amounts offset by the buyer against the consideration for the imported goods and the seller's debt, or amounts paid by the buyer to a third party on behalf of the seller.

Let's look at your case. Although the original sales price for one machine was $3,500, you agreed to pay $500 in damages that the seller owed to a third party (Company J) on behalf of the seller, and in return, adjusted the import invoice price to $3,000. Here, your act of paying $500 to Company J constitutes your repayment of a debt that the seller was obligated to bear.

Therefore, although this $500 was not paid directly to the seller, it is considered an amount indirectly paid for the seller as consideration for the imported goods. This will form part of the price actually paid or payable under the Customs Act. Consequently, the total amount of $3,500, which is the invoice price of $3,000 plus the $500 in damages you paid on behalf of the seller, becomes the price actually paid or payable, forming the basis of the customs value for the imported goods.

In conclusion, you cannot declare the customs value of imported goods based on the discounted invoice price of $3,000, which was a condition for you to pay third-party damages to the seller. In accordance with the principles of the Customs Act, you must determine and declare the customs value based on the total amount of $3,500, which is the total amount directly or indirectly paid or payable by the actual buyer for the goods.

If you declare imported goods at an amount lower than the price actually paid or payable, the fact of under-declaration may be revealed during a subsequent customs audit or investigation. Consequently, not only will additional taxes be assessed for the deficient amount, but surcharges may also be imposed. In complex transaction relationships, consulting with a customs broker, who is an expert, to accurately calculate and declare the customs value is always the safest and most appropriate method.