Are Your Freight Charges Dutiable?
By Margaret Lange
If you are paying duties on international freight and insurance charges, you might be overpaying duty. Just like income taxes, there are certain allowable additions and deductions that can be applied to adjust the value of imported goods. Determining if your freight, insurance, or other related charges are dutiable requires careful consideration and application of Customs Valuation Regulations (CFR19 §152).
The preferred method for determining the dutiable value of imported goods is Transaction Value. As defined by the Tariff Act of 1930, and later amended by the Trade Agreements Act of 1979, the transaction value is the “price actually paid or payable” for the merchandise when sold for exportation to the United States.
Customs and Border Protection (CBP) defines the price actually paid or payable as the total payment (whether direct or indirect, and exclusive of any charges, costs, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller (CFR19 §152.102(f)).
So, what does that actually mean? In a transaction where charges for freight, insurance, or other related charges are included in the seller’s invoice price, those charges can be deducted from the Transaction Value at the time of entry, IF they are actual charges that can be verified. Duty is then assessed on the lower Transaction Value; thus lowering the amount of duty to be paid.
If you purchase goods, from foreign suppliers, under Incoterms®2020 “C and D” (CFR, CIP, CIF, CPT, CIP, DAP, and DDP), the invoice price from your supplier normally includes related freight, insurance, and other service charges. These costs, if they can be clearly documented, may be deducted from the Transaction Value declared on entry into the U.S.
CBP has also previously determined, in multiple binding rulings (i.e. HQ H249096 dated March 17, 2015 and HQ H092560 dated April 7, 2010) that certain origin charges, that are included in the seller’s invoice price, may be properly excluded from transaction value as costs incident to the international shipment of the merchandise. Some of those costs include Container Freight Station (CFS) fees, Booking fees, Foreign Cargo Receipt fees, Loading fees, handlings fees, etc. When the terms of sale are other than Ex-factory (EXW), the seller’s invoice includes all costs relating to the goods until they are delivered to the named place. Only charges that are substantiated by documentary evidence may be excluded from Transaction Value.
Evidence of Actual Costs is required in order to make deductions for freight, insurance, or other related charges. As defined in the CBP Informed Compliance Publication related to proper deductions, CBP considers actual costs to constitute those amounts ultimately paid to the international carrier, freight forwarder, insurance company, or other appropriate provider of such services.
Examples of documents that typically serve as proof of such actual costs include, but are not limited to:
- Commercial documents to and from the service provider such as an invoice or written contract separately listing freight/insurance costs
- Freight/insurance bill
- Through Bill of Lading
- Proof of payment of the freight/insurance charges (i.e., letters of credit, checks, bank statements).
It is a long standing position of CBP that any deductions taken for freight, insurance or other charges incident to the international shipment are actual, as opposed to estimated costs. Transaction Value rules place responsibility on the importer of record to exercise reasonable care and accurately provide CBP with the proper declared value on imported goods.
Taking proper deductions for these costs will reduce the ultimate assessed duty on your imported goods. However, before taking deductions, importers must ensure that the deductions can be substantiated with documentary evidence. If the actual costs are not available, or cannot be verified, entry must be made at the full invoice value without deductions for freight/insurance costs.
If you are unable to substantiate the freight and insurance fees, you are paying more duties than you need to. We highly recommend taking control of your freight movement. This will reduce dutiable fees and charges, as they will be paid directly and outside of the price actually paid or payable to the seller. Freight and insurance charges paid directly by the buyer are not added to the Transaction Value. Additionally, controlling your freight movement may potentially reduce freight costs as well while giving you more options on transit times and service levels. Contact us for a freight quote at https://www.medey.com/get-a-quote/