Customs Valuation Adjustments (Royalties, Assists, etc.)

Beyond the transaction value, customs authorities may require valuation adjustments to reflect the true cost of imported goods. Such adjustments are mandatory additions to the price, required to reflect additional costs that influence the transaction value - such as shipping, handling, or other costs associated with the transaction that must be included in the customs valuation. For an overview of the six customs valuation methods, see our guide on Customs Valuation Methods in the Philippines.

‍

Importers must disclose these elements to avoid penalties and confirm compliance with customs regulations. Failure to declare these adjustments can result in findings during a Post-Clearance Audit.

‍

Common Customs Valuation Adjustments

These mandatory additions apply if conditions are met, commonly remembered as CARP-PIT-LUH:

1. C - Commissions and brokerage fees (except buying commissions)
2. A - Assists
3. R - Royalties and fees
4. P - Packing and Container Costs
5. P - Proceeds
6. I - Insurance
7. T - Transport Cost
8. LUH - Loading, unloading and handling associated with transport cost of goods

‍

1. Commissions and Brokerage Fees

Selling commission paid by the seller to his agent in the promotion and sale of his products. Examples include indentor's commission (paid to a person who finds buyers), selling agent's commission (paid to a person helping to sell the goods), and manufacturer's representative commission (paid to someone representing the manufacturer). Brokerage fees are commissions paid to a broker who helps arrange a deal between a seller and a buyer. The seller, buyer, or both can pay the broker's commission.

‍

2. Assists

"Assists" refer to goods or services supplied by the buyer free of charge or at reduced cost to help manufacture imported goods abroad. These may include:

• Materials, components, parts and similar items incorporated in the imported goods. Example: If the buyer sends the seller certain parts to assemble into a machine, the cost of those parts must be added to the total value of the machine for customs.
• Tools, dies, moulds and similar items used in the production of the imported goods. Example: If the buyer provides a specific mold to make a product, the value of that mold must be added to the customs value.
• Materials consumed in the production of the imported goods. Example: If the buyer provides chemicals or materials that are used up during manufacturing, their value should be included in the customs value.
• Engineering or design work done outside the Philippines and development costs necessary for production. Example: If the buyer commissions engineers in another country to create product specifications or design blueprints, the cost of these services is considered an "assist."

‍

3. Royalties and License Fees

Royalties or license fees paid by the importer for rights related to the goods, such as patents, trademarks, or copyrights, must be added to customs value when they are related to the imported goods AND payment is a condition of sale of the goods.

Condition of Sale: The royalty or license fee must be a condition of the sale of the goods. If the royalty or fee is not a condition for purchasing the goods, it is not added to the customs value. For example, royalties paid only for reselling a product in the Philippines (and not tied to the actual importation) are not added.

‍

4. Packing Costs

Cost of Packing (Labor or Materials): Any cost associated with packing the goods is added to the customs value. This includes the cost of materials like boxes or bubble wrap, and the cost of labor for packing the goods.

Cost of Containers: When containers used to hold or transport the goods are considered an essential part of the goods themselves, the cost of the container is included in the customs value. Example: If you import a machine in a wooden crate, the cost of the crate is added to the value of the machine.

‍

5. Proceeds of Subsequent Resale

The value of any part of the proceeds of any subsequent resale, disposal, or use of the imported goods that accrues directly or indirectly to the seller must be added. Example: When a contract of sale states that a certain percentage of the sales proceeds is remitted to the seller. Note that the amount must be known at the time of importation. If not known, the use of Method One (transaction value) is not allowed.

‍

6. Insurance

This covers insurance from port of loading to port of discharge, and inland insurance at the country of exportation - insurance for goods while being moved within the exporting country, such as from a warehouse to the port, before the goods are exported internationally.

‍

7. Transport Cost

The cost of transportation of the imported goods from the port of exportation to the port of entry in the Philippines. This includes charges such as trucking (inland freight), rail freight, ocean freight, air freight, barge or lighterage, and postal costs.

‍

8. Loading, Unloading and Handling

These include the movement of goods onto or from any conveyance, preparation of manifests, B/L or AWB, obtaining any export license, and any other shipping arrangement. All these charges must be associated with the transportation of the goods before the vessel reaches the port of importation.

‍

Why These Adjustments Matter

Failure to declare royalties, assists, or other related charges may result in:

• Deficiency duties and taxes
• Administrative penalties - see our guide on Penalties and Seizures in Philippine Customs
• Delays in cargo release
• Post Clearance Audit findings
• Possible seizure cases for fraud or misdeclaration

‍

Best Practices for Importers

• Maintain proper documentation by keeping important copies of invoices, payment records, and other evidence. These are relevant for the verification of the accuracy of the transaction value declared during post-clearance audits.
• Conduct internal valuation review before importation to verify whether side payments or non-invoiced costs should be declared.
• Seek expert advice from a Licensed Customs Broker.