Meaning
Customs valuation methods allow importers to declare the value of goods based on the price paid in an earlier transaction in a multi-tiered supply chain. Under the first sale rule, the duty is calculated on the price the middleman paid to the manufacturer rather than the higher price the final importer paid to the middleman. This practice is permitted provided that the first sale was at arm’s length and the goods were clearly destined for export to the country of import at the time of the transaction.
Cost Reduction
Measurable savings on import taxes occur when the valuation of the cargo is lowered legally. The first sale rule provides a competitive advantage to firms with transparent supply chains.
Contractual Evidence
Importers must provide a clear paper trail of every transaction and the movement of the goods to satisfy customs audits. This includes purchase orders, invoices and proof of payment from the middleman to the factory. The first sale rule requires the importer to demonstrate that the factory was aware the goods were for export and that no subsequent processing occurred before the final arrival.
Because this method reduces the revenue collected by the government, it is subject to intense scrutiny and requires record keeping.
Supply Transparency
Cooperation from the factory and the middleman is essential to obtain the necessary financial disclosures. Failure to provide this data prevents the application of the first sale rule.
