Customs holds that the enterprise declared value lower than reality on a component line imported from the parent company, and demands explanation. This is the most classic post-clearance audit situation for FDI enterprises, because group internal prices always sit in customs’ default suspicion zone. This article presents how to explain value discrepancies with weight: which documents prove declared value correct, what happens if explanation is not accepted, and whether customs advisors should be hired for support.
Applicable legal basis
The focus of value explanation is proving the transaction value, meaning the price actually paid or payable for the goods when sold for export to Vietnam, was declared correctly and with all prescribed addition adjustments. The core evidence set comprises the sale contract and price annexes, commercial invoices, bank payment documents matching the declared value, international transport and insurance documents, and the supplier’s price list showing the price applied to the enterprise is not lower than prices sold to independent buyers in equivalent conditions where such materials exist.
For related party transactions, the enterprise must prove the relationship did not influence price: the transfer pricing file prepared for tax purposes is an important twin evidence source, with sales circumstance documents, the group’s uniformly applied pricing policy and price data of similar transactions with independent parties. An independent valuation certificate or opinion may serve as supporting evidence, especially for goods with no ready market comparison price data.
Analysis for the company’s situation
If explanation is not accepted, what customs does next
If explanation and evidence do not convincingly show the transaction value meets application conditions, customs rejects the transaction value method and moves to the next valuation methods in order: transaction value of identical goods, of similar goods, then the deductive, computed and flexible fallback methods. The result is dutiable value assessed on a price basis no longer under the enterprise’s control, usually higher than the actual transaction value, with arrears and attached money layers. This is why the value explanation stage is where resources are most worth investing in the entire post-clearance audit: winning at this stage preserves the enterprise’s own entire price basis.
Should customs advisors support the value explanation
For large-scale value cases or special goods hard to find comparison prices for, customs advisors and independent valuation bring three concrete values: they know which data sources customs will verify the price file against and prepare answers per source; they organise the evidence set in the exact structure of the transaction value method’s application conditions so the appraiser sees sufficiency in one read; and they help the enterprise avoid verbal explanation statements creating contradictions with the transfer pricing file filed with the tax office. The point to remember is advisors cannot create evidence that does not exist: if actual payment flows diverge from declared value, that is a problem to handle at the case’s fact layer, not the presentation layer.
Procedure and document checklist
- Gather the value evidence set for the examined goods line: contracts, invoices, bank payments, transport, insurance, supplier price lists.
- For related transactions: connect the transfer pricing file and group pricing policy documents into the value explanation.
- Write the explanation in the structure of transaction value method application conditions, evidence numbered per condition.
- Consider an independent valuation certificate for special goods without market comparison prices.
- If not accepted: prepare arguments for the subsequent valuation methods and complain against the later assessment decision.
Risks and practical notes
The largest risk is explaining with words and self-made internal schedules instead of independent transaction evidence: in a price dispute, bank payment files and price lists applied to third parties outweigh every explanation schedule the enterprise drafts itself. A second risk is a value explanation before customs contradicting the transfer pricing file before the tax office on the same price level, and when the two authorities reconcile, the enterprise loses credibility on both fronts at once.
Frequently asked questions
Customs says the declared value is lower than the actual one; how to explain?
By proving the declared transaction value correct: contracts and price annexes, commercial invoices, bank payment documents matching value, transport and insurance documents, supplier price lists. For related parties, add the transfer pricing file proving the relationship did not influence price, and an independent valuation certificate for special goods.
Which documents prove that the declared value is correct?
The sale contract, commercial invoices, bank payment documents matching the declared value, transport documents, international insurance, the supplier’s price list applied also to independent buyers, and for related transactions the transfer pricing file with the group’s uniform pricing policy materials.
If customs does not accept the value explanation, what follows next?
Customs rejects the transaction value method and moves to subsequent valuation methods in statutory order such as identical goods value, similar goods value, deductive, computed and fallback methods, leading to assessed dutiable value. The enterprise then complains against the assessment decision if disagreeing.
Should a customs advisor be hired to support the explanation?
Yes for large-scale cases or goods hard to price-compare. Advisors help anticipate the data sources customs uses for verification, organise evidence in the transaction value method condition structure and avoid contradictions with the tax-side transfer pricing file. Advisors cannot substitute the enterprise’s real transaction evidence.
This article has been quality-reviewed by the FLAW AI Legal Council