Attorney Gil Nadel, Gilad Paz
Many of the disagreements that importers have with the Customs Authority have to do with the question of the value of imported products, which is the parameter by which the taxes are calculated. These disagreements arise all the more regarding highly-taxed goods, such as cigarettes, alcohol, perfumes, cars or car parts, etc. In this article we shall look at a number of issues that have been further clarified following a verdict that was recently given.
What is the value of goods for Customs purposes?
Although Israel has a number of various methods for imposing import taxes on goods, often as a defined sales tax according to weight or units of measurement, still, most of the import taxes are imposed as a percentage of the value, and so, the question of the price of the goods for the sake of calculating the taxes rises again and again. Obviously, a Customs tax of 8% for perfumes whose value in the shipping container stands at $50,000 is not equal to a similar Customs tax for a container worth $100,000.
The usual method employed by Customs for determining the value of goods for the sake of calculating taxes is to do so according to the price that was paid to the foreign exporter by the Israeli importer, as well as additional expenses that are determined by law, such as shipment and insurance.
Value invalidation by the Customs Authority:
There are cases in which the Customs Authority suspects that the price declared by the importer is false. This usually occurs in such cases that the price is significantly lower than the real price of the goods. Lowering the prices in such a way may help the importer save a significant amount on import taxes, and it is, of course, a crime.
When the Customs Authority suspects such a lowering of prices, it is permitted, under certain conditions, to determine the true price, as they deem it to be, by which the taxes will be calculated. One of the primary courses of action for Customs is to compare the price of the imported goods with the price of similar or identical goods, and another method is to base the price on the true price that was paid for the goods if the Customs Authority has proof of this.
When an importer and Customs are struggling in court over the question of the declared value, the obligation to present initial proof lies with the importer and not with the Customs Authority, since it is assumed that the importer has the best information and the best means to prove the price he has paid. Often, complaints of this kind are deferred, whether for the importer's failure to meet this first requirement of proving the veracity of the declared price, or whether the Customs Authority is in possession of strong proof that places serious doubt as to the price declared by the importer.
Lowering prices in respect to the verdict:
The verdict in the case of Ariel Perfume:
A verdict has recently been passed in the Magistrates Court of Haifa, where an importer was suspected of lowering prices on imported perfumes. In this case, the Ariel Perfume company was ordered to pay a deficit of approximately NIS 1.9 million, based on the suspicion that the prices were lowered in import and false declarations were given. Customs claimed that it acquired invoices that were not submitted to them when the goods were released. These invoices showed prices that were higher than those that had been declared when the goods had been released. The importer claimed that these invoices were used for negotiations with the foreign supplier and they are not the final invoices. In addition, the importer claimed that he had purchased perfumes from the US using the stock method, which would justify their low prices. Customs further claimed that the price that was declared should be invalidated due to special relations between the importer and the supplier.
The court ruled that the importer had failed to prove that the special relations betweens himself and the supplier had not influenced the price, and this justifies the invalidation of the price that was declared. Likewise, the court ruled that Customs had sufficient evidence for invalidating the declared price, and deferred the claim[1].
In our opinion, in the case of Ariel Perfume, the Customs Authority was in possession of sufficient evidence to prove the invalidation of the price, and for this reason the company's claim was deferred.
But it must be noted that even in cases in which the Customs Authority is not so well-prepared, the importer will still encounter many difficulties because according to the Customs decree, as previously mentioned, it is the importer's responsibility to prove the veracity of the price.
Therefore, when the importer provides explanations and proof supporting the price declared by him, such as a contract with the supplier, or a testimony given by the supplier, the ball is now in the hands of Customs and the importer has in such met the requirements demanded of him. On the other hand if the importer insists that the price he has declared is true, without submitting additional documents other than his testimony and the invoice that was presented at the time of the import, the importer cannot pass the ball on to the Customs, and in this circumstance his claim will most likely be deferred.
For this reason, when an importer has received a reduced price from the supplier or a price that he believes may rouse the suspicions of Customs, it would be wise for him to previously be in possession of written documents that prove the veracity of the price.
Verdict for the case of Mercury and on the matter of Alfalah:
This was not the first and only case in which an importer's claim of lowered prices was deferred in a lawsuit against Customs.
Another example is a case that was tried a few years ago in the District Court of Haifa, regarding lowered prices of alcoholic beverages[2]. In this case a joint investigation carried out by the Customs Authorities in Israel and the Ukraine found that the price of the goods declared by the exporter in the Ukraine was higher than the price declared by the importer in Israel. Therefore, the Customs Authority in Israel invalidated the price of the goods as declared by the importer in Israel and set the price according to that declared by the exporter in the Ukraine. In this case, too, the Customs Authority arrived at court in possession of very strong evidence and therefore the importer's lawsuit was deferred.
Another such case in which the import price declared by the importer was deferred, due to a difference between the import price to Israel and the export price from Spain, occurred regarding the import of tiles from Spain[3]. Here too, the importer was unable to provide an adequate explanation for this difference between the prices and his lawsuit was deferred.
[1][Motion (Haifa Magistrates Court) 10615-11-08 Ariel Perfume Ltd. and others vs. the Customs Authority. Judge Ifat Mishori, verdict of July 8, 2012 party representatives were not noted].
[2][Civil Suit (District Court of Haifa) 1189-07 Mercury M.G. Trade and Investments Ltd. vs. the State of Israel;
[3][Civil suit (Tel Aviv Magistrates Court) 31946-05 Alfalah Lalblatt and Laduat Eltzahia vs. the State of Israel;
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