So what is the actual value of the product for customs purposes?
Most import taxes in Israel are levied as a percentage of the value of the goods. Customs duty or purchase tax, for example, may be imposed at a specified rate based on the product’s value. Alongside these ad valorem taxes, there are also specific taxes calculated according to the quantity, weight, volume or another characteristic of the product – such as a tax based on the alcohol content of a beverage – although these are less common.
In the past, the customs valuation of goods was based primarily on their market value or ordinary price. Today, the usual starting point is the “transaction value” – the price actually paid or payable for the goods when sold for export to Israel – subject to the conditions and adjustments prescribed by law.
Despite this starting point, disputes frequently arise between importers and the Israel Customs Authority regarding the value on which import taxes should be calculated. Customs may reject the price declared in the invoice, for example, where there are doubts as to the invoice’s authenticity, where a special relationship exists between the seller and the buyer, or where a discount has been granted which, in the Authority’s view, cannot be recognized for the purpose of determining the transaction value.
In other cases, the dispute does not concern the price of the product itself, but rather which additional payments should be added to it. Questions may arise, among other things, regarding royalties, license fees, commissions and payments made by the importer to third parties. Not every payment associated with a transaction is automatically included in the customs value. This depends on the nature of the payment, its connection to the goods and the terms of the transaction, and the rules prescribed by law.
Valuation disputes in Israel are particularly common in the personal importation of motor vehicles. Tax rates imposed on vehicles in Israel are high and vary according to the type of vehicle, its country of origin, the applicable trade agreements, its emissions rating and the safety systems with which it is equipped. For example, a vehicle powered by a petrol or diesel engine may be subject to a basic purchase tax rate of 83%, before reductions and tax credits, as well as VAT at a rate of 18%; in appropriate circumstances, customs duty at a rate of 7% may also apply. Since some taxes are calculated on a value that includes other import taxes, the cumulative tax burden may be substantial and may even exceed the vehicle’s purchase price abroad.