Trends in customs value disputes in Indonesia
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Trends in customs value disputes in Indonesia

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Ratna Febrina and Heru Setyo Basuki of SF Consulting/Crowe Indonesia discuss customs value disputes in Indonesia during the post-customs clearance inspection.

In international trade, one of the most important aspects to be considered is the components to be included in the customs value declared to the customs authorities for the calculation of import duty.

There are several costs other than the purchase price that must be added into the customs value as the basis for calculation of import duties and import taxes; for example, sales commissions, packaging costs, packing labour costs, transportation costs, handling costs at the loading port, royalties, and 'proceeds'.

In accordance with the agreement between World Trade Organisation (WTO) countries, namely the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (GATT/WTO valuation agreement), the main basis for determining the customs value is the 'transaction price'.

The transaction price is defined as the price actually paid or payable by the importer. All WTO member countries have an obligation to implement the agreement. In addition, many non-WTO members also choose to adopt the 'transaction price', so this principle applies widely in international trade. Indonesia, as a member of the WTO, has ratified the WTO agreement through Law No. 7 of 1994 concerning the Ratification of the Agreement Establishing the World Trade Organisation.

Every year, the government increases the target of the Directorate General of Customs and Excise (DGCE) in collecting customs duty, import taxes, and excise. Though the economic condition still has not returned to normal due to COVID-19, the DGCE's target for 2021 has been set by government to increase slightly by 0.99% compared to the 2020 target.

Since 2017, the DGCE has collaborated with the Directorate General of Tax to carry out joint data, analysis, enforcement, and audits to increase the collection of import duties, import taxes, and excise.

From 2017 to 2020, the DGCE has always succeeded in meeting these targets. Another effort performed by the DGCE to reach these targets is to carry out comprehensive inspections, both during the customs clearance process and in the post customs clearance inspection processes. During the inspection, disputes often arise; most of the disputes relate to customs values.

Based on Article 17 of the Customs Law, the DGCE can re-determine tariff and customs value for the calculation of the customs duty within two years after the date of the import notification document (PIB). The post-customs clearance inspection is also divided into two parts.

  • Re-examination (Penul): examination of import documents (PIB) for one or several PIB which are usually related to HS Code findings and the use of the free trade agreement facility. The examination covers PIB document with a maximum period of the last two years.

  • Post-clearance audit: an audit by the DGCE which is conducted based on the audit plan list (DROA). Disputes that occur cover HS Code, customs facility, amount and type of goods, and gustoms value. With regard to customs value, it starts with the inspection of all importers' payments to all parties abroad, namely those related to the value of goods, freight value, insurance, and other payments related to imported goods or other services. Disputes related to customs value usually relate to the auditors' findings on payments that occur after importation (payable by the importer) where the customs auditor deems these payments to be royalty or 'proceeds'.

Disputes related to the value of goods, freight, and insurance

This type of customs value inspection by the customs auditor is related to the payment by the importer to foreign parties (suppliers) related to imported goods. The auditor will reconcile the customs value declared in the PIB with the value paid by the importer. The tracing process will start from general ledger and then look at proof of bank payment to the company's bank account.

The problem often faced by multinational companies is when companies in Indonesia operate a system from their parent company, i.e. a system for operational activities, which range from creating POs to payments. When making a payment to the supplier, the system does not refer to the PO number, invoice number or PIB number, which makes it difficult to trace the transaction from the PO to the payment. Often payments are also made for several PIB documents without specifying for which import documents the payment is made.

Disputes related to royalty

The GATT/WTO valuation agreement, Article 8 paragraph (1) letter c, regulates regarding royalties as follows:

"Royalties and licence 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 price actually paid or payable".

Ministry of Finance (MoF) Regulation No. 160/PMK.04/2010 concerning customs value for calculation of import duty as amended by MoF Regulation No. 34/PMK.04/2016 (PMK-34/PMK.04/2016) has regulated the requirements for royalties, as follows:

  • Paid by the buyer directly or indirectly;

  • Represents the sales requirements of imported goods as their legal obligations in a contract/agreement to pay royalties, and if this obligation is not fulfilled, the contract/agreement becomes null and void;

  • In connection with imported goods (which contain intellectual property (IP) rights, among others in the form of trademark rights, copyrights or patents).

The conditions above must be cumulatively fulfilled in order for the royalty payment to be included in the customs value which is subject to import duties and import taxes.

During customs audits, disputes often occur due to different ways of interpreting the agreement made by the supplier and the importer. In many cases, the customs auditor blindly deems that every royalty should be part of the customs value and therefore there will be an additional customs duty charged to companies. Basically, royalty which is considered as part of the customs value should meet the cumulative requirements as stated in MoF Regulation No. 34/PMK.04/2016 mentioned above.

Another issue is that the royalty agreement itself is not clear, which causes the auditor to deem that the royalty payment based on the agreement is part of the customs value.

“DGCE’s target for 2021 has been set by the government to increase slightly by 0.99% compared to the 2020 target”

In order to provide guidance to the customs authorities of WCO members, the Technical Committee on Customs Valuation of the World Customs Organisation (WCO Valuation Committee) issued advisory opinion 4.17 on the inclusion of royalties and license fees in the customs value of imported goods, at its 44th session, held in Brussels in May 2017. The opinion has been included in the WCO valuation compendium, following approval by the WCO Council in July 2017.

Advisory opinion 4.17 provides useful technical guidance for customs authorities and enterprises in dealing with similar cases. Although it has no enforceable legal impact in Indonesia, it may be used as a reference in interpreting the requirements for royalty as part of customs value.

Further, when royalty is paid after the importation occurs, the report of royalty could be made in the PIB, in 2016 the DGCE issued regulations related to voluntary declarations and payment of initiatives. This provides an opportunity for companies to be able to declare the estimated customs value to be paid in the future which relates to royalties, 'proceeds' or future prices in the PIB, and then at the time of the settlement date the importer can pay off the underpayments. Consequently, the importer can reduce or even avoid administrative fines when the DGCE conducts a customs audit.

Dispute related to 'proceeds'

'Proceeds' is regulated under MoF Regulation No. 160/PMK.04/2010 concerning customs aalue for calculation of import duty as amended by MoF Regulation No. 34/PMK.04/2016 (PMK-34/PMK.04/2016).

The attachment of PMK-34/PMK.04/2016, No. 5 letter A regarding the requirements for addition to prices actually paid or payable, states: "Costs as referred to in number 4 letter a through number 4 letter d above, must be added to the price actually paid or payable as long as:

  • These costs are contained or required in the transaction and/or importation of the relevant imported goods;

  • Have not been included in the price actually paid or payable; and

  • There is a real evidence or objective and measurable data."

The attachment to PMK-34/PMK.04/2016, No. 4 letter d, states: "What is meant by 'proceeds' is the value of the part of income earned by a buyer on resale, utilisation or usage of imported goods which accrues directly or indirectly to the seller".

During customs audits, there are many cases where DGCE auditors tend to deem any payment either to the supplier or to its affiliates after the importation as proceeds. The payment may be in the form of management fees, marketing fees, etc. If this happens, the companies may review whether the payment actually relates to the imported goods. For example, the marketing fees paid to the supplier of the imported product may not be considered as proceeds if the marketing fees do not relate to the imported goods. This can be proved by the calculation of the marketing fees which does not relate to the imported goods, etc.

The definition of proceeds according to the GATT/WTO valuation agreement is contained in Article 8 paragraph 1 point (d), as follows: "the 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".

Proceeds is also defined in 'A Handbook on the WTO Customs Valuation Agreement' issued by the WTO, as follows: "Proceeds arise in transactions where the seller will receive some portion of the revenue or profits that the buyer realises on resale, disposal, or use of the goods after importation".

It is necessary to know the criteria of a cost that is considered as proceeds. For this reason, the guidelines prepared by the WTO are an important interpretation tool in understanding the criteria of a cost that should be considered as proceeds, especially considering that Indonesia is a member of the WTO and has ratified the WTO agreement through Law No. 7 of 1994 concerning ratification of the agreement establishing the World Trade Organisation.

The provisions of point 4, note to Article 1 of the GATT/WTO valuation agreement state: "The price actually paid or payable refers to the price for the imported goods. Thus, the flow of dividends or other payments from the buyer to the seller that do not relate to the imported goods are not part of the customs value". As such, PMK-34/PMK.04/2016 is basically in line with GATT/WTO valuation agreement.

Closing remarks

The DGCE may redetermine the customs value within two years after the PIB by performing post-customs clearance inspection. There have been many disputes from the post-customs clearance inspection related to the customs value. In general, the disputes over customs value consist of disputes on the value of goods, on freight and insurance, on royalty, and on proceeds.

Disputes on the value of goods, freight, and insurance generally came from the reconciliation, which can be manageable by preparing a regular reconciliation, while disputes on royalty and proceeds are mainly due to the different interpretation of the DGCE on the royalty agreement.

It is advisable to review the agreements related to royalty and proceeds to confirm whether the royalty or proceeds payment should be part of the customs value, which is subject to customs duty and import taxes.

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Ratna Febrina



SF Consulting/Crowe Indonesia

T: +62 21 5794 4548


Ratna Febrina is a partner at SF Consulting/Crowe Indonesia. She specialises in matters relating to dispute resolutions such as tax audit, objection, appeal to the tax court and reconsideration requests to the Supreme Court.

Ratna is a certified tax attorney, tax consultant and obtained a Brevet C – the highest working license qualification. She has over 27 years' experience as a tax consultant including 10 years with Arthur Andersen and Ernst and Young Indonesia. Prior to joining Arthur Andersen as a tax consultant, she was an external auditor in Deloitte.

Ratna is active in the Indonesian Tax Consultant Association and Indonesia Chartered Accountant Association. She has been ranked as a Woman in Tax Leader, Tax Controversy Leader and Indirect Tax Leader by International Tax Review.

Heru Setyo Basuki


Customs manager

SF Consulting/Crowe Indonesia

T: +62 21 5794 4548


Heru Setyo Basuki is a customs manager at SF Consulting/Crowe Indonesia. With more than 21 years' experience, he advises clients on audits, customs regulation, tax court and Supreme Court assistance, and customs licenses.

Heru worked for the DGCE as a customs officer for 16 years before joining SF Consulting/Crowe Indonesia.

Heru graduated from the State College of Accounting (Sekolah Tinggi Akuntansi Negara) in 1998.

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