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2021 PRACTICAL COMPUTATIONS REVIEW– DAY 3

Computations on Transaction Value/Adjustments - METHOD 1 ,SEC. 700 & 701, CMTA
Lecturer: Prof. RUBEN C. PEDREZA, CB, EE, MCA
NOTE: PLEASE CLICK HEREUNDER ISSUANCES TO GAIN ACCESS:
WTO VALUATION AGREEMENT (WVA), CAO 4-2004, CMO 16-2010 , CAO 9-2020

RULES ON CUSTOMS VALUATION (ARTICLE 15, WVA/Sec. 3, CMO 16-2010)

“CUSTOMS VALUE OF IMPORTED GOODS” means the value of goods for the purpose of levying ad
valorem duties on imported goods.
Note:
Customs value is therefore the Dutiable Value under the WVA but when used as a component of dutiable
value. It refers to the FOB/FCA value.

ARRIVING AT THE TRANSACTION VALUE OF IMPORTED GOODS - Method 1 or transaction value

requires a sale between an exporter (seller) of the goods from a foreign country and an importer (buyer)
in the Philippines.
Transaction value looks at the price agreed upon between the seller and the buyer - a price that is
generally shown on the invoice - with certain adjustments because the Agreement recognizes that in any
international transaction, there may be several components that make up the total cost.

Transaction value should therefore also include additions for certain elements or costs that may not have
been included in the price or invoice.
In this sense transaction value is not equal to the invoice, unless the invoice reflects all the dutiable
elements as defined under Articles 1 and 8 of the Agreement.
Thus the CIF/CIP value is equal to the Transaction Value when no applicable adjustments are made.

ADJUSTMENTS (ART. 8, SEC. 3.2.8, CMO 16-2010/SEC 701, CMTA)

In framing its legislation, each Member shall provide for the inclusion in or the exclusion from the Customs
value, in whole or in part, of the following:
a) the cost of transport of the imported goods to the port or place of importation; (Pre-Carriage/Main
Carriage)
b) loading, unloading and handling charges associated with the transport of the imported goods to the
port or place of importation (Origin Other Charges); and
c) the cost of insurance (Dutiable Insurance).

Note:
The Philippines opted to include the said costs in the determination of the dutiable value thus the
Philippines is regarded as a “CIF COUNTRY” (Sec. 2, CAO 4-2004).

THE TRANSACTION VALUE SYSTEM

ELEMENTS:
1. Article 1 or Method 1 (TRANSACTION VALUE)
➢ Sale for Export
➢ Price Actually Paid/Payable
➢ No Restrictions
2. Article 8 (WVA)
➢ Adjustments to Price Actually Paid/Payable
a) Mandatory Additions (when not included in Inv. Price)
b) Permissible Deductions (when declared in the inv.)

Prof. RUBEN C. PEDREZA, CB, EE, MCA

Page 1 of 7
 PEDREZA CUSTOMS & TARIFF WEBINARS
410 Burke Street, Brgy. 290, Binondo, Manila
Globe: 09063811016 / 09068172757 Landline: 82423398
Email: [email protected] FB: www.facebook.com/clap.stacruz/

RULES ON BOC VALUATION - SEC. 700, CMTA, R.A. 10863 (May 30, 2016)

I. PRIMARY METHOD OF VALUATION

1) Method 1, Sec. 701 (Transaction Value based on PAPP) - (ART. 1)
II. 5 ALTERNATIVE METHODS OF VALUATION
2) Method 2, Sec. 702 (Transaction Value of Identical Goods) - (ART. 2)
3) Method 3, Sec. 703 (Transaction Value of Similar Goods) - (ART. 3)
4) Method 4, Sec. 704 (Deductive Value) - (ART. 5)
5) Method 5, Sec. 705 (Computed Value) - (ART. 6)
6) Method 6, Sec. 706 (Fallback Value) - (ART. 7)

CONCEPT OF SALE (Sec. 3.2.2.1, CMO 16-2010)

The transaction Value of imported goods is based on the PAPP for those goods when sold, hence there
must be a sale for export to the Philippines as one of the conditions for the application of Method 1.
The WVA provides no definition of a sale but merely states that there must be specific commercial operation
that meets certain requirements and conditions.

WCO Advisory Opinion 1.1 provides guidance on the concept on SALE as it appears in the WVA. It
states that a sale is to be described as follows:
1) A commercial operation involving a Buyer & Seller;
2) The Buyer agrees to obtain the imported goods;
3) An agreement to exchange ownership of goods at a time and place and for a specific price;
4) A compensation occurs when ownership is transferred, and goods are acquired;
5) Both Buyer and Seller acknowledge that the transaction constitutes a commercial operation.

CONCEPT OF SALE FOR EXPORT (Sec. 3.2.2.3, CMO 16-2010)

CRITERIA TO BE CONSIDERED WHEN GOOD ARE SOLD FOR EXPORT TO THE PHILS.
a) Goods must be sold
b) Goods exported to the Philippines
c) Purchaser is situated in the Philippines
DOCUMENTARY PROOF TO SUPPORT DECLARED VALUE
a) Proforma and Commercial Invoices
b) Packing List
c) Sales Contracts or Agreements
d) Foreign Purchase order
e) Bills of Lading/Air Waybills
f) Proof of payment by buyer to his seller abroad
g) Seller’s Price List
h) Other types of certification required for entry in the Philippines (certificate of origin, mill
certificate, fumigation certificate, phytosanitary certificate, MSDS, etc.)

NO SALE SITUATIONS: (Method 1 Not Applicable)

a) Imported gifts, samples and promotion items furnished free of charge
b) Imported goods shipped on consignment basis which will be sold after importation for the
account of the supplier.
c) Goods imported under leasing contract or are loaned (subject to re-export bond) and
therefore remains as property of the shipper abroad;

Prof. RUBEN C. PEDREZA, CB, EE, MCA

Page 2 of 7
 PEDREZA CUSTOMS & TARIFF WEBINARS
410 Burke Street, Brgy. 290, Binondo, Manila
Globe: 09063811016 / 09068172757 Landline: 82423398
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d) Goods imported by branch offices which are not separate legal entities with their suppliers.
METHOD 1: THE TRANSACTION VALUE PER PAPP
(Art. 1, WVA/Sec. 701, CMTA/Sec. 3.2, CMO 16-2010)
The Dutiable Value on imported goods shall be the Transaction Value, or PAPP for the goods when sold for export to
the Phils. adjusted in accordance with the provisions of 3.2.8 (Adjustments) of this order and subject to the conditions
specified in Sec. 3.2.3 herein.

PRICE ACTUALLY PAID OR PAYABLE :

PAPP refers to the total payment made or to be made by the buyer/importer to or for the benefit of the seller/exporter
for the imported goods. These includes all payments made as a condition of sale of the imported goods by the buyer
to the seller, or by the buyer to a third party to satisfy an obligation of the seller.

ILLUSTRATION NO. 3: Price Actually Paid or Payable

(Payments made as a condition of sale)
Importation: 1,000 pairs of customized safety shoes, Total CIF $ 30,000.00

30% D/P - USD 9,000.00 CIF MLA

(0.30 x $ 30,000.00)
1
Importer A Ships out 1,000 prs - shoes Seller B
(Philippines) 2 (China)

Full payment (Balance) upon

shipment of the shoes
(USD 21,000.00 per inv.)
3
Importer’s Declaration/SAD: Total DV - $ 21,000.00
IS THE IMPORTER”S DECLARATION CORRECT?

ADJUSTMENTS (ART. 8, SEC. 3.2.8, CMO 16-2010/SEC. 701, CMTA)

MANDATORY ADDITIONS

METHOD 1: ADJUSTMENTS TO PAPP (ART. 8/Sec. 3.2.8, CMO 16-2010/SEC. 701, CMTA)
MANDATORY ADDITIONS
In determining the Customs value under the provisions of Article 1, there shall be added to the price actually paid or
payable for the imported goods.
The following, to the extent that they are incurred by the buyer but are not included in the PAPP for the goods;
1) selling commissions (except buying commissions / Sec. 3.2.8.1/ CMO 16-2010)
2) the cost of containers which are treated as being one for Customs purposes with the goods in question; (Sec.
3.2.8.2). The cost of packing whether for labor or materials; (Sec. 3.2.8.3CMO 16-2010)
3) the value, apportioned as appropriate, of the following goods and services where supplied directly or
indirectly by the buyer free of charge or at a reduced cost for use in connection with the production and sale
for export of the imported goods, to the extent such value has not been included in the price actually paid
or payable;

Prof. RUBEN C. PEDREZA, CB, EE, MCA

Page 3 of 7
 PEDREZA CUSTOMS & TARIFF WEBINARS
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4) Amount of royalties and license fees related to the goods being valued that the buyer must pay either directly
or indirectly, as a condition of sale of the goods being valued to the extent that such royalties and fees are not
included in the PAPP. (Sec. 3.2.8.5)
5) 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; (Assists/ Sec. 3.2.8.6/ CMO 16-2010)
6) Cost of transport of the imported goods from the port of exportation to the port of entry in the Philippines
(Ocean/Air Freight Charges or Main Carriage/Sec. 3.2.8.7 - CMO 16-2010).
This includes Loading, unloading and handling charges associated with the transport of the imported goods
from the country of exportation to the port of entry in the Philippines (Origin Inland Freight or Pre-carriage/Sec.
3.2.8.7 / CMO 16-2010);
7. Cost of insurance per WCO Advisory Opinion 13.1 states that insurance refers solely to insurance cost
incurred for the goods during the transport of the imported goods to the port of importation. (Dutiable
Insurance/Sec. 3.2.8.8/ CMO 16-2010 )
NOTE:
All additions to the price actually paid or payable shall be made only on the basis of objective and quantifiable
data. ( Sec. 3.2.10, CMO 16-2010)

METHOD 1: ADJUSTMENTS TO PAPP

(ART. 8/Sec. 3.2.8, CMO 16-2010/SEC. 701, CMTA)

MANDATORY ADDITIONS
ILLUSTRATION A : Adjustment on Selling Commissions

Selling agent for “B” Request Shipment of

for C Computers Seller “C”
(Philippines) 3 (USA)

5% Selling
Commissions
Payment for the computers
(USD 2,500.00) USD 50,000.00, CIF Mla

WHICH IS THE CORRECT TRANSACTION

2 1 VALUE THAT WILL BE ASSESSED BY BOC
DURING THE POST ENTRY AUDIT?
Importer “A”
(Philippines)

METHOD 1: ADJUSTMENTS (MANDATORY ADDITIONS)

(Art.8, WVA / Sec. 3.2.8, CMO 16-2010 / Sec. 4.9, CAO 9-2020)

ASSISTS
The cost of assists are added to the PAPP under the following conditions:
a) If not reflected or included in invoice price
b) If applied directly/indirectly by buyer to seller either free of charge or at a reduced cost (the full/actual cost
applies)
c) If used in the production/manufacture and sale of the imported goods (related to goods being valued)

Value of the following goods and services that were supplied directly or indirectly by the buyer to the seller of
the imported goods.

1. materials, components, parts and similar items incorporated in the imported goods; (Sec. 3.2.8.4.1)
2. tools, dies, moulds, similar items used in the production of the imported goods; (Sec. 3.2.8.4.2)
3. materials consumed in the production of the imported goods; (Sec. 3.2.8.4.3)
4. engineering, development, artwork, design work, and plans and sketches undertaken elsewhere other than in
the Phils. and necessary for the production of the imported goods; (Sec. 3.2.8.4.4)

Prof. RUBEN C. PEDREZA, CB, EE, MCA

Page 4 of 7
 PEDREZA CUSTOMS & TARIFF WEBINARS
410 Burke Street, Brgy. 290, Binondo, Manila
Globe: 09063811016 / 09068172757 Landline: 82423398
Email: [email protected] FB: www.facebook.com/clap.stacruz/

METHOD 1: ADJUSTMENTS (MANDATORY ADDITIONS)

(Art.8, WVA / Sec. 3.2.8, CMO 16-2010 / Sec. 4.9, CAO 9-2020)

ILLUSTRATION B : (ASSISTS)
LUMBER
Importation of Lumber
SAW MILL
CIRCULAR SAW
(direct assist) 1
Importer “A” Payment/inv. - Seller “B”
(Philippines) USD 100,000.00 CIF, Mla (Country Y)
2
3
Supplied seller used CHAIN SAWS
Cost of Assist = $ 1,500.00

WHICH IS THE CORRECT TRANSACTION VALUE

THAT WILL BE ASSESSED BY BOC DURING THE
POST ENTRY AUDIT? CHAIN SAW
(indirect assist)

METHOD 1: ADJUSTMENTS (MANDATORY ADDITIONS)

(Art.8, WVA / Sec. 3.2.8, CMO 16-2010 / Sec. 4.9, CAO 9-2020)

ROYALTIES & LICENSE FEES refers to payments for Intellectual Property Rights – made by the buyer/importer to
his seller and made as a condition of sale in respect to Patents, Trademarks and Copyrights.

Sec. 118, CMTA : Prohibited Importations

Par (f) – Infringing goods as defined under the Intellectual Property Code (RA 8293) & related laws.

Note:
INFRINGING GOODS as defined in CAO 6-2002 (IRR RA-8293) refers to articles imported in violation of the IP
Code.

CRITERIA FOR ROYALTIES IN ORDER TO BE ADDED TO THE PAPP or INVOICE PRICE

a) Payment must be related to the imported goods being valued
b) Paid by buyer either directly or indirectly as a condition of sale (buyer is required to pay the Royalty in
order to obtain the goods)
c) Payment was not included in the invoice price covering sale of the imported goods.

METHOD 1: ADJUSTMENTS (MANDATORY ADDITIONS)

(Art.8, WVA / Sec. 3.2.8, CMO 16-2010 / Sec. 4.9, CAO 9-2020)

ILLUSTRATION No. D : (ROYALTY)

Importation of Flavor Enhancer

1
Payment for the goods
(USD 50,000.00, FOB
Shanghai)
Importer “A” 2 Seller “B”
(Philippines) (China)

Royalty (10% of invoice price) – USD

5,000.00
3

WHICH IS THE TOTAL TRANSACTION VALUE THAT WILL BE

ASSESSED BY BOC DURING THE POST ENTRY AUDIT? 36

P R O C E E D S
Proceeds of subsequent resale, disposal or use of the imported articles shall be added to the PAPP under the
following circumstances:
a) Proceeds are paid by the buyer to the seller
b) Proceeds are paid based on the resale, disposal or use of the imported goods.

Prof. RUBEN C. PEDREZA, CB, EE, MCA

Page 5 of 7
 PEDREZA CUSTOMS & TARIFF WEBINARS
410 Burke Street, Brgy. 290, Binondo, Manila
Globe: 09063811016 / 09068172757 Landline: 82423398
Email: [email protected] FB: www.facebook.com/clap.stacruz/

NOTE:
- Proceeds should not be confused with the flow of dividends or payments made by buyer to the
seller
- A flow of dividends which does not relate to the domestic sale of the imported goods is not
considered as proceeds & therefore not added on to invoice price.

METHOD 1: ADJUSTMENTS (MANDATORY ADDITIONS) METHOD 1: ADJUSTMENTS (MANDATORY ADDITIONS)

(Art.8, WVA / Sec. 3.2.8, CMO 16-2010 / Sec. 4.9, CAO 9-2020) (Art.8, WVA / Sec. 3.2.8, CMO 16-2010 / Sec. 4.9, CAO 9-2020)

ILLUS. H : (Loading/Handling Cost)

ILLUSTRATION F : (PROCEEDS)
Payment for 10x20’, STC:
50 MT of Chemical products Animal Feeds
1 USD 100,000.00
Importer “A” 1 Seller “B”
(Philippines) Undeclared payment for the THC (Taiwan)
Payment for the goods USD 5,000.00
Importer “A” (USD 1,000.00/MT) Seller “B” 4 2
(Philippines) 2 (Germany)
Orders 10x20’ vans
Annual proceeds (5% of net sales -
USD 10,000.00)
3 WHICH IS THE TOTAL TRANSACTION
Producer “C”
VALUE THAT WILL BE ASSESSED BY 3 (Australia)

WHICH IS THE TOTAL TRANSACTION VALUE THAT WILL BE BOC DURING THE POST ENTRY AUDIT?
ASSESSED BY BOC DURING THE POST ENTRY AUDIT?
48
56

CONDITION
Permissible Deductions may only be deducted from the PAPP under the following conditions :
1) When incurred by the buyer
2) When included in the seller’s invoice price
3) When distinguished as a separate value in the invoice

1) PAYMENT FOR THE RIGHT TO REPRODUCE THE IMPORTED GOODS AT THE COUNTRY OF
IMPORTATION

Although Royalty Payments and license fees are part of the value for customs purposes there is an
important exception. When payment has been made for the right to reproduce the imported goods in the
Phils and such payments are not made as a condition of the sale for export to the country of importation of
imported goods. Said payments are not part of the dutiable value for customs purposes. (Interpretative Note
to par. 1C, WVA)

2) CHARGES/COSTS FOR POST- IMPORTATION WORK:

They are deductible only when distinguished or indicated in the invoice or a separate value from the PAPP for the
imported goods. (Sec. 3.2.9, CMO 16-2010)
Such charges are usually undertaken after importation of goods and may consist of:
a) charges for construction (main structure)
b) charges for erection (installation of machineries/equipment)
c) charges for maintenance or technical assistance on imported goods such as industrial plant, machinery or
equipment.

A contract of sale under a “Turn Key” agreement for capital goods such as a plant or machinery may provide
for additional services essential to the erection of the plant or installation of the machinery or equipment at
importer’s designated site.

3) DUTIES AND TAXES PAID IN THE PHILS.:

These refers to import customs duties and taxes assessed by the Bureau of Customs and paid for the imported
goods upon their arrival at a port of entry in the Philippines.

4) FREIGHT COSTS WITHIN THE PHILS.:

These refers to trucking, handling, barging or transshipment expenses paid for the imported goods after being
unloaded from carrying vessel/aircraft at the port of entry in the Philippines.

5) ALL GENUINE DISCOUNTS FOR TRADE, QUANTITY OR CASH PAYMENT:

Such discounts may vary for each importation of the same goods but should be declared as a separate value in the
invoice and must be supported by documents such as the sales contract or agreement.

Prof. RUBEN C. PEDREZA, CB, EE, MCA

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 PEDREZA CUSTOMS & TARIFF WEBINARS
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C. QUANTITY/VOLUME DISCOUNTS
Sellers offers standard price for minimum quantities bought with progressive discounts for quantities falling within set
quantities.
Example : Seller’s Price List offers the following:
Quantity Price
0 - 500 units Std. Price
501 - 1,000 units 5% discount
Over 1,000 units 10% discount
Note: Quantity discounts are allowable in determining the dutiable value as long as they are not given
“RETROSPECTIVELY”

METHOD 1: ADJUSTMENTS (PERMISSIBLE DEDUCTIONS) METHOD 1: ADJUSTMENTS (PERMISSIBLE DEDUCTIONS)

(Art.8, WVA / Sec. 3.2.8, CMO 16-2010 / Sec. 4.9, CAO 9-2020) (Art.8, WVA / Sec. 3.2.8, CMO 16-2010 / Sec. 4.9, CAO 9-2020)

I L L U S T R A T I O N A
I L L U S T R A T I O N B
NON-CUMULATIVE & NON-RETROSPECTIVE PROGRESSIVE DISCOUNT CUMULATIVE BUT NON-RETROSPECTIVE PROGRESSIVE DISCOUNT

Seller’s Price List: Seller’s Price List

QUANTITY DISCOUNT QUANTITY DISCOUNT
0 - 500 pcs Std. Price 0 - 500 pcs Std. Price
501 - 1,000 pcs 5% discount 501 - 1,000 pcs 5% discount
Over 1,000 pcs 10% discount Over 1,000 pcs 10% discount

Import Orders Receives Import Orders Receives

Purchase # 1 : 300 pcs - Std. Price Purchase # 1 : 250 pcs - Std. Price
Purchase # 2 : 400 pcs - Std. Price Purchase # 2 : 450 pcs - 250 at Std. Price + 200 at 5% disc.
Purchase # 3 : 600 pcs - 5% discount Purchase # 3 : 800 pcs - 300 at 5% disc. + 500 at 10% disc.
Purchase # 4 : 200 pcs - Std. Price Purchase # 4 : 400 pcs - 400 at 10% disc.

Prof. RUBEN C. PEDREZA, CB, EE, MCA

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