Article by: Rick Walker, Vice President, LCB, CCS

International trade involves a complex web of transactions, with various costs and charges associated with moving goods across borders. One crucial aspect is determining the transaction value for customs purposes, which forms the basis for calculating import duties and taxes. Among the factors considered in this valuation is the proper deduction of international freight charges. In this article, we will explore the key principles and guidelines for accurately deducting freight charges to determine the transaction value.

Transaction value is the primary method for determining the customs value of imported goods. It is based on the price paid or payable for the goods when sold for exportation, including all costs incurred until the goods arrive at the port of importation. Certain costs, to the extent to which they are included in the sales price can be deducted from the value. One of the most significant possible deductions is the cost, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the goods from the country of exportation to the place of importation in the United States. Properly deducting these charges from the transaction value is crucial to ensure accurate customs valuation and avoid potential discrepancies or disputes.

Here is what makes this a little tricky……..It has long been Customs position that the amount to be deducted from the price actually paid or payable for international freight, insurance and other costs incident to the international shipment of merchandise are the actual, as opposed to estimated costs. The costs or charges for international freight, insurance, and other costs may be deducted from the price actually paid or payable if they are included in the price actually paid or payable and they meet the relevant legal requirements. The key words here are actual and estimated. It is important to note that Customs doesn’t consider amounts shown on the commercial invoice as proof of costs paid by the shipper. It is not sufficient to simply deduct whatever amount is listed on the commercial invoice for international freight, insurance, and other costs. The deducted amount must be the actual amount of the freight charges, insurance costs, etc. that were paid to the international carrier or other provider of such services.

Customs considers actual costs to constitute those amounts ultimately paid to the international carrier, freight forwarder or other appropriate provider of such services. Commercial documents to and from the service provider such as an invoice or written contract separately listing freight/insurance costs, a freight/insurance bill, a through bill of lading or proof of payment of the freight/insurance charges (i.e., letters of credit, checks, bank statements) are examples of some documents which typically serve as proof of such actual costs. Other types of evidence may be acceptable.

Conclusion: If included in the price actually paid or payable, only the actual cost or charge for freight incident to international shipment are deducted from the price actually paid or payable in determining transaction value. At the risk of repeating ourselves, the amount to be deducted from the price actually paid or payable for freight and other costs incident to the international shipment of merchandise are the actual, as opposed to estimated costs. Finally, it’s important for importers to be able to produce the required documentation and the freight cost information showing the actual costs to support the entered value. This should be part of every importer’s recordkeeping program. Bottom line – if you deduct freight and insurance charges, you need to be able to support the deduction with evidence of payment as listed above.

There is an Informed Compliance Publication on the CBP website (found here) where CBP explains proper freight deductions in full detail.

Please contact your V. Alexander account team, or you may also contact our Trade Compliance team at tradeinsights@valexander.com with any questions.