Industry News

CBP Proposes Broader Use of Transaction Value for "Related Party" Sales and Post-Import Adjustments

January 6, 2012


On December 28, 2011, U.S. Customs and Border Protection (CBP) published a notice in CBP’s bulletin proposing to revoke Headquarters Ruling Letter HQ 547654, relating to transfer pricing and the acceptability of post-importation adjustments claimed pursuant to a formal transfer pricing policy.  In HRL 547654, CBP determined that transaction value did not apply because the price was not considered to be fixed or determinable pursuant to an objective formula prior to importation. CBP is proposing to instead rule that even though the parties are related and certain costs may be within the control of the parties, if the transfer pricing policy is set before importation and is used by the parties, subject to certain factors, it may be considered an objective formula. This would allow the merchandise to be appraised under transaction value, and under such circumstances, post-importation adjustments may be recognized. CBP also proposed to revoke any treatment previously accorded by it to substantially identical transactions.

CBP’s proposed guidance outlines five proposed requirements that would have to be met in order for the transaction value method of appraisement to be allowed when a related party sales price is subject to upward and/or downward post-importation adjustments that are made pursuant to formal transfer pricing policies and specifically related to the declared value of the merchandise. First, the proposal would require a written “Intercompany Transfer Pricing Determination Policy” to be in force, prior to import, which sets out how the transfer price is to be determined. Second, the proposal would require that the importer/buyer be a U.S. taxpayer and that it use its transfer pricing methodology in filing its corporate income tax returns. The company’s transfer pricing policy must specifically cover the products for which the value is to be adjusted. The policy would also be required to specify the adjustments that must be made to the transfer price, and the company must provide detailed explanations and calculations of the adjustments incurred and claimed in the U.S. Finally, adjustments must maintain an “arm’s length” price.

Comments on the proposal may be submitted to CBP by January 27, 2012.

For further information, contact a Barnes/Richardson attorney.