DDP and compliance risks in value determination by customers

Against the background of a trade conflict, the conditions under the delivered duty paid (DDP) are being applied more often to avoid customs duty risks and lock in transaction costs. The “DDP delivery method” means that the exporter completes the import customs clearance procedures at the destination designated by the trading parties, and then delivers the goods to the importer. This article analyzes the customs value-determination risks under DDP trade conditions.

Rules of Chinese customs for price-determination of freight: cost, insurance and freight (CIF) and free on board (FOB). Item (2) of the first paragraph of Article 15 of the Measures for the Determination by Customs of the Dutiable Value of Imports and Exports (Order No. 213 of the General Administration of Customs; the “Value Determination Measures”) specifies that the following separately itemized taxes and expenses are not included in the prices of imports: costs of transport, associated expenses and insurance incurred after the goods reach the place of entry into and are landed in China. Item (2) of Article 40 specifies that the following taxes and expenses are not included in the dutiable value of exports: the costs of transport, associated costs and insurance incurred after reaching the point of departure in China and loading, if separately itemized in the price of the goods. The foregoing provisions show that customs’ basis for the determination of the value of imports is the CIF price and for that of exports is the FOB price.

Common errors seen in declarations under DDP. The amount under DDP is usually higher than that for CIF or FOB. Accordingly, many enterprises that use DDP will often extrapolate the CIF or FOB price based on DDP and declare this price to customs. Technically speaking, this is practicable for many enterprises. The author once visited a famous car manufacturer, which demonstrated how a piece of advanced customs declaration software could realize automatic translation between more than 10 trade terms. However, if an enterprise really does proceed in this way, it could incur penalties for violating regulations.

Wang Yongliang is an associate at AllBright Law Offices and is also a lecturer in the Faculty of Law of the Shanghai Customs College

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