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Cost Addition Method - Method 5

Method 5 considers the costs of producing imported goods and calculates their value on this basis. To determine the customs value using this method, information is required on the production costs of the goods being valued, which can only be obtained outside of Russia.

As a rule, the manufacturer of the goods being valued is outside the jurisdiction of the Russian Federation, and therefore the use of this method in practice is limited to those cases in which the parties to the transaction are related parties and the manufacturer is ready to provide the customs authority of the Russian Federation with the necessary data on production costs.

These data must be based on information relating to the production of the goods being valued and provided either by or on behalf of the manufacturer. The information should be based on its commercial reports, provided that they comply with generally accepted norms and accounting principles applied in the country of origin.

Vthe customs value of the goodsaccording to Art. 23 of the Law, the following components are to be included.

but) The cost of materials and costs incurred by the manufacturer in the production of the item being valued.

Materials in this case are:

• raw materials and materials;
• components and parts;
• semi-finished products;
• costs for the delivery of the above components from the place of receipt to the place of production.

The cost of materials does not include internal taxes of the country of production, if they are refundable when exporting finished products.

Production costs should include:

• all costs associated with direct labor costs for the production of imported goods (including the cost of maintaining support staff);
• all costs for assembly operations (when used instead of the processing process);
• the costs of machine processing (machine operations, etc.) associated with the production process of the imported goods;
• indirect costs, such as repair and maintenance of equipment, operation of buildings and structures, etc.

As part of materials and costs in accordance with part 1 of Art. 19 of the Law, the following elements to be included in the customs value should also be taken into account:

• packaging costs, including the cost of packaging, packaging, as well as packaging work;
• the cost of goods and services provided free of charge or at a reduced price by a Russian party to a transaction to a foreign producer in connection with the export of the goods being valued to the Russian Federation;
• engineering and design study and other similar types of work, if they are performed outside the territory of Russia.

b)The amount of profit and the amount of total costs typical for the sale for export to the Russian Federation of goods of the same type by their manufacturers,including the costs of transportation, loading and unloading, insurance and other costs to the place of importation into the customs territory of the Russian Federation.

The total costs in this case represent direct and indirect costs of production and sale of goods in the Russian Federation, which were not listed as part of the costs noted above (p.but).

The amount of profit and total costs should also be determined on the basis of information provided by the manufacturer and be determined in accordance with generally accepted accounting principles.

in) The profit usually received by the exporter as a result of the supply of such goods to the Russian Federation.

As confirmation of the customs value declared by the declarant under method 5, it is necessary to have appropriate documentary evidence of all the listed elements. If the information is provided by the manufacturer, it can only be confirmed in the country in which he agrees to such confirmation. This imposes a severe restriction on the use of the cost addition method. If unconfirmed data are presented to the customs authority, this should be considered as unsubstantiated data, not necessarily reflecting the actual state of affairs.

All these difficulties make the application of method 5 extremely rare in practice.