Korea: Liquidated damages for non-fulfillment of minimum purchase quantity included in price of imported goods
Liquidated damages paid by a buyer for non-fulfillment of the annual minimum purchase quantity under a contract are included in price actually paid
Non-fulfillment of minimum purchase quantity included in price of imported goods
The Council of Customs Valuation & Classification Institute ruled (Decision 22-01-01) that liquidated damages paid by a buyer for non-fulfillment of the annual minimum purchase quantity under a contract are included in the price actually paid for the imported goods under Paragraph 1 of Article 30 of the Customs Act.
The Council determined that whether liquidated damages must be included depends on whether the liquidated damage belongs to the seller and whether such payment is a condition of sale of the imported goods. Because the liquidated damages belonged directly to the seller for the seller's benefit and were a condition of sale for imported goods under the terms of the contract, the liquidated damages both related to the imported goods as part of the supply contract of goods between the buyer and the seller and also correspond\ed to the total amount paid or payable to the seller as a condition of the sale for the imported goods, which must be included in the price actually paid under the Customs Act.
Moreover, just because the amount of liquidated damages was calculated based on the quantity below the minimum purchase quantity, it cannot be regarded as a payment for non-imported goods (i.e., unpurchased shortfall).
When a person making an import declaration has doubts about the price actually paid or payable by a buyer, additional elements, deduction elements, conditions for denying transaction price, or customs valuation method for the goods between related parties, the taxpayer can apply under the Advance Customs Valuation Arrangement (ACVA) program for pre-consultation on customs valuation before the price declaration as per Article 37 of the Customs Act.
Read a December 2022 report [PDF 306 KB] prepared by the KPMG member firm in Korea
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