February, 2018

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The Customs Valuation Status of Flash Sales

Mark K. Neville, Jr.

Q. As a consumer, what’s more exciting than buying something that you crave?
A. That’s easy--getting it at a bargain price.

Let’s start by making some key assertions.
  1. All of us, to one degree or another, are consumers. That means that, whether directly or not, we all buy things from time to time.
  2. Many of us have sold things at one time or another and some of us even make a living by selling things all the time.
  3. And we should make a third and final point, which is that the price agreed between the buyer and seller in those sales may vary from one sale to another, even if the buyer and the seller remain the same and even if the product remains the same.
These direct statements are derived from real experience. In other words, they are that way because that’s the way the world works.

Customs Valuation Law

It’s important that we acknowledge these truths because sales for export play a central role in the customs valuation law. The customs valuation law is not based on some value that is derived from an external reference price list that has been compiled by the customs administration.1

At least that should not be the basis for customs valuation. That resort to an external standard was the basis for “normal value,” which was the primary basis for appraisement for the defunct Brussels Definition of Value (BDV). Most customs valuation law experts and many scholars will hear their cue and immediately chime in here that, since 1979, we have been looking to Transaction Value under the GATT Valuation Agreement.2 Of course you will also note that Transaction Value is defined as “the price actually paid or payable for the goods when sold for export to the country of importation…” So, let’s come full circle. With all of that experience buying and selling that we noted at the outset we should be familiar and comfortable with sales transactions, no? We should proceed with the assurance born of long experience in these tasks, no? At the very least we should be able to recognize a sales transaction when we see one, right?

Alas, in some quarters there is an inability that is grounded in unwillingness to see a sales transaction when it is staring one in the face. It is disappointing when some of those quarters are housed in customs authorities, but that is the unfortunate reality.

Let’s be clear, there could be a question whether there is a valid sale for export, as in a person actually taking title and otherwise showing that it has assumed ownership rights to goods. But that is not our concern. Nor are we concerned in this discussion with a related party sale, in which case the importer would need to show that the relationship has not influenced the price for the goods. Nor is the issue of determining the value of a condition or consideration of present concern. To be sure, these are all important issues that are relevant to customs valuation but are not on this agenda.

Flash Sales

As the title should have implied, this discussion is about “flash sales,” which may be defined thusly

A flash sale is a discount or promotion offered by an ecommerce store for a short period of time.

The first point to make is that a flash sale is over in, well, a flash.

We could make three observations about what is missing from this definition. First, the definition refers to ecommerce sales. But it is also beyond dispute that the phenomenon—a deep discount for a limited time—is not an outgrowth of the internet or even a recent invention at all. Instead, there is a longstanding tradition of sales offers that are carried in newspapers or over the radio, grounded in an offer being available “for the first ten buyers” or “for one day only” or similar terms of limitation. The internet or ecommerce as the medium is only a variation or a further development of this long term phenomenon. What better way for a seller to generate demand or “buzz” about its product than to create scarcity? And a limited duration creates scarcity.3 Second, we should also observe that a feature of a flash sale, what also drives demand, is the size of the discount. And in fact, the discounts are normally significant, i.e., 10%, 20%, 30% or even much more. A loss leader, meaning that the discount is so deep that the seller actually loses money in the few sales that are made in the “flash sale” context, is quite common. To gauge the effect, consider whether there is as much excitement if the discount on a $200 telephone is 5% and that the offer will be open for the next 60 days vs. a discounted price of $30 with the offer closing in 2 days. Or if the same $30 discount is available for only 2 days or if the offer is valid for 60 days. Which do you think will qualify as a “flash sale?”

As a third and final point, it should be made clear that flash sales apply to both goods and services. As I wrote these lines, I have received an email notice from the French national rail system, SNCF, advertising a limited-time offer of a flash sale for train service between Paris and Barcelona for 25 euros.

Ecommerce effect on trade

Another point to be made here is the impact of ecommerce in general and not limited to flash sales. That is that ecommerce arranges for a direct customer linkage with the seller, dispensing with the need for the seller to reach the market through intermediaries or through bricks and mortar stores. The customer shops for goods from his or her desk. Where the goods have already been imported and are stored in inventory in the customer’s own country, there is no direct effect on the importation patterns of the seller. The only change is the elimination of an intermediate distribution function in an entirely new fulfillment model. While that change should not be underestimated, the import flows will be largely unaffected, all of the changes being visited on the post-import business model.

Where the changes to the import flows are profound in the ecommerce model is that the goods have been sold to a customer sitting at his/her desk but the goods are sitting in a foreign country at the time the order is placed. The customer places the order, having viewed the offer to sell on his/her computer screen and when the order is placed the offer is accepted, with delivery to the customer arranged. There is a sale for export to the customer’s country of residence. In this model, the goods will not have been previously imported in bulk into the country of the customer’s residence and then delivered from those domestic stocks of inventory; instead, the goods must be shipped from their foreign location to the individual customer. Such knotty problems as how to ship (express carrier? postal service?), who will be the importer of record (the customer? foreign seller?) and how the seller will manage these processes (by itself? by hiring a “facilitator”?) come up all the time. And the problem area we should review is customs valuation in this last (customer as importer) ecommerce context.

Flash Sale in an Ecommerce Importation

The customs valuation law is quite simple. Economic operators (“traders” in US parlance), customers and customs officials alike will lose their way if they forget the basic principles. If they apply those principles then the answer usually reveals itself without much teasing.

Transaction Value

Applying the tenets of the customs valuation law to a flash sale, where the customer orders a good from a foreign seller at a deep discount, in the absence of any disqualification (condition or consideration that cannot be determined), and in the context of a third party sale (parties are not related thus there is no need to show the price was nit influenced by the relationship), what we are left with is the question, is there a sale for export of the imported good? The answer should be “yes.” The valuation law then leads us to a customs value that is based upon the price actually paid or payable (PAPP) in that sale for export. Assuming that the actual payment amount can be verified, the PAPP is what the customer paid for the imported good.

So far, so good. But it is at this point that many customs authorities start to chafe. When looking at the PAPP in a bona fide flash sale, it goes against the grain for them to honor that PAPP. After all, to take our example, if the telephone is normally sold for $200, why allow a transaction value appraisement based on a PAPP of only $40? Even if the importer can prove that $40 is the price it paid?

Of course, the direct answer is they should respect that PAPP because that is what the Customs Valuation Agreement demands of them. Even if the price is outside the scope of their prized “customs valuation databases,”4 the BDV is no longer valid and the databases cannot and should not be used in an attempt to discredit a valid transaction value appraisement. Some customs authorities will want to attack the status of the sale head on, taking the view that the goods could be offered for sale to customers in many jurisdictions. That general availability, this logic runs, would mean that the goods are not the subject of “a sale for export to the country of importation.” The immediate rejoinder is that the general availability of the offer does not detract from or impeach the specific nature of the sale to the customer in the country of importation arising from the customer’s acceptance of that offer, and the ensuing sale is indeed a qualifying sale for export to the country of importation.

Identical or Similar Merchandise

Assuming that a $40 transaction value is accepted in our hypothetical, however reluctantly, the customs valuation problems do not go away altogether. Customs authorities are concerned that this $40 price might play a role in later transactions where transaction value may not apply. The concern is that this $40 might serve as a new base line for setting customs valuation based on the transaction value of identical or similar merchandise, under Art. 2 and 3 of the Valuation Agreement.5

The first point to make is that prior sales can serve as the benchmark for Art. 2 or Art. 3 only if the commercial level and quantity are the same. If there were to be a later sale to a consumer for a single telephone, those criteria should be met.

There is a third requirement, however, and that is the later sales must be made “at or about the same time” as the earlier transaction. And remember its name, here is where we come to focus on the all-important time element in a flash sale. A deeply discounted price that is valid only for a few hours or for one or two days may not be available to serve as the basis for a later Art. 2 or Art. 3 appraisement. There is some authority for this in Explanatory Note 1.1, issued by the Technical Committee on Customs Valuation of the World Customs Organization (TCCV). The TCCV observed (at para. 12)

This external time standard must allow for practical application of the Article in question. Hence, the words “or about” sold be regarded as simply to make the terms “at the same time” somewhat less rigid. In addition, it should be noted that according to its General Introductory Commentary, the Agreement seeks to base Customs value in simple and equitable criteria consistent with commercial practice. Starting from these principles “at or about the time” should be taken to cover a period of time, as close to the date of exportation as possible, within which commercial practices and market conditions which affect price remain the same. In the final analysis, the question must be decided on a case by case basis within the overall context of the application of Articles 2 and 3.

Customs authorities may avoid using a flash sale price as the basis for later appraisements under Arts. 2 and 3, and much mischief besides, if this direction is embraced.


1. On the customs valuation law generally, see Neville, “Customs Valuation Precepts,” 28 JOIT 19 (July 2017).

2. Officially, the “Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994.”

3. Note that the seller’s motivation for any discount offer will vary from one sales context to another, whether it is a “flash sale” or not. For example, it could be a sellers’s desire to sell off the last few products before shifting to a new version. Or it could be that the seller wants to make a stir with a new product, or it is the seller itself which is a new entrant into the marketplace. Or just the opposite, the seller could be leaving the marketplace. Or the seller may want to match competition. Or…well, you get the idea.

4. Valuation databases are only permitted as a risk assessment tool. WCO Guidelines on the Development and Use of a National Valuation Database as a Risk Assessment Tool.

5. In the US, these two valuation methods are expressed in 19 USC § 1401a (c).

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