New Regulations on Valuation of Dutiable Import Commodities Traded on Formula Pricing

In response to the use of formula pricing for goods in international trade and to standardise the valuation of dutiable import and export commodities traded on formula pricing, the Customs has promulgated new regulations on the valuation of dutiable import goods transacted under this pricing method.

The major stipulations are as follows:

1. Within 10 working days of the signing of a formula pricing contract, taxpayers should file a copy of the contract with the local customs at the port of entry;?

2. If the transaction price of the import goods has been determined based on formula pricing, the Customs will assess the dutiable value of the goods using the transaction price;

3. In the case where the transaction price is not set, a taxpayer can take delivery of his goods first after paying a tax deposit. The dutiable value of the goods will be calculated based on the transaction price once it is determined.

Formula pricing refers to the pricing method sometimes used in trade agreement on sale of goods to China in which the buyer and seller do not specify an exact amount as the price, but agree to adopt a formula to determine the actual transaction price. A main feature of formula pricing is that when the trade agreement is signed, a pricing formula, instead of a specific transaction price, is set, and its computation is based on factors in the market at a particular point in time as agreed by both sides. The advantages of such a pricing method are that the predictability of the market, flexibility in trade as well as price fluctuations are taken into consideration.

In light of changes and developments in international trade, the pricing of goods in many long-term international trade agreements on bulk purchase of commodities is now based on formula pricing. For instance, formula pricing is being used in the pricing systems of most of the world's crude oil markets. In China, formula pricing is also becoming more popular in the import and export of bulk commodities. In recent years, formula pricing has been used in the import of crude oil, petrochemical products, raw materials for the metallurgy industry and food such as soyabean through the Tianjin port.