Authors: Ravil Kassilgov, Managing Partner at KP Disputes; Lidiya Martynova, Associate
1. Relevance of the Issue
In recent months, customs authorities have increasingly sought to take dividend payments into account when determining the customs value of imported goods. This issue primarily arises in transactions between related parties—for instance, between a Kazakhstani subsidiary-importer and its foreign parent company acting as the supplier. In such cases, scrutiny over the justification of the transaction price is significantly heightened. Suspicions of price understatement may prompt a thorough examination of financial flows, including dividend distributions. This approach often leads to reassessments and additional imposition of customs duties, thereby exposing companies to considerable financial risks.
This article provides an analysis of the regulatory framework and enforcement practices concerning the potential inclusion of dividends in the customs value of goods, along with practical guidance for importers. The analysis and recommendations are based on the customs legislation of the Eurasian Economic Union (EAEU) and the Republic of Kazakhstan (RoK), the guiding instruments of the World Customs Organization (WCO), as well as relevant judicial precedents.
2. Legal Framework
The determination of customs value in the Republic of Kazakhstan is governed by the Code of the Republic of Kazakhstan “On Customs Regulation in the Republic of Kazakhstan” (the Customs Code), the Customs Code of the Eurasian Economic Union (the EAEU Customs Code), and is based on the principles of the WTO Agreement on the Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the WTO Agreement).
Pursuant to the customs legislation of the EAEU and the Republic of Kazakhstan, various payments associated with the importation of goods must be taken into account when calculating the customs value. The most applied valuation method is the transaction value method (Method 1), which is based on the price actually paid or payable for the imported goods.
This method presumes that the customs value of imported goods is determined on the basis of the transaction price, adjusted as necessary in accordance with Article 7 of the General Agreement on Tariffs and Trade (GATT). It is important to emphasize that the Commentary to Article 39 of the EAEU Customs Code and Explanatory Note 4 to Article 1 of the WTO Agreement on Customs Valuation explicitly provide that payments from the buyer to the seller which are not related to the imported goods (such as dividends) shall not be included in the customs value.
However, Article 40 of the EAEU Customs Code (corresponding to Article 8 of the WTO Agreement) provides for the possibility of adding certain elements to the transaction value. Central to the risk under consideration is subparagraph 3 of paragraph 1 of Article 40 of the EAEU Customs Code (and paragraph 1(d) of Article 8 of the WTO Agreement), which allows for the inclusion of:
«a portion of the proceeds of any subsequent resale, disposal, or use of the imported goods that accrues directly or indirectly to the seller».
Under the aforementioned provisions, customs authorities tend to focus on situations in which a Kazakhstani company, acting as a subsidiary of a foreign parent entity (or another related party), imports goods from such a related supplier, derives the majority of its profit from the resale of those goods on the domestic market, and subsequently adopts a corporate resolution to distribute its net profit in the form of dividends to the same foreign counterparty.
In such circumstances, customs authorities may challenge the declared customs value by asserting that the dividends paid must be added to the customs value of the goods.
1. Relevance of the Issue
In recent months, customs authorities have increasingly sought to take dividend payments into account when determining the customs value of imported goods. This issue primarily arises in transactions between related parties—for instance, between a Kazakhstani subsidiary-importer and its foreign parent company acting as the supplier. In such cases, scrutiny over the justification of the transaction price is significantly heightened. Suspicions of price understatement may prompt a thorough examination of financial flows, including dividend distributions. This approach often leads to reassessments and additional imposition of customs duties, thereby exposing companies to considerable financial risks.
This article provides an analysis of the regulatory framework and enforcement practices concerning the potential inclusion of dividends in the customs value of goods, along with practical guidance for importers. The analysis and recommendations are based on the customs legislation of the Eurasian Economic Union (EAEU) and the Republic of Kazakhstan (RoK), the guiding instruments of the World Customs Organization (WCO), as well as relevant judicial precedents.
2. Legal Framework
The determination of customs value in the Republic of Kazakhstan is governed by the Code of the Republic of Kazakhstan “On Customs Regulation in the Republic of Kazakhstan” (the Customs Code), the Customs Code of the Eurasian Economic Union (the EAEU Customs Code), and is based on the principles of the WTO Agreement on the Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the WTO Agreement).
Pursuant to the customs legislation of the EAEU and the Republic of Kazakhstan, various payments associated with the importation of goods must be taken into account when calculating the customs value. The most applied valuation method is the transaction value method (Method 1), which is based on the price actually paid or payable for the imported goods.
This method presumes that the customs value of imported goods is determined on the basis of the transaction price, adjusted as necessary in accordance with Article 7 of the General Agreement on Tariffs and Trade (GATT). It is important to emphasize that the Commentary to Article 39 of the EAEU Customs Code and Explanatory Note 4 to Article 1 of the WTO Agreement on Customs Valuation explicitly provide that payments from the buyer to the seller which are not related to the imported goods (such as dividends) shall not be included in the customs value.
However, Article 40 of the EAEU Customs Code (corresponding to Article 8 of the WTO Agreement) provides for the possibility of adding certain elements to the transaction value. Central to the risk under consideration is subparagraph 3 of paragraph 1 of Article 40 of the EAEU Customs Code (and paragraph 1(d) of Article 8 of the WTO Agreement), which allows for the inclusion of:
«a portion of the proceeds of any subsequent resale, disposal, or use of the imported goods that accrues directly or indirectly to the seller».
Under the aforementioned provisions, customs authorities tend to focus on situations in which a Kazakhstani company, acting as a subsidiary of a foreign parent entity (or another related party), imports goods from such a related supplier, derives the majority of its profit from the resale of those goods on the domestic market, and subsequently adopts a corporate resolution to distribute its net profit in the form of dividends to the same foreign counterparty.
In such circumstances, customs authorities may challenge the declared customs value by asserting that the dividends paid must be added to the customs value of the goods.
3. Approaches to the Inclusion of Dividends in Customs Value: Practice and Risks
3.1. Legal Uncertainty in the Republic of Kazakhstan
As of today, there is no established judicial practice in the Republic of Kazakhstan addressing the issue under consideration. The existing regulatory resolution of the Supreme Court of the Republic of Kazakhstan concerning customs disputes deals with other aspects, such as the classification of goods, the legal effect of preliminary decisions issued by customs authorities, and general principles governing the accuracy of customs valuation. However, it does not cover the treatment of dividends.
Similarly, there are currently no published official clarifications issued by the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan that would outline the competent authority’s position on this matter in sufficient detail.
This situation gives rise to significant legal uncertainty for participants in foreign economic activity. Companies facing additional customs assessments due to the alleged failure to include dividends in the customs value are compelled to challenge the actions of customs authorities without the benefit of precedential decisions from administrative or judicial bodies in similar cases. As a result, the outcome of such disputes remains highly unpredictable.
A potentially positive development is the Decision of the Court of the Eurasian Economic Union dated 12 February 2025 (Minsk), On the recognition of inaction by the Eurasian Economic Commission, expressed in its failure to resolve the legal uncertainty concerning the inclusion of dividends in the customs value of goods, as being inconsistent with the Union’s international treaties. The ruling confirmed the absence of established practice in Kazakhstan regarding the inclusion of dividends in customs value. Nevertheless, this observation does not eliminate the broader legal uncertainty and associated business risks.
3.2. Judicial Practice in the Russian Federation: divergent Approaches
In the absence of established domestic practice in the Republic of Kazakhstan, as of the date of this publication, there appears to be a discernible trend whereby Kazakhstani customs authorities refer to the enforcement practice of the Russian Federation when conducting audits and imposing additional assessments. However, the judicial practice in Russia on this matter is itself inconsistent and does not provide a definitive legal position.
On the one hand, since the end of 2021, several judicial rulings in the Russian Federation have set out conditions under which payments formally classified as dividends may be included in the customs value. As a general rule, this occurs where a combination of factors indicates a close nexus between the dividends and the imported goods or their subsequent resale. Key precedents in this regard include:
These examples illustrate situations in which Russian courts and regulatory authorities have treated dividends not as investment income, but rather as part of the revenue from the resale of imported goods that accrues to the seller—thus providing grounds for their inclusion in the customs value.
On the other hand, there is also case law to the contrary, where decisions by customs authorities have been found to be unlawful.
3.3. Why Dividends Shall Not Be Included in the Customs Value: WTO and EAEU Legal Provisions
Thus, there is a clear disconnect between the actions of the Kazakhstani customs authorities at the audit stage—where a growing tendency to include dividends in the customs value is increasingly observed, likely influenced by certain elements of Russian practice—and the absence of clear legal criteria, whether in the form of established case law or official guidance from the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan. This, in turn, suggests a strong likelihood of a sharp and rapid increase in disputes with customs authorities.
Despite the lack of a uniform approach in current practice, an analysis of the applicable legal framework supports the conclusion that dividends should not be included in the price actually paid or payable for imported goods. This position is reinforces by the following provisions:
1) Explicit exclusion under international provisions and explanatory materials: the Commentary to Article 39 of the EAEU Customs Code and the Note to Article 1 of the WTO Agreement on Customs Valuation explicitly exclude payments not related to the imported goods (including dividends):
«The price actually paid or payable refers to the price for the imported goods. Therefore, a flow of dividends or other payments from the buyer to the seller that is not related to the imported goods shall not form part of the customs value[1]».
2) Legal nature of dividends: dividends represent a distribution of net profit (after payment of all applicable taxes, including corporate income tax) among a company`s shareholders, pursuant to a corporate resolution adopted by those shareholders. The payment of dividends is contingent upon the overall financial performance of the company, the existence of distributable profit, and the decision of the owners. It is generally not tied in terms of timing or conditions to any specific import transaction. This fundamentally distinguishes dividends from the transaction price, which constitutes an integral part of the payment obligation for the goods supplied.
3) Violation of core customs valuation principles under the WTO: the inclusion of dividends in the customs value contravenes key principles of the WTO Valuation Agreement—namely, the primacy of the transaction value method, as well as the principles of legal certainty, and uniformity. Such practice introduces a degree of arbitrariness and undermines legal predictability for participants engaged in foreign economic activity.
Accordingly, dividends shall not be included in the customs value, as they are not directly linked to the payment for imported goods. Any attempt by customs authorities to characterize them otherwise creates a risk of arbitrary reassessment of the transaction value.
3.4. Business Risks in Kazakhstan
An analysis of current judicial practice across EAEU member states, together with the emerging approach of the Kazakhstani customs authorities on this issue, reveals significant risks for multinational groups importing cosmetics, pharmaceuticals, clothing, and other goods into Kazakhstan:
1) Increased tax burden – resulting from the inclusion of dividends in the customs value. Thisleads to higher customs duties and VAT, ultimately raising the cost of goods for importers and potentially increasing final prices for consumers.
2) Imposition of penalties and interest - arising from the late payment of customs duties and value-added tax (VAT).
3) Increase in customs disputes related to this category of cases.
4) Legal uncertainty – the absence of clear and transparent regulatory provisions governing the treatment of dividends may result in arbitrary actions by customs authorities during audits and subsequent judicial proceedings.
5) Deterioration of the business climate – inconsistent and unpredictable requirements from the customs authority complicate business planning and operations in the country.
4. Practical Recommendations for Importers
In light of the significant risks and prevailing legal uncertainty, companies that import goods from related parties and subsequently distribute dividends to them are strongly advised to adopt a proactive stance and implement comprehensive protective measures.
Where customs authorities raise concerns regarding the structure of the customs value, the burden of proof lies with the declarant to demonstrate that the relationship between the parties has not influence the transaction price. Providing such evidence reduces the risk of allegations of price manipulation.
Recommendation No. 1 of the Eurasian Economic Commission dated 20 June 2012, “On the Rules for Verifying the Influence of the Relationship Between Buyer and Seller on the Transaction Value”, outlines acceptable methods for establishing that the relationship between the buyer and the seller did not affect the price actually paid or payable. These include an analysis of the circumstances of the sale, as well as the application of test values (i.e. comparative benchmarks).
Based on the foregoing analysis and our practical experience, we offer the following recommendations to importers to minimize the risk of dividends being included in the customs value:
1) Preliminary legal analysis: conduct a preliminary legal assessment tailored to the specifics of the company's business operations, including a review of its constitutional documents governing the distribution and payment of dividends, and the nature and exclusivity of its supply arrangements.
2) Response to audit requests: promptly provide relevant and appropriate information and documentation in response to inquiries from customs authorities, ensuring that the data supplied is both material and proportionate to the scope of the request.
3) Substantiation of the arm’s length nature of pricing: compile a comprehensive set of documents and written explanations demonstrating that there are no grounds for including dividends in the customs value. A key component should be an official letter from the seller outlining the pricing methodology for imported goods, including the factors influencing price formation and reference to market indicators that confirm competitive, arm’s length pricing.
4) Cost of goods calculation: provide a clear breakdown of the cost of imported goods, including the percentage markup applied by the seller.
5) Independent expert report: Consider obtaining an independent market study analysing prevailing prices, which can serve as additional confirmation that the prices were established under normal commercial conditions for comparable or identical goods.
6) Net profit calculation: to minimize potential financial risks, prepare a detailed calculation of net profit, broken down into the following key components:
Presenting the profit calculation in this format enhances the transparency of financial reporting, provides a well-reasoned justification for excluding certain amountfs from customs value, and helps to mitigate the risk of financial claims by regulatory authorities.
7) Sources of profit generation: using accounting data submitted during the audit, the declarant should demonstrate that the dividends were not paid solely from profits derived from the resale of goods supplied by the related-party seller, but also from other income sources. This may serve to reduce the proportion of dividends subject to inclusion in the customs value.
8) Focus on the audited period: emphasise any discrepancies between the period during which dividends were distributed and the customs audit period. If the additional assessment includes dividends relating to a period falling outside the scope of the audit, a formal objection should be submitted on that basis.
9) Violation of APPC principles: the inclusion of paid dividends in the customs value of goods contravenes several fundamental principles set out in the APPC, including the principles of procedural uniformity[2], protection of legitimate expectations[3], and the primacy of individual rights[4]. The violation is manifested in the following: the absence of consistent enforcement practice regarding the inclusion of dividends must not infringe the rights of the audited party or undermine its legitimate trust in the prior conduct of the competent authority.
5. Conclusion
At present, businesses are increasingly encountering a new approach by customs authorities, involving the inclusion of dividends in the customs value of imported goods. This trend has emerged in the context of customs audits, where allegations of artificial undervaluation are substantiated by reference to dividends paid to the seller. Such practice creates significant financial exposure and increases the administrative burden associated with customs audits and subsequent litigation.
The absence of clear regulatory provisions and a formal methodology for the voluntary inclusion of dividends in the customs value complicates business planning, particularly in relation to pricing imported goods. Accordingly, declarants should take into account the risks identified in this article and implement appropriate risk-mitigation measures at all relevant stages: supply planning, import declaration, and customs inspections.
This material is for informational purposes only, does not constitute an exhaustive legal analysis, and should not be considered as legal advice. Professional legal counsel should be sought in relation to specific cases.
Download PDF
[1] Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 // URL: https://www.wto.org/english/docs_e/legal_e/cv_e.htm#art1
[2] The Government of the Republic of Kazakhstan and administrative authorities shall take measures to ensure the uniformity of administrative procedures and administrative acts, guaranteeing a clear and unambiguous interpretation of the adopted regulatory legal acts that serve as the basis for and are implemented through administrative procedures. (Part 2, Article 15-1 of the Administrative Procedure and Process Code of the Republic of Kazakhstan)
[3] A participant’s legitimate trust in the actions of an administrative authority or official shall be protected by the laws of the Republic of Kazakhstan.
An administrative act or administrative action (or omission) shall be presumed lawful and justified unless and until the administrative authority, official, or a court determines otherwise in accordance with the legislation of the Republic of Kazakhstan. (Parts 1–2, Article 13 of the Administrative Procedures and Process Code of the Republic of Kazakhstan)
[4] All doubts, contradictions, and ambiguities in the legislation of the Republic of Kazakhstan on administrative procedures shall be interpreted in favor of the participant in the administrative procedure. (Article 12 of the Administrative Procedures and Process Code of the Republic of Kazakhstan)
3.1. Legal Uncertainty in the Republic of Kazakhstan
As of today, there is no established judicial practice in the Republic of Kazakhstan addressing the issue under consideration. The existing regulatory resolution of the Supreme Court of the Republic of Kazakhstan concerning customs disputes deals with other aspects, such as the classification of goods, the legal effect of preliminary decisions issued by customs authorities, and general principles governing the accuracy of customs valuation. However, it does not cover the treatment of dividends.
Similarly, there are currently no published official clarifications issued by the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan that would outline the competent authority’s position on this matter in sufficient detail.
This situation gives rise to significant legal uncertainty for participants in foreign economic activity. Companies facing additional customs assessments due to the alleged failure to include dividends in the customs value are compelled to challenge the actions of customs authorities without the benefit of precedential decisions from administrative or judicial bodies in similar cases. As a result, the outcome of such disputes remains highly unpredictable.
A potentially positive development is the Decision of the Court of the Eurasian Economic Union dated 12 February 2025 (Minsk), On the recognition of inaction by the Eurasian Economic Commission, expressed in its failure to resolve the legal uncertainty concerning the inclusion of dividends in the customs value of goods, as being inconsistent with the Union’s international treaties. The ruling confirmed the absence of established practice in Kazakhstan regarding the inclusion of dividends in customs value. Nevertheless, this observation does not eliminate the broader legal uncertainty and associated business risks.
3.2. Judicial Practice in the Russian Federation: divergent Approaches
In the absence of established domestic practice in the Republic of Kazakhstan, as of the date of this publication, there appears to be a discernible trend whereby Kazakhstani customs authorities refer to the enforcement practice of the Russian Federation when conducting audits and imposing additional assessments. However, the judicial practice in Russia on this matter is itself inconsistent and does not provide a definitive legal position.
On the one hand, since the end of 2021, several judicial rulings in the Russian Federation have set out conditions under which payments formally classified as dividends may be included in the customs value. As a general rule, this occurs where a combination of factors indicates a close nexus between the dividends and the imported goods or their subsequent resale. Key precedents in this regard include:
- Case № A40-20123/2021 (Arbitrazh Court of the Moscow District, Ruling dated 29 November 2023): the court concluded that the dividends received by the seller-shareholder from the distribution of net profit by the buyer (LLC “Chanel”) were related to the imported goods and should be included in the transaction value. This was justified as part of the proceeds from the subsequent resale of the goods accruing directly or indirectly to the seller (pursuant to subparagraph 3, paragraph 1, Article 40 of the EAEU Customs Code).
- Case № A09-1129/2021 (Arbitrazh Court of the Bryansk Region, Decision dated 17 October 2023): the court rejected the claim of the applicant (LLC “Pull & Bear CIS”) and upheld the legality of the customs authority’s decision. The court’s key arguments were that royalty payments for know-how and other intellectual property were related to the imported goods and constituted a condition of sale within the corporate group. The dividends paid to the related party supplier were also to be included in the customs value, as the applicant failed to demonstrate that the relationship had no influence on pricing or that the transaction reflected arm`s length terms.
- Case № A06-3555/2023 (Arbitrazh Court of the Astrakhan Region, Decision dated 9 October 2023): the court denied the claim of the applicant (LLC “MASCHIO-GASPARDO RUSSIA”), finding that the applicant had not proved that the relationship with the seller-shareholder did not affect the price of the imported goods. Accordingly, the court held that the customs authority was justified in including a portion of the paid dividends—calculated in proportion to the revenue derived from those goods—into the customs value as part of the seller’s subsequent income.
- Position of the Ministry of Finance of the Russian Federation (Letter № 27-00-04/34151): the Ministry clarified that where a buyer imports goods from a single party that is also its sole shareholder, the dividends paid to the seller may, in effect, be regarded as proceeds from the subsequent sale of the goods and therefore subject to inclusion in the customs value (in accordance with subparagraph 3, paragraph 1, Article 40 of the EAEU Customs Code).
These examples illustrate situations in which Russian courts and regulatory authorities have treated dividends not as investment income, but rather as part of the revenue from the resale of imported goods that accrues to the seller—thus providing grounds for their inclusion in the customs value.
On the other hand, there is also case law to the contrary, where decisions by customs authorities have been found to be unlawful.
- Case № A68-9918/2024 (Arbitrazh Court of the Tula Region, Decision dated 19 December 2024): the court ruled in favor of the applicant, LLC “Herbalife International RS,” finding that the dividends paid constituted investment income not directly related to the imported goods. The court concluded that net profit is independent of any manipulation of the customs value, and therefore the inclusion of dividends was unjustified.
- Case № A09-1177/2024 (Arbitrazh Court of the Bryansk Region, Decision dated 21 October 2024): the court ruled in favour of the applicant, LLC “SCHOTT Pharmaceutical Packaging,” and found the customs authority’s decision to be unlawful. The court held that the customs authority had violated the audit procedure, failed to establish a connection between the dividends and the imported raw materials, and did not demonstrate any impact of the relationship on the transaction price. The recalculation of additional customs payments was deemed unfounded, as it failed to consider the actual use of a portion of the imported raw materials (including those used in products sold during other periods or at a loss) and lacked support from a reliable methodology.
3.3. Why Dividends Shall Not Be Included in the Customs Value: WTO and EAEU Legal Provisions
Thus, there is a clear disconnect between the actions of the Kazakhstani customs authorities at the audit stage—where a growing tendency to include dividends in the customs value is increasingly observed, likely influenced by certain elements of Russian practice—and the absence of clear legal criteria, whether in the form of established case law or official guidance from the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan. This, in turn, suggests a strong likelihood of a sharp and rapid increase in disputes with customs authorities.
Despite the lack of a uniform approach in current practice, an analysis of the applicable legal framework supports the conclusion that dividends should not be included in the price actually paid or payable for imported goods. This position is reinforces by the following provisions:
1) Explicit exclusion under international provisions and explanatory materials: the Commentary to Article 39 of the EAEU Customs Code and the Note to Article 1 of the WTO Agreement on Customs Valuation explicitly exclude payments not related to the imported goods (including dividends):
«The price actually paid or payable refers to the price for the imported goods. Therefore, a flow of dividends or other payments from the buyer to the seller that is not related to the imported goods shall not form part of the customs value[1]».
2) Legal nature of dividends: dividends represent a distribution of net profit (after payment of all applicable taxes, including corporate income tax) among a company`s shareholders, pursuant to a corporate resolution adopted by those shareholders. The payment of dividends is contingent upon the overall financial performance of the company, the existence of distributable profit, and the decision of the owners. It is generally not tied in terms of timing or conditions to any specific import transaction. This fundamentally distinguishes dividends from the transaction price, which constitutes an integral part of the payment obligation for the goods supplied.
3) Violation of core customs valuation principles under the WTO: the inclusion of dividends in the customs value contravenes key principles of the WTO Valuation Agreement—namely, the primacy of the transaction value method, as well as the principles of legal certainty, and uniformity. Such practice introduces a degree of arbitrariness and undermines legal predictability for participants engaged in foreign economic activity.
Accordingly, dividends shall not be included in the customs value, as they are not directly linked to the payment for imported goods. Any attempt by customs authorities to characterize them otherwise creates a risk of arbitrary reassessment of the transaction value.
3.4. Business Risks in Kazakhstan
An analysis of current judicial practice across EAEU member states, together with the emerging approach of the Kazakhstani customs authorities on this issue, reveals significant risks for multinational groups importing cosmetics, pharmaceuticals, clothing, and other goods into Kazakhstan:
1) Increased tax burden – resulting from the inclusion of dividends in the customs value. Thisleads to higher customs duties and VAT, ultimately raising the cost of goods for importers and potentially increasing final prices for consumers.
2) Imposition of penalties and interest - arising from the late payment of customs duties and value-added tax (VAT).
3) Increase in customs disputes related to this category of cases.
4) Legal uncertainty – the absence of clear and transparent regulatory provisions governing the treatment of dividends may result in arbitrary actions by customs authorities during audits and subsequent judicial proceedings.
5) Deterioration of the business climate – inconsistent and unpredictable requirements from the customs authority complicate business planning and operations in the country.
4. Practical Recommendations for Importers
In light of the significant risks and prevailing legal uncertainty, companies that import goods from related parties and subsequently distribute dividends to them are strongly advised to adopt a proactive stance and implement comprehensive protective measures.
Where customs authorities raise concerns regarding the structure of the customs value, the burden of proof lies with the declarant to demonstrate that the relationship between the parties has not influence the transaction price. Providing such evidence reduces the risk of allegations of price manipulation.
Recommendation No. 1 of the Eurasian Economic Commission dated 20 June 2012, “On the Rules for Verifying the Influence of the Relationship Between Buyer and Seller on the Transaction Value”, outlines acceptable methods for establishing that the relationship between the buyer and the seller did not affect the price actually paid or payable. These include an analysis of the circumstances of the sale, as well as the application of test values (i.e. comparative benchmarks).
Based on the foregoing analysis and our practical experience, we offer the following recommendations to importers to minimize the risk of dividends being included in the customs value:
1) Preliminary legal analysis: conduct a preliminary legal assessment tailored to the specifics of the company's business operations, including a review of its constitutional documents governing the distribution and payment of dividends, and the nature and exclusivity of its supply arrangements.
2) Response to audit requests: promptly provide relevant and appropriate information and documentation in response to inquiries from customs authorities, ensuring that the data supplied is both material and proportionate to the scope of the request.
3) Substantiation of the arm’s length nature of pricing: compile a comprehensive set of documents and written explanations demonstrating that there are no grounds for including dividends in the customs value. A key component should be an official letter from the seller outlining the pricing methodology for imported goods, including the factors influencing price formation and reference to market indicators that confirm competitive, arm’s length pricing.
4) Cost of goods calculation: provide a clear breakdown of the cost of imported goods, including the percentage markup applied by the seller.
5) Independent expert report: Consider obtaining an independent market study analysing prevailing prices, which can serve as additional confirmation that the prices were established under normal commercial conditions for comparable or identical goods.
6) Net profit calculation: to minimize potential financial risks, prepare a detailed calculation of net profit, broken down into the following key components:
- Net profit derived directly from the resale of imported goods;
- Profit generated from other activities unrelated to the imported goods;
- A detailed breakdown of expenses reducing the final profit.
Presenting the profit calculation in this format enhances the transparency of financial reporting, provides a well-reasoned justification for excluding certain amountfs from customs value, and helps to mitigate the risk of financial claims by regulatory authorities.
7) Sources of profit generation: using accounting data submitted during the audit, the declarant should demonstrate that the dividends were not paid solely from profits derived from the resale of goods supplied by the related-party seller, but also from other income sources. This may serve to reduce the proportion of dividends subject to inclusion in the customs value.
8) Focus on the audited period: emphasise any discrepancies between the period during which dividends were distributed and the customs audit period. If the additional assessment includes dividends relating to a period falling outside the scope of the audit, a formal objection should be submitted on that basis.
9) Violation of APPC principles: the inclusion of paid dividends in the customs value of goods contravenes several fundamental principles set out in the APPC, including the principles of procedural uniformity[2], protection of legitimate expectations[3], and the primacy of individual rights[4]. The violation is manifested in the following: the absence of consistent enforcement practice regarding the inclusion of dividends must not infringe the rights of the audited party or undermine its legitimate trust in the prior conduct of the competent authority.
5. Conclusion
At present, businesses are increasingly encountering a new approach by customs authorities, involving the inclusion of dividends in the customs value of imported goods. This trend has emerged in the context of customs audits, where allegations of artificial undervaluation are substantiated by reference to dividends paid to the seller. Such practice creates significant financial exposure and increases the administrative burden associated with customs audits and subsequent litigation.
The absence of clear regulatory provisions and a formal methodology for the voluntary inclusion of dividends in the customs value complicates business planning, particularly in relation to pricing imported goods. Accordingly, declarants should take into account the risks identified in this article and implement appropriate risk-mitigation measures at all relevant stages: supply planning, import declaration, and customs inspections.
This material is for informational purposes only, does not constitute an exhaustive legal analysis, and should not be considered as legal advice. Professional legal counsel should be sought in relation to specific cases.
Download PDF
[1] Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 // URL: https://www.wto.org/english/docs_e/legal_e/cv_e.htm#art1
[2] The Government of the Republic of Kazakhstan and administrative authorities shall take measures to ensure the uniformity of administrative procedures and administrative acts, guaranteeing a clear and unambiguous interpretation of the adopted regulatory legal acts that serve as the basis for and are implemented through administrative procedures. (Part 2, Article 15-1 of the Administrative Procedure and Process Code of the Republic of Kazakhstan)
[3] A participant’s legitimate trust in the actions of an administrative authority or official shall be protected by the laws of the Republic of Kazakhstan.
An administrative act or administrative action (or omission) shall be presumed lawful and justified unless and until the administrative authority, official, or a court determines otherwise in accordance with the legislation of the Republic of Kazakhstan. (Parts 1–2, Article 13 of the Administrative Procedures and Process Code of the Republic of Kazakhstan)
[4] All doubts, contradictions, and ambiguities in the legislation of the Republic of Kazakhstan on administrative procedures shall be interpreted in favor of the participant in the administrative procedure. (Article 12 of the Administrative Procedures and Process Code of the Republic of Kazakhstan)