IS THE REFERENCE VALUE PRACTICE LEGAL?

The value used to calculate customs duty is known as the “customs value of the goods.” The value of the goods used for taxation purposes, in other words, the customs value of the goods, is the CIF value. The CIF value consists of the sale price of the goods, the freight charges (transportation costs) incurred for transporting the goods to the Turkish customs territory, and the insurance premium paid to cover the risks incurred during the transportation of the goods to the Turkish customs territory.

Valuation Methods

The method for determining the customs value of goods for customs duty purposes is regulated by Article VII of the General Agreement on Tariffs and Trade (GATT) and the Customs Law. According to the GATT Valuation Agreement, the customs value of imported goods is determined using six methods, five of which are primary and one of which is auxiliary. The valuation methods are applied in hierarchical order. In order to proceed to the next method, it must be proven that the previous method is inapplicable. The burden of proof lies with the customs administration. The methods to be applied in order are as follows:

1. Sales price method,

2. Sales price method for identical goods,

3. Sales price method for similar goods,

4. Deduction method based on the sales price of the goods in the importing country,

5. Calculation method based on the production cost of the goods in the exporting country,

6. Flexible use method of all methods in sequence.

The sales price is the price actually paid or payable for goods exported to the importing country, adjusted as necessary. 

The price actually paid or payable is the total payment made or to be made by the buyer to the seller and for the seller's benefit in respect of the imported goods. This payment includes all payments made by the buyer to the seller or by the seller to a real or legal third party as consideration for the sales of the imported goods or as payment for a debt owed by the seller.

Reference Value

The invoice value is used as the basis for determining the customs value of goods; however, in some cases, the prices of products are significantly lower than those of identical and/or similar products, while in other cases, the reference price is determined based on the minimum production costs of the goods to be imported, in line with the request of the domestic producer or main distributor. The reference value implies that a declared value lower than this value raises suspicion that it does not reflect the actual value of the goods and that the accuracy of the value should be investigated. The value determined here is not the value determined by the public authority and used as the basis for calculating the tax; it is only indicative for the purpose of conducting a value investigation.

If there is doubt about the authenticity or accuracy of the declared value, a value investigation may be conducted. As a result of the value investigation, the declared value may be approved or rejected. If the declaration is approved, customs procedures must be completed based on the value determined according to the transaction value method. If the declaration is rejected, other valuation methods must be applied in sequence. 

In products subject to reference pricing, importers sometimes declare values below the prices and show the difference as an expense in the foreign expenses section, thereby preventing customs authorities from conducting a value investigation. Subsequently, it is common for the liable party to seek a refund of the taxes corresponding to the “foreign expenses” difference between the invoice value and the reference value by resorting to legal action.

If a customs value investigation is to be conducted, it should be explained that the declared value cannot be verified and therefore the transaction value method cannot be applied, and that this method must be abandoned. However, if the transaction value method is abandoned, the same goods should be subject to the sales value method. If the customs value cannot be determined according to the sales value method for the same goods, the sales value method for similar goods, the deduction method, and the calculated value method must be applied in sequence. If the value cannot be determined according to the first five methods, the customs value must be determined according to the last method. 

If the valuation of the goods cannot be determined using these methods, an overseas valuation investigation is conducted in the exporter's country, and during this process, taxes related to the difference between the reference value and the imported value are secured by a guarantee.

Value Database

Whenever there is suspicion that the declared value does not reflect the actual value, the customs authority conducts a value investigation. Additionally, for certain types of goods, a value database exists. For these types of goods, instead of individually researching the reference value of the goods, the reference value loaded into the system is used. These data serve as a guide as to whether a detailed examination of the declared value is necessary.

The types of goods loaded into the database in this way are mobile phones and game consoles, based on each brand and model. Since the factory sales prices of these products are reported directly by the manufacturer, it is assumed that the value of the imported goods should not be lower than this value.

As is the case with petrochemical products, stock market prices are sometimes reported by customs authorities as reference values.

Legal Nature of the Reference Value?

According to the Customs Law, minimum customs values, arbitrary values or fictitious values are not taken as a basis for determining customs value. In other words, it is not possible to determine the tax base for the import of goods other than the value paid or payable. Therefore, it is necessary to assess whether the reference value is a means of determining a tax base that does not correspond to the actual price paid.

In the surveillance practice we mentioned in our previous article, the public authority sets a value and requires a surveillance certificate to be obtained for imports below this value. Naturally, imports below the surveillance value are not permitted without a surveillance certificate. In this respect, we can say that the surveillance practice involves a minimum value application, at least to some extent.

In the reference application, there is no requirement to declare a value that forms the basis of the tax base. Therefore, it is not a taxation element, but a control value used to verify the accuracy of the value of the goods. This value is data used to investigate the actual value of the goods, not the tax base. The tax base is determined based on the information and data obtained as a result of the value investigation. The value investigation may result in a different tax base, or it may conclude that the declared base is correct. 

In conclusion, the application of the reference value is considered legal solely because it serves as a control value that may justify the administration's suspicion. However, it is important to emphasize that this assessment does not cover errors made in practice.