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Business Valuation and Federal Taxes: Procedure, Law and Perspective, 2nd Edition by Shannon P. Pratt, David Laro

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Chapter 10

Customs Valuation1

Summary

As discussed in Chapter 9, Code section 482 allows the Service to reallocate income among commonly controlled entities to prevent income shifting for purposes of avoiding federal income tax. Like income taxes, customs duties are expenses incurred by multinational corporations that transfer goods between countries. When businesses attempt to import goods into the United States they must report the values of the goods and pay associated customs duties.

Customs valuation is standardized among countries pursuant to treaties, and six valuation methods are used to determine the value of imported goods for the purpose of imposing duties. These six valuation methods, in order of preference, are:

1. Transaction value of the imported goods, with adjustments

2. Transaction value of identical merchandise, with adjustments

3. Transaction value of similar merchandise, with adjustments

4. Deductive value, or resale price after importation, with adjustments

5. Computed value, using production costs, profit, and overhead, with adjustments

6. Derived value

Introduction

Title 19 of the U.S. Code provides the statutory authority for imposing customs duties, or tariffs, on imported goods. Tariffs predate the modern income tax system, and along with excise duties, were the principal source of federal revenue from 1789 to World War I, when they were surpassed by the income tax. Unlike the federal income and transfer taxes, customs duties are administered and regulated ...

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