CBP May Loosen Interpretation of Transaction Value and Seeks Comments on the Proposed Revocation of HRL 547654

October 3, 2011

Recently, U.S. Customs and Border Protection (CBP) announced its proposal to revoke Headquarters Ruling Letter (HRL) 547654 – a ruling which covers issues on post-importation adjustments and pricing policies. CBP proposes widening the interpretation of pricing policy and permitting companies to more often use transaction value between related parties as a basis of appraisement in their formula for (upward and downward) post-importation adjustments. This would create greater flexibility for transaction value in a company’s transfer pricing policy/formula, rather than having transaction value fixed. Affected companies should submit advance public comments on the proposed notice of revocation by October 22, 2011 to EarlyInputMailbox@dhs.gov.

The proposal includes other changes, and a set of conditions for proper use of transaction value. CBP may allow post-importation downward adjustments.  This implies that CBP would consider the adjustment to be either the price actually paid or a rebate. Therefore, it is asking companies whether a downward price adjustment should be a rebate or change to the price paid.  Criteria for using transaction value include: an Intercompany Transfer Pricing Determination Policy, that the importer is a U.S. taxpayer, that the products subject to adjustment are covered by the company’s transfer pricing policy, that adjustments must avoid value manipulation, and that the policy cites the adjustments that must be made to the transfer price.  Also, the transfer pricing policy must take effect prior to importation.  CBP may require the reconciliation program for applying transaction value and declaring adjusted values.  Further details concerning this proposal are available here.