MODULE #5

METHODS OF VALUATION
(METHOD 1-6)

MODULE INTRODUCTION
This module contains discussion on Customs Valuation particularly on methods used in
computing for the dutiable value of imported goods. Detailed discussion on the primary
method (transaction value) and alternative methods (TV of Identical Goods, TV of
Similar Goods, Deductive Value, Computed Value & Fallback Value) is also in this
module.

INTENDED LEARNING OUTCOME:

At the end of the module, the students should be able to:
o Discuss what customs valuation and its significance to the computation of
duties and taxes of imported goods.
o Discuss and understand the concept of the primary method of valuation.
o Differentiate the 5 alternative methods in computing for the dutiable value.
o Discuss and analyze situational problems where these methods are
applicable.

CUSTOMS VALUATION
(METHODS OF VALUATION)

*6 Valuation Methods

Method 1: Transaction Value

Method 2: Transaction Value of Identical Goods
Method 3: Transaction Value of Similar Goods
Method 4: Deductive Value
Method 5: Computed Value
Method 6: Fall back Value

*General Principles
1. The methods of valuation are set out in a sequential order of application. The
primary method for customs valuation is the Transaction Value and imported goods
are to be valued in accordance with the provisions of this method whenever the
conditions prescribed for its use are fulfilled.
2. Where the dutiable value cannot be determined under the Transaction Value
method, it is to be determined by proceeding sequentially through the succeeding
methods to the first method such as Methods 2 to 6, it is only when the dutiable value
can be determined under the provisions of a particular method that the provisions of
the next method in the sequence can be used.
3. However, the order of application of Methods 4 and 5 may be reversed. But it can
only be allowed upon the request of the importer subject to the approval of the
Commissioner of Customs taking into consideration that the reversal of the
sequential order will not give rise to real difficulties for the Bureau of Customs in
determining the dutiable value under Method 5.

*METHOD I- TRANSACTION VALUE*

*Formula= PAPP +MA/-PD

PAPP with Adjustment + Mandatory Addition

- Permissible Deduction
*PAPP
 PAPP is the acronym for Price Actually Paid or Payable for the goods when
sold for export to the Philippines. It is the total payment made or to be made by
the buyer to or for the benefit of the seller for the imported goods. In short, PAPP
is the amount incurred in the INCOTERMS used in the transaction.
 Payment may be made in cash, letters of credit or negotiable instrument. The
buyer can also pay directly or indirectly to the seller. An example of indirect
payment is the settlement by the buyer of the debt owed by the seller.

*Sale
 Remember the PAPP is for the goods when sold for export to the Philippines. It
means there should be a sale for export to our country in order to use the
Method 1 in determining the dutiable value of the goods
 A sale exists if any of these following descriptions are met:
1. There is a commercial operation which involves a buyer and a seller
2. The buyer agrees to obtain certain commodities
3. There is an exchange of ownership of the goods at a time and for a price
or other consideration
4. A compensation was given in exchange for the transfer of ownership and
acquisition of goods
5. Both parties acknowledge that the transaction constitutes a commercial
operation.

*No Sale
How to determine if there is no sale?
 There is no sale if no commercial operations exist. Goods that might be
considered not subject to a sale include among others the following:
Goods not subject to a sale
1. Free consignment like gifts,
samples and promotional items.
2. Goods imported on consignment
3. Goods imported by
intermediaries, who do not purchase
the goods and who sell them after
importation.
4. Goods imported by branch offices
which are not separate legal entities.
5. Goods imported under a hire or
leasing contract.
6. Goods supplied on loan, which
remains the property of the seller.
Reason/s
Since there is no payment made,
there’s no commercial operation as
well.
These are imported goods to be
paid only if such goods are sold in
the Philippines. Here, there’s no
assurance of payment, hence
commercial operation is not
guaranteed.
Because they are just the
intermediaries or middlemen, they
are not the actual buyer, which
means there is no commercial
operation between the buyer and
the seller.
Since the transaction happened
between companies of the same
ownership which means there’s no
payment happened, hence, no
commercial operations exist
For the reason that there’s no actual
transfer of ownership, then there’s
no commercial operation
Since there is no transfer of
ownership, commercial operation
does not exist.
*Sale for Export
 Remember the PAPP is for the goods when sold for export to the Philippines. It
means there should be a sale for export to our country in order to use the
Method 1 in determining the dutiable value of the goods

How can we say that there’s a “sale for export”?

 Sale for export pertains that only transactions involving an actual international
transfer of goods may be used in valuing merchandise under the Transaction
Value Method.
 In a series of sales situation, the Price Actually Paid or Payable for the imported
goods when sold for export to the Philippines is the price paid in the last sale,
occurring prior to the introduction of the goods into the Philippines.
o For example, merchandise originating from America was sold for export to
France, then is sold for export to Singapore, then finally sold for export to
the Philippines. Here, the invoice and other documents of the goods from
Singapore sold for export to the Philippines shall be the basis of the PAPP
of the imported goods.

*Adjustment
 The adjustment in the PAPP pertains to mandatory addition and/ or
permissible deduction.

Mandatory Addition
 In mandatory addition, add fees or expenses incurred in the imported goods
which are not included in the price actually paid or payable shall be added to the
PAPP, to the extent that they are incurred by the buyer, provided there is
objective and quantifiable data to form the basis of the adjustment.
 Such fees and expenses to be added can be easily remembered through the
acronym – CARPPIT
o C –Commissions and Brokerage Fees
o A – Assists
o R – Royalties and License Fees
o P – Packing and cost of container
o P – Proceeds
o I – Insurance
o T –Transport Cost

C – Commissions and Brokerage Fees

o Commission is the selling commission paid by the seller to his agent in
the promotion and sale of his products. It may take in the form of
inventor’s commission, selling agent’s commission, or manufacturer
representative commission.
 For example, a seller in Singapore hires a Filipino agent for the
promotion of his products in the Philippines. The selling
commission paid by the seller in Singapore to his agent in our
country shall be added in the price actually paid or payable.
o Commission excludes buying commission or those fees paid by an
importer to importer’s agent for the service of representing him abroad in
the purchase of the goods being valued. For the reason that buying
commission does not relate to imported goods, thus, it shall not be part of
the dutiable value.
o Brokerage fee is the commission paid by the broker who arranges the
transaction between a seller and a buyer. Such may be paid at the
 discretion of both parties. It can be by the buyer or by the seller, or both of
them.
o Brokerage fee is not the custom’s broker’s professional fees in customs
clearance paid by the importer as it is considered as Post Importation
Charges.

A – Assists
o Assist is defined as the value, apportioned as appropriate of certain goods
and service supplied directly or indirectly by the buyer to the seller free of
charge or at a reduced cost for use in connection with the production and
sale for export of the imported goods.
o The goods and services are:
1. Materials, components, part and similar items incorporated in the
imported goods
2. Tools, dies, moulds, and similar items used in the production of the
imported goods
3. Materials consumed in the production of imported goods
4. Engineering, development, artwork, design work, and plans and
sketches undertaken elsewhere in the Philippines and necessary
for the production of the imported goods.

R – Royalties and license fees

o Royalty and license fees are fees paid by the buyer which may include,
among other things, payment in respect to patents, trademarks and
copyrights.
o It includes payment made by the buyer for the right to distribute or resell
the imported goods provided that such payment is a condition of the sale
of export to the Philippines.
o The charges for the right to reproduce the imported goods in the
Philippines shall not be added to price actually paid or payable.

P – Packing and container costs

o Packing cost is the cost of preparation and packaging of goods, whether
for labor or for materials. The cost of container on the other hand, is cost
of transport and storage unit for moving the goods.
o Cost of packing and container shall be those incurred from the country of
exportation until the goods are delivered to the port of destination ready
for unloading.
o Beware of duplication: just like the other components of mandatory
addition, it shall not be added if it’s already included in the PAPP.

P – Proceeds
o 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
shall be added to the PAPP.
o For example, in a contract of sale between the seller and buyer, a certain
percentage of the sales-proceed of an imported article shall be remitted to
the seller. And such amount shall be included in the mandatory addition.

I – Insurance
o The cost of insurance refers to those charges for insurance of goods
during the transportation, prior to the shipment unloading to the port of
destination.
o Cost of insurance shall be only added if it’s not included in the PAPP just
like the other components.

T – Transport Cost
 o Transport cost is the charges for transporting imported goods before it
was unloaded to its port of destination in the Philippines.
o This cost includes such charges as trucking, inland freight, rail freight,
ocean freight air freight and barge or lighterage and postal costs.

Permissible Deduction
 Permissible deductions are the costs and charges that should be deducted from
the PAAP because they are undertaken after importation.
 In short, this is called the “Post Importation Charges”.
 These costs are typically deducted when the Incoterms used is in Group D.
 Permissible Deduction can be easily remembered by the help of the acronym. C
TD
o C - Charges for construction, erection assembly maintenance or technical
assistance, undertaken after importation on imported goods such as
industrial plant, machinery, or equipment.
o T - Transport Cost incurred after importation
o D - Duties, taxes and other charges paid for the imported goods.
 The word “After Importation” means after the goods have arrived in its port of
destination in the Philippines ready for unloading.

Four Conditions under Method 1: Transaction Value

 There are certain conditions to be met in order to use the Method I Transaction
Value Method in determining the dutiable value of the goods. And if any of these
conditions are not fulfilled, then the alternative methods shall apply in sequential
order.
 The four conditions to be satisfied in applying Transaction value Method are:
1. No restriction of disposition
2. No condition on sale
3. No proceeds to seller
4. No relationships between the buyer and the seller.
1. No restriction of disposition
 There must be no restrictions as to the disposition or use of the goods by the
buyer, other than the following restrictions:
o Restrictions imposed or required by the law or by Philippine
authorities.
 For example, certain cities and municipalities-imposed liquor ban,
which means selling alcoholic products are not allowed in their
vicinity.
o Restrictions which limit the geographical area in which the goods
may be resold.
 For instance, cities of Muslim communities prohibit the sale of pork
in their market because eating pork are against their religion.
o Restrictions which do not substantially affect the value of the goods.
 An example would be the case where a seller requires a buyer of
automobile model 2022 not to sell or exhibit them prior to a fixed
date which represents the beginning of model year. It means the
seller can only use or exhibit it upon January 1, 2022.
2. No condition on sale
 The sale or price must not be subject to some conditions or considerations for
which the value cannot be determined with respect to the goods being valued.
Otherwise, the Transaction Value Method cannot be accepted. Examples of
these conditions on sale are:
a. The seller establishes the price of the imported goods on condition
that the buyer will buy other goods from him in specified quantities.
 For example, a seller will offer the importer a lower price of the
imported machineries than its actual price if the buyer will also buy
 specified quantities of hand tools from him. This sale is not
acceptable under Method I because it’s not the actual price of
imported machineries.
b. The price of the imported goods is dependent upon the price of the
goods sold or to be sold by the buyer to the seller.
 Here both parties buy and sell goods with each other. And the price
of imported goods is influenced by such transactions.
 Take for example, a seller in Vietnam sells bed and beddings to a
buyer in the Philippines at a price equal upon the price of the
kitchen utensils sold by the same buyer in the Philippines to the
same seller in Vietnam. Here, actual price of the bed and beddings
is not utilized, thus the customs will not accept such sale under
Method I.
c. The price established on the basis of a form of payment extraneous
to the imported goods.
 An example would be the case where the seller provides for semi-
finished goods to the importer on condition that the seller will
receive a specified quantity of the finished goods.
3. No proceeds to seller
 No proceeds of any subsequent release, disposal, or use of goods by the buyer
will accrue directly or indirectly to the seller. Unless an appropriate adjustment
can be made in accordance with the Mandatory Addition
 Simply put, such proceeds shall be added in the mandatory addition in order for
the Transaction Value Method to be applied.
4. No relationship between the buyer and the seller
 This rule was established by the Bureau for the reason that relationship can
influence the price of the imported goods; manipulated price are not welcome to
Customs.
 The buyer and the seller shall be deemed to be related only if:
o They are officers or directors of one another’s business
o They are legally recognized partners in business
o They are employer and employee
o Any person directly or indirectly owns, controls or holds 5 percent or more
of the outstanding voting stock or shares of both of them
o One of them directly or indirectly controls the other
o Both of them are directly or indirectly controlled by third person
o Together they directly or indirectly control a third person or
o They are related by affinity or consanguinity up to the 4th civil degree.
 Where the buyer and seller are related with each other, and the Collector of
Customs has no doubts on the acceptability of the price despite that the buyer
and seller are related, Method One shall apply without the need of examination
and further request of information from the importer. For instance, the Collector
has no doubts because he may have previously examined the relationship of the
buyer and seller and he is satisfied that such affiliation did not influence the price
of the imported goods.
 If the collector of customs has doubts on the acceptability of the price, then he
shall give the importer an opportunity to supply additional information for the
examination of the circumstances surrounding the sale. If after such examination,
the Collector is still dissatisfied, then Transaction Value shall not apply.

*Method 2: Transaction Value of Identical Goods

 In the event that any of the conditions prescribed in Method 1 are not fulfilled,
Method 1 shall not be used.
 If the dutiable value of the imported goods cannot be determined with the use of
method 1, the dutiable value shall be determined under Method 2 or the
 Transaction Value of Identical Goods sold for export to the Philippines and
exported at or about the same time as the goods being valued

Identical Goods
 Identical goods are goods which are the same in all respects including, physical
characteristics, quality and reputation of the goods being valued.

Same Physical Characteristics

o We can say that this bag from Brand A and this bag from Brand B has the
same physical characteristics, because they are both made up of leather.
o On the other hand, this bag from Brand A and this bag from Brand C
differs in physical characteristics as this bag of Brand C is made up of
nylon.

Same Quality
o We can perceive that these shoes of Brand A and this shoe of Brand B
has the same quality because they are both Original
o However, if we compare the shoes of Brand A to Brand C, they cannot be
identical for the reason that they don’t have the same quality as Brand C
shoes is Class C, which quality is lower than the original.

Same Reputation
o It means that such goods have the same trademark as the goods being
valued.
o We can say that Adidas and Nike shoes have the same trademark
because they are the prominent rivals in shoes industry.

 Identical goods shall be same in all respects of the goods being valued but there
are certain exemptions. These are the minor differences which do not influence
the price of the goods such as
o Color
o Sizes
o Label or pattern

 Identical Goods shall also be produced by the producer of the goods being
valued.
o For example, if the manufacturer of the television being valued is Brand A,
then Brand A shall also be the manufacturer of the identical television.
 However, this condition is no longer a necessity. When there are no identical
goods produced by the same person in the country of production of the goods
being valued, a different person or manufacturer can be accepted, provided that
the identical goods are produced in the same country of production of the
goods being valued.
o For Example, these SUV cars from England have different manufacturers
but it can be classified as identical since they are both produced from the
same country of production which is England.
 The definition of identical goods excludes imported goods which engineering,
development, artwork, design work, and plans and sketches is undertaken in the
Philippines and is provided by the buyer to the producer of goods free of charge
or at a reduced cost.
o Meaning that such engineering, development artwork and the like shall be
undertaken in a country other than the Philippines in order to apply the
Method 2 in finding the dutiable value of the goods.

Conditions under Method 2: Transaction Value of Identical Goods

 To determine if Method 2 can be used in finding the dutiable value, the 3
following conditions must be fulfilled:
 1. Identical goods shall be sold for export to the Philippines
2. Identical goods shall be exported at or about the same time of the goods
being valued
3. Identical goods shall be in a sale at the same commercial level and same
commercial quantity

1. Identical goods shall be sold for export to the Philippines

 The same concept of “sale” and “sale for export” in Method 1

2. Identical goods shall be exported at or about the same time of the goods being
valued
 It is generally interpreted as exportation of the identical goods to the Philippines
45 days before or after the date of bill of lading or AWB of the goods being
valued.
 Prices vary as time goes by, so in order to ensure that the price of the identical
goods and the goods being valued are adjacent, “exportation within 45 days
before or after the date of bill of lading or AWB of the goods being valued” is set
by the Customs as a condition.

3. Identical goods shall be in a sale at the same commercial level and same
commercial quantity
 Commercial levels pertain to whether the goods are sold for retail or wholesale
whereas commercial quantity is the quantity of goods imported.
o For example, if the goods being valued are sold for retail, then the
identical goods shall also be sold in retail. If the goods being valued are
sold in 1000 pieces, then the identical goods shall also be sold in 1000
pieces.
 Nevertheless, Transaction Value of Identical Goods can still be accepted even if
such goods are sold at different commercial level and/or different quantities as
the goods being valued, provided that certain adjustment shall be made, taking
into account differences attributable to commercial level and/or quantity. Such
adjustment can only be made on the basis of demonstrated evidence that clearly
establishes the reasonableness and accuracy of the changes.

o An example of these demonstrated evidence are the valid price lists

containing prices at different quantities
10 $ 5,000
units
20 $
units 10,000
30 $
units 15,000
40 $
units 20,000
o Here, since there is a valid price list, the importer can make an appropriate
adjustment to determine the correct price of the goods.

Lowest Among the Transaction Values Found

 In applying method 2, if more than one transaction value of identical goods is
found, the lowest of such value shall be used to determine the Dutiable Value of
the imported goods.

*Method 3: Transaction Value of Similar Goods

  In the event that the any of the conditions under the Method 2 was not fulfilled,
Method 3: Transaction Value of Similar Goods shall apply to determine the
dutiable value of the goods.
 If the dutiable value of the imported goods cannot be determined with the use of
Method 2, the dutiable value shall be determined under Method 3 or the
Transaction Value of Similar Goods sold for export to the Philippines and
exported at or about the same time as the goods being valued.

Similar Goods
1. Similar goods, although not alike in all respects, have like characteristics and
component materials of the goods being valued.
 For example, red rose and white rose are similar goods because even though
they are different in color, they have like characteristics and component materials
since both are roses.
2. Similar goods are capable of performing the same functions of goods being
valued.
 For example, ordinary umbrella and foldable umbrellas are similar goods. They
may vary in the type of umbrella, but their functions are the same which is to
protect people from heat of sunlight and the rain.
3. Similar goods are commercially interchangeable as the goods being valued.
 For instance, table fan is commercially interchangeable to stand fan.
4. Similar goods shall also be produced by the producer of the goods being valued.
However, just like the definition of identical goods, similar goods and the goods being
valued can be of different producer as long as they are produced in the same country
of production.

Conditions under Method 3: Transaction Value of Similar Goods

1. Similar goods shall be sold for export to the Philippines

 The same concept of “sale” and “sale for export” in Method 1

2. Similar goods shall be exported at or about the same time of the goods being
valued
 It is generally interpreted as exportation of the similar goods to the Philippines 45
days before or after the date of bill of lading or AWB of the goods being valued.
 Prices vary as time goes by, so in order to ensure that the price of the similar
goods and the goods being valued are adjacent, “exportation within 45 days
before or after the date of bill of lading or AWB of the goods being valued” are set
by the Customs as a condition.

3. Similar goods shall be in a sale at the same commercial level and same
commercial quantity
 Commercial levels pertain to whether the goods are sold for retail or wholesale
whereas commercial quantity is the quantity of goods imported.
o For example, if the goods being valued are sold for retail, then the
identical goods shall also be sold in retail. If the goods being valued are
sold in 1000 pieces, then the similar goods shall also be sold in 1000
pieces.

 Nevertheless, Transaction Value of Similar Goods can still be accepted even if

such goods are sold at different commercial level and/or different quantities as
the goods being valued, provided that certain adjustment shall be made, taking
into account differences attributable to commercial level and/or quantity. Such
adjustment can only be made on the basis of demonstrated evidence that clearly
establishes the reasonableness and accuracy of the changes.
 o An example of these demonstrated evidence are the valid price lists
containing prices at different quantities
10 $ 5,000
units
20 $
units 10,000
30 $
units 15,000
40 $
units 20,000

o Here, since there is a valid price list, the importer can make an appropriate
adjustment to determine the correct price of the goods.

Lowest Among the Transaction Values Found

 In applying Method 3, if more than one transaction value of similar goods is
found, the lowest of such value shall be used to determine the Dutiable Value of
the imported goods.

*Method 4: Deductive Value

 When any of the definitions and conditions under Transaction Value of Similar
Goods is not fulfilled, Method 4: Deductive Value shall apply in determining the
dutiable value of the goods.
 By this Method, the dutiable value is determined on the basis of sales in the
Philippines of the goods being valued or of identical or similar imported goods,
less certain specified expenses resulting from the importation and sale of the
goods.

Conditions under Method 4: Deductive Value

1. The imported goods or identical or similar imported goods have been sold in
the Philippines in the same condition as imported.
 It implies that such goods did not undergo further processing which changes the
substance of the goods.
 However, importer may choose to use sale of imported goods being valued after
further processing provided that a deduction of the value incurred from such
further processing is made based on objective and quantifiable data relating to
the cost of such works.

2. The sale of the imported goods or identical or similar imported goods shall
also have taken place at or about the same time of importation of the goods being
valued.
 The sale happened in a period extending to 45 days prior to and 45 days
following the importation of the goods being valued.
 Yet, it is permitted to use the sale of goods sold in the Philippines in the same
condition as imported, at the earliest date after importation of goods being valued
but before 90 days after such importation.

3. The purchaser must not be related to the importer from whom he buys such
goods.
 The relationship of the importer and the purchaser may influence the price of sale
in the Philippines.
4. The purchaser in the Philippines must not have supplied assists either directly
or indirectly.
 It implies that no equipment, ties, moulds and the like are supplied by the
purchaser in the imported goods sold in the Philippines.

Aggregate of Elements
 Remember that the sale in the Philippines is just the basis of Deductive Value
because deduction shall be made from the established price per unit of the
aggregate of certain elements.
 These certain elements are the expenses and cost incurred in the Philippines
which can be represented by the acronym CAUC:
o C - Commission generally earned on a unit basis in connection with sales
in the Philippines for goods on the same class or kind.
o A - Additions which is usually made for in connection will sales profit and
general expenses in the Philippines for goods of the same class or kind.
o U - usual transport, insurance and associated costs incurred within the
Philippines
o C - Customs duties and other national taxes payable in the Philippines by
reason of the importation or sale of the goods
 The aggregate amount of the elements, CAUC, shall have established price per
unit. “Unit price” means the price at which the greatest number of units is sold
in sales to persons who are not related to the persons from whom they buy such
goods at the first commercial level after importation at which such sales take
place.
o Let’s take a look at this table of price list where we can get the unit price
by determining the greatest number of units sold.

Sales Unit Number of Total quantity sold at

quantity price sales each price
1-10 units 100 10 sales of 5 65
units
5 sales of 3
units
11-25 units 95 5 sales of 11 55
units
Over 25 90 1 sale of 30 80
unit units
1 sale of 50
units

o From the 4th column, we can perceive that 80 is the highest number of
units sold, therefore the unit price in the greatest aggregate quantity is 90.
o A simple example would be the case of two sales where the first sale of
500 units are sold at 95 currency units each. In the second sale, 400 units
are sold at a price of 90 currency units each. In this example, the greatest
number of units sold at a particular price is 500, therefore, the unit price in
the greatest aggregate quantity is 95.

*Method 5: Computed Value

 If the sale of imported goods, or identical or similar goods in the Philippines or
the conditions of sale are not met, Method 4 shall not be used to determine the
dutiable value of goods. Therefore, Method 5 shall apply.
  Method 5 is called the Computed Value which is the complete opposite of the
Deductive Value. Under this method, the Dutiable value is determined on the
basis of the cost of production of the goods being valued, plus an amount of
profit and general expenses usually reflected in sales from the country of
exportation to the Philippines of goods of the same class or kind.

Formula
Aggregate of the relevant costs, charges and expenses + other costs + amount of profit
and general expenses = Dutiable Value

1. Aggregate of the relevant costs, charges and expenses

 These can be attributed to the aggregate value of
o Materials employed in the processing of imported goods and
o Fabrication, production or other processing costs for the imported goods
including direct and indirect labor costs, and factory overheads

2. Other costs
 Costs that shall be added only if it is not included in the Aggregate of the relevant
costs, charges and expenses. These costs can be remembered easily through
the acronym CAPET
o C - Container costs which are treated as being one for customs purposes
with the goods in question
o A - Assists, apportioned in a reasonable manner in accordance with
generally accepted accounting principles
o P - Packing costs whether for labor or materials
o E - Engineering, development, artwork, design, work and plans and
sketches undertaken in the Philippines and charged to the producer.
o T - Transport cost, loading, unloading costs, handling charges and
insurance and related charges until the goods have reached the port of
destination in the Philippines ready for unloading.

3. Amount of profit and general expenses

 Amount of profit and general expenses made by the producers in the country of
exportation for export to the Philippines and shall be consistent with that usually
reflected in sales of goods of the same class or kind as the goods being valued.
 Profit is the money left over after the producer pays all of its general expenses.
These general expenses cover the total costs of producing and selling the
goods for export which are not included in the “Aggregate of the relevant costs,
charges and expenses”
 It should be noted that the amount of the profit and general expenses shall be
taken as a whole. So whenever the two are inconsistent with each other such
that the producer’s profit figure is low while the producer’s general expenses are
high, it is a challenge for the producer to justify such low profit of sales with
commercial valid reasons and that his pricing policy still reflects the usual pricing
policies in the branch of industry concerned. This is because in usual scenarios,
having low profit forces the producers to lower its prices to push the demand up.
However, if the price is truthfully not affected by such scenario, the producer must
justify his valid reasons.
 However, if the producer was forced to lower his prices due to unforeseeable
stop in demand, and which is inconsistent with those usually reflected in sales of
goods of the same class or kind as the goods being valued which are made by
the producers in the country of exportation for export to the Philippines, the
amount of profit and general expenses may be based upon relevant information
other than that supplied by or on behalf of the producer of the goods. Here, the
Collector of Customs shall inform the importer upon the request of the importer,
 of the source of such information, the data used, and the calculation based upon
such data.

Method 4 and Method 5 are Reversible

 Some importers are requesting the Commissioner of Customs to employ Method
5 rather than Method 4. Since they have the information and data provided by the
producer of the imported goods, they find it more convenient to utilize Method 5.
 Such can only be allowed upon the request of the importer subject to the
approval of the Commissioner of Customs taking into consideration that the
reversal of the sequential order will not give rise to real difficulties for the Bureau
of Customs in determining the dutiable value under Method 5.

*Method 6: Fallback Value

 Some importers found it difficult to access information from the producer of the
imported goods since others are not disclosing their expenses and cost incurred
to the imported goods for data privacy. If this happens or when any of the
conditions in Method 5 are not fulfilled, the Method 6: Fallback Value shall apply.
 Method 6 or the Fall Back Value is the most flexible among the methods of
valuation. Under this method, the DV should, to the greatest extent possible be
based on previously determined dutiable value.
 Under the Fall Back value, importers are given second chance to justly determine
the dutiable value of their goods, and this second chance are given through the
reasonable flexibility in the conditions of the previous methods.
 Nevertheless, not all conditions in the previous methods have given flexibility.
Only those conditions which are believed of not greatly influencing the price are
deemed reasonable to be given flexibility.

Examples of Reasonable Flexibility

1. The requirement that the identical and similar goods should be exported at least 45
days prior or after the importation of the goods being valued under Methods 2 and 3,
and the “90 days” requirement under the Method 4 could be flexibly interpreted; under
Method 6, this grace period was eliminated, hence, as long as the importers comply
with the other conditions, they can now apply Method 2, Method 3, or Method 4, in
sequential order.

2. In Fallback Value, the condition in Method 2 and 3 that the identical and similar goods
shall be produced from the same country of production of the goods being valued is no
longer required.
o For example, the goods being valued is a leather bag produced from Australia
and the identical leather bag found is manufactured from Switzerland. Here,
under the Method 6, Method 2 can now be applied in determining the dutiable
value of the leather bag from Australia as long as the other conditions in Method
2 is met.

3. In Method 4, the goods shall have been sold in the same condition as imported but
under the Fallback Value, the goods can be in advanced or processed form when sold
to the purchaser.

END OF MODULE TEST:

Using 2-3 sentences, answer the following:

1. State the relationship between Incoterms 2020 to transaction value method.

2. How is the computation on determining the dutiable value of imported goods using
the transaction value different with the formula formerly discussed on getting the DV?

3. State the importance of PAPP in determining the dutiable value using transaction
value methods.

4. State the similarities and differences between the primary method and the
alternative methods in computing for the dutiable value.

5. State the reason/s why Method 4 and Method 5 can be reversed.

6. Aside from examples given in this module, cite some scenarios where reasonable
flexibility can be used.