First Sale Rule
Principle allowing the use of the first sale price in a multi-tiered transaction chain as the basis for customs value, rather than the last price before importation.
Concept and Origin
The first sale rule allows, in a chain of successive sales, the use of the first transaction price (typically between the manufacturer and an intermediary) rather than the last sale price before importation as the basis for customs valuation. This approach can significantly reduce the declared value and therefore customs duties.
Legal Framework
This principle is grounded in Article 1 of the WTO Agreement, which defines transaction value as the "price actually paid or payable for the goods when sold for export to the country of importation."
In the United States, the first sale rule has been well established since the Nissho Iwai case (1982) and codified through CBP practice. The middleman must not take physical possession of the goods.
In the European Union, the situation is more restrictive. The CJEU generally considers the last sale before entry into the customs territory as the basis for customs value.
Conditions of Application
To benefit from this rule, the importer must generally prove:
- That the goods were destined for the import market from the first sale
- That the first sale is a genuine transaction at arm's length price
- That the middleman did not alter the goods
- The existence of complete documentation
Strategic Considerations
The first sale rule is a legitimate customs optimisation tool, but it is subject to increased scrutiny by customs authorities. The potential savings are substantial in supply chains involving trading companies, but the risk of reassessment requires impeccable documentation.