The current decisions of the Court of Justice of the European Union and the Czech courts bring several important conclusions for companies importing goods from third countries. In particular, they point to the risks associated with the determination of the customs value and origin of goods, i.e. areas that may lead to additional assessment of customs duties, VAT and related sanctions.
Three areas to watch out for
Although the following decisions concern different areas of customs law, they share one common motive. Courts and customs administration are increasingly emphasizing the real economic content of transactions and the ability of entrepreneurs to substantiate their claims. Just as important as a correct legal assessment is to have sufficient evidence to support your claims.
1. Customs value: alternative methods cannot always be used
In international trade, it is not uncommon for the final price of goods to depend, for example, on the quality of the goods supplied, the development of commodity prices or other variable factors. The CJEU has now clarified when the standard method of customs valuation can be used in these cases as well.
Before customs duties and VAT are assessed when importing goods, it is necessary to determine the so-called customs value, i.e. the amount from which customs duties and VAT are calculated. According to the Customs Code, customs value is the price that has actually been or is to be paid for goods – this is called the “transfer value method”. Although it is the basic method of determining the customs value, it cannot always be used, for example when the customs value cannot be determined at all. In Case 2025 C-782/23, the CJEU dealt with the case of a Lithuanian company that used an alternative method instead of the transfer value method because it claimed that the price of the goods could not be determined in its case. However, the CJEU concluded that the variable part of the price could be ascertained at the time of importation because it depended on objective, predetermined factors independent of the will of the contracting parties. Therefore, the company should have used the transfer value method.
Companies importing goods from third countries should therefore verify whether the customs value can be determined on the basis of objective factors. If yes, the conversion value method must be used to determine the customs value. In this case, it is advisable to use the so-called simplified customs declaration. The simplified declaration may indicate the customs value corresponding to the provisional price indicated on the proforma invoice and then submit a supplementary customs declaration indicating the customs value corresponding to the final price indicated on the final invoice.
2. Which price is decisive for multiple follow-up sales?
The determination of customs value was a topic that the CJEU also addressed in its next decision in Case 2025 C-500/24. The Spanish company was part of a retail chain in which a Swiss company bought clothes from China and then sold them to a Spanish company without the clothing being physically located in Switzerland. The question was which of the prices in the retail chain should be decisive for the purposes of determining the customs value.
The CJEU confirmed that the price of the last sale, on the basis of which the goods are imported into the European Union and released for free circulation, is decisive for determining the customs value.
Therefore, if you import goods that have been sold several times in a retail chain before entering the EU, it is advisable to first check which specific sale was the “last” sale on the basis of which the goods enter free circulation in the EU. It is the purchase price from this last sale that should determine the customs value stated in the customs declaration.
3. Beware of formal transfers of production: insignificant processing will not change the origin of the goods
When importing goods from third countries into the EU, it is important to determine the correct customs value, but also to correctly classify the goods according to the customs tariff. In its judgment No. 2 Afs 25/2024–42, the SAC dealt with a situation where a company declared India as the country of origin where they were processed when the tubes were released for free circulation. However, the Customs Administration concluded that the tubes were already produced as a finished product in the People’s Republic of China and that the Indian processing did not substantially change their character, and therefore assessed the anti-dumping duty. The Supreme Administrative Court upheld this view, as it considered that a substantial economically justified change had already occurred in the production of pipes in China, whereas subsequent dimensional adjustments in India did not constitute such a significant intervention as to lead to a change in their Chinese origin.
If the product is processed in more than one country, we recommend verifying whether the last manufacturing operation actually constitutes substantial economically justified processing under the rules of non-preferential origin applied in the EU.
Our recommendations
Therefore, we recommend that companies involved in international trade regularly review the settings of processes for determining the customs value and origin of goods, and at the same time ensure sufficient documentation to support the chosen procedure. In practice, the lack of evidence is one of the most common reasons for customs disputes.
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