What transaction value is in the WTO Valuation Agreement
The WTO Agreement on Implementation of Article VII of GATT 1994 (the Valuation Agreement) defines a hierarchy of six customs valuation methods. The first and primary method is transaction value. The other five methods are fallback methods that apply only when transaction value cannot be used. Most ecommerce imports use transaction value because the buyer and seller are unrelated and the price can be determined from the invoice.
- Method 1 — Transaction value (price actually paid or payable, adjusted by the rules)
- Method 2 — Transaction value of identical goods
- Method 3 — Transaction value of similar goods
- Method 4 — Deductive value (resale price minus deductions)
- Method 5 — Computed value (cost of production plus statutory additions)
- Method 6 — Fallback method (resorting to flexible application of the earlier methods)
The transaction value formula
Transaction value is the price actually paid or payable for the goods, plus statutory additions and minus statutory deductions. The destination rules decide which items are added and which are deducted. The same price can produce a different transaction value in different destinations when the rules differ.
- Start: price actually paid or payable for the goods
- Add: packing cost, selling commission, assists, royalties, license fees
- Add: freight and insurance to the destination border (or to the place of import as the destination rules decide)
- Deduct: international freight and insurance that occur after arrival at the destination border
- Deduct: import duties and taxes collected at destination
- Deduct: certain construction, installation, and post-import costs
What is added to transaction value
The destination rules list the items that are added to the price actually paid or payable. The most common additions for ecommerce shipments are freight and insurance to the destination border, packing cost, royalties, and the value of any assists. Selling commissions are added in some destinations and excluded in others; verify with the destination rule.
- Packing cost (the cost of the packaging in which the goods are imported)
- Selling commission (in some destinations)
- Assists (materials, components, or tools supplied by the buyer to the seller free or at reduced cost)
- Royalties and license fees related to the goods (when paid as a condition of sale)
- Freight and insurance to the destination border (or to the place of import as the destination rules decide)
What is deducted from transaction value
Some costs are explicitly excluded from transaction value under the Valuation Agreement and national implementations. These deductions usually apply when the price already includes the post-import cost or the destination separately taxes the cost.
- Transportation costs after arrival at the destination border (e.g., domestic delivery fees)
- Import duties, taxes, and other charges collected at destination
- Construction, installation, assembly, or post-import technical assistance costs
- General expenses and commissions not related to the sale
- Currency exchange costs in some destinations
Transaction value vs customs value
Transaction value and customs value are related but not identical. Transaction value is one of the six valuation methods defined in the WTO Valuation Agreement; it is the primary method. Customs value is the assessment base customs uses to calculate duty; for most ecommerce imports the customs value is the transaction value, but in some cases customs may apply a different method or a different treatment of additions and deductions. When the destination rules accept transaction value, the customs value is the transaction value. When the destination rules apply a different method, the customs value is the result of that method.
- Transaction value: the price actually paid or payable, adjusted by the rules (Method 1)
- Customs value: the assessment base used to calculate duty; usually equal to transaction value when Method 1 applies
- Fallback methods (2-6) apply when Method 1 cannot be used; the customs value then equals the value under the applied method
- In some destinations, the rules treat freight, insurance, and assists differently; the same transaction price can produce a different customs value
- Always verify the destination rule before filing; the customs value is what duty is calculated from
When transaction value cannot be used
The Valuation Agreement lists the conditions under which transaction value cannot be used. The most common ecommerce-relevant conditions are related-party transactions where the price is influenced by the relationship, and sales where the price cannot be determined from the documents. When these conditions are not met, customs may apply Method 2 (identical goods), Method 3 (similar goods), Method 4 (deductive), or Method 5 (computed).
- There is no price actually paid or payable (e.g., a free sample, a consignment, a gift)
- The buyer and seller are related and the price is influenced by the relationship
- The price is not verifiable from the documents
- The transaction has conditions whose value cannot be determined (e.g., a future rebate, a side agreement)
- The destination authority decides the price does not reflect the goods’ value
Related-party transactions and the relatedness test
A related-party transaction does not automatically disqualify transaction value. The Valuation Agreement says transaction value is acceptable when the relationship did not influence the price, or when the price closely approximates a test value (a transaction value of identical or similar goods, a deductive value, or a computed value). In practice, customs authorities examine related-party transactions more carefully, and the importer should be ready to show that the price was not influenced.
- Buyer and seller are related only when the destination rules say so (typically 5% share, common officers, family)
- A related-party price is accepted when the relationship did not influence the price
- A test value comparison is one way to demonstrate that the price was not influenced
- Customs authorities may request additional documentation in related-party transactions
- Always check the destination national rule for the relatedness test before filing
Transaction value under FOB, CIF, and other Incoterms
The Incoterm on the invoice affects which costs are already in the price and which must be added. Under FOB, the price excludes freight and insurance, so they are added to reach transaction value. Under CIF, the price includes freight and insurance to the destination port, so they are already in the transaction value. Under DDP, the price includes duty, but duty is deducted under the Valuation Agreement.
- FOB: price excludes freight and insurance; add them to reach transaction value
- CIF: price includes freight and insurance to the destination port; already in transaction value
- EXW: price excludes everything from the seller’s premises; add freight, insurance, and packing
- DDP: price includes duty; deduct duty and any post-arrival costs to reach transaction value
- The Incoterm on the invoice must match the Incoterm in the sales contract and carrier booking
How to use transaction value in TariffCatalog
TariffCatalog uses transaction value as the primary customs value method. The Import Duty Calculator accepts the customs value as an input and applies the destination’s duty rate to that base. The Customs Value Calculator builds the customs value from the transaction price plus statutory additions and minus statutory deductions. Always verify the destination rule before filing; the calculator is a planning tool, not a filing outcome.
- Use the Customs Value Calculator to build transaction value from the price, freight, insurance, and other additions
- Use the Import Duty Calculator with the verified customs value as the duty base
- Pair this answer with What Is Customs Value for Ecommerce? and How to Fill a Commercial Invoice
Ecommerce example
A Shopify seller imports 200 units of cotton T-shirts from a supplier in China. The purchase price is USD 2.50 per unit, total USD 500. International freight to the US port is USD 80. Insurance is USD 10. The Incoterm is FOB.
- Start: price actually paid or payable = USD 500
- Add: packing cost (already in the FOB price in this example) = USD 0
- Add: freight to the destination border (US port) = USD 80
- Add: insurance = USD 10
- Transaction value = USD 500 + USD 80 + USD 10 = USD 590
- In this example, the customs value equals the transaction value, and duty is calculated from USD 590