Customs valuation: the 6 WTO methods explained (2026)
When customs does not believe your invoice
A UK importer clears a pallet of branded accessories on a $40,000 invoice. A month later, HMRC issues a reassessment: the dutiable value is bumped to $46,000, with duty and import VAT recalculated. What happened? The authority decided the declared price did not reflect the real customs value and added back overlooked elements — international freight, a royalty paid to the brand owner, and free tooling shipped to the supplier.
Customs value is the base for almost everything: customs duty, import VAT or GST, sometimes other levies. Get this base wrong and you get the entire customs bill wrong. Yet few importers realize it follows a precise international framework: the WTO Customs Valuation Agreement (GATT Article VII), transposed everywhere from the United States to the UK and India.
This guide walks through the six valuation methods, what must be added to or removed from the invoiced price, and three worked reassessment examples you can check against your own files.
The WTO framework: six methods, a strict order
The WTO Agreement sets one principle: customs value is determined first on the price actually paid or payable, and customs cannot move to another method unless the previous one is inapplicable. The order is hierarchical, not interchangeable (only methods 4 and 5 may be reversed at the importer's request). In practice, more than 90% of entries rely on the first method.
| Order | Method | Basis | Frequency |
|---|---|---|---|
| 1 | Transaction value | Price actually paid or payable + adjustments | ~ 90–95% |
| 2 | Identical goods | Transaction value of identical goods imported around the same time | Rare |
| 3 | Similar goods | Transaction value of similar goods (same function, interchangeable) | Rare |
| 4 | Deductive value | Resale price in the import market, less margins, costs and duties | Uncommon |
| 5 | Computed value | Cost of production + profit + general expenses of the maker | Very rare |
| 6 | Fall-back | Reasonable means based on available data | Exceptional |
Method 5 (computed value) is powerful in theory but nearly unusable in practice: it requires access to the foreign maker's cost accounting, which is almost always refused. Method 6 is not a free-for-all: it reapplies the principles of the first five with flexibility, and never permits arbitrary values or officially fixed minimum prices.
What gets added, what gets removed
Even when method 1 applies, the invoiced price is only the starting point. WTO Article 8 (and its national equivalents, such as 19 CFR 152.103 in the US) lists the mandatory additions, while a separate list covers what may be deducted if shown distinctly.
| Add (if not already in the price) | Deduct (if separately stated) |
|---|---|
| Selling commissions and brokerage | Buying commissions |
| Cost of containers and packing | Transport after the point of entry |
| Assists: materials, tooling, molds, design supplied free | Assembly, erection, post-import servicing |
| Royalties and license fees (condition of sale) | Financing interest (purchase financing) |
| Freight + insurance to entry (CIF countries: UK, India) | Import duties and taxes |
The costliest trap is assists: if you ship a $6,000 injection mold free to your Chinese supplier, its amortized value must be added back to the customs value of the parts it produces — even though it appears nowhere on the commercial invoice.
CIF or FOB? The base changes by country
Not every country includes international freight in customs value. The US appraises on a basis close to FOB (price actually paid or payable, freight excluded). The UK and India use a CIF basis (cost, insurance, freight to the point of entry), so ocean freight inflates the duty base. On a container where freight is 8% of the goods value, that difference in base translates directly into extra duty — and India historically added a notional landing charge on top, now replaced by actual costs.
Three worked reassessments
Example 1 — US: forgetting an assist
Invoice for parts = $50,000
Free tooling shipped to maker, amortized = $6,000
Customs value = 50,000 + 6,000 = $56,000
Duty at 3.1%: 1,550 → 1,736, i.e. +$186 on this entry, recurring per shipment
The amortized value of buyer-supplied tooling is a mandatory addition. Omitting it understates the base on every shipment that uses the mold, which CBP can claw back across multiple entries.
Example 2 — UK: the missing royalty (CIF base)
Goods (FOB) = $40,000 · Freight + insurance = $2,000
Brand royalty (5%, condition of sale) = $2,000
Customs value (CIF + royalty) = $44,000
Duty at 12%: 4,800 → 5,280, plus import VAT on the higher base
The UK uses a CIF base, so freight is already in; on top, a royalty paid as a condition of sale must be added. Both omissions stack, and the VAT sits on customs value plus duty — so the cost compounds.
Example 3 — India: related parties and deductive value
Intercompany price (parent → subsidiary) = $25/unit, not accepted
Resale price in India = $62/unit
− margin + costs (35%) − duties = ~ $38/unit
Customs value applied (method 4) = ~ $38/unit
Unable to prove the relationship did not influence the $25 intercompany price, the Special Valuation Branch works back from the resale price via the deductive method. The base rises from $25 to $38: a 52% jump in duty.
Compute duties on the right base
The TRADE-COST calculator separates FOB and CIF value and applies the correct duty rate by origin and HS code — so you anticipate the real cost before clearance.
Run calculation →Conclusion: document, do not guess
Customs value is neither your raw invoice nor a figure customs sets at will. It is a structured construction: start from the price paid, add mandatory elements (assists, royalties, freight for CIF countries), remove the distinct ones (buying commissions, inland transport). When in doubt, customs descends the six-method ladder — never at random. Keep invoices, license agreements, freight evidence and, for related-party sales, a comparables study.
To go further: our customs duty calculation method applies this base, our HS code guide fixes the rate, and our piece on clearance fees separates what does and does not enter the dutiable value.
Frequently asked questions
Is the customs value just the price on my invoice?+
Not quite. Customs value starts from the price actually paid or payable (your invoice), but it adds mandatory elements that are not always invoiced: selling commissions, the cost of packing, assists supplied free by the buyer (materials, tooling, design), royalties and license fees paid as a condition of sale, and — for CIF-based countries like the UK or India — international freight and insurance. A $10,000 invoice can therefore produce a $11,500 customs value once these additions are folded in.
Why can customs reject my declared transaction value?+
Authorities can set aside the declared value when they have reasonable doubt: a price abnormally low versus comparable imports, a relationship between buyer and seller that influenced the price, sale conditions that prevent valuation, or missing supporting documents. In the US, CBP will issue a Request for Information (CF 28) before reappraising. A low price is not illegal in itself, but it must be documented and defensible.
Are buying commissions part of the customs value?+
No. Buying commissions — what you pay your own sourcing agent to represent you on the purchase — are expressly excluded from customs value, provided they are invoiced separately and clearly identified as such. Selling commissions (paid to an intermediary acting for the seller) must be included. The distinction is a frequent source of reassessment: state the nature of the commission in writing on a document separate from the goods invoice.
How is a sale between related parties handled?+
A related-party sale (parent and subsidiary, for example) is not automatically rejected. Transaction value stays acceptable if the importer shows the relationship did not influence the price — for instance by proving the price is close to 'test values' (identical transactions between unrelated parties, or deductive/computed values from the same period). Otherwise customs moves to the secondary methods. Plan ahead: keep a transfer-pricing study and comparable data.
Does customs value also drive import VAT or sales tax?+
Yes, it is the starting base. Import VAT (in the UK, EU, India) is generally computed on customs value plus the duty itself plus certain incidental costs to the first place of destination. An error in customs value therefore propagates twice: into the duty and then into the VAT. That is why a valuation reassessment often costs far more than the duty shortfall alone.
Marie Fontaine
Marie leads customs research at TRADE-COST. She spent eight years in tariff classification and post-clearance audits before joining the product team to turn customs expertise into software.
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