May 30 CBP Bulletin Broadens Use of Transaction Value for "Related Party" Sales and Post-Import Adjustments
In the May 30 issue of the U.S. Customs and Border Protection Bulletin (Vol. 46, No. 23), CBP published a notice revoking a ruling and similar treatment in order to allow transaction value for “related party” sales and post-importation adjustments to be more broadly used.
Five Factors for Transaction Value and Adjustments
CBP issued HQ W548314 to state that subject to meeting five factors, the transaction value method of appraisement will 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 (directly or indirectly) to the declared value of the merchandise. The post-importation adjustments are to be reported using Reconciliation.
The five factors that must be adhered to are:
- Written policy prior to import. A written “Intercompany Transfer Pricing Determination Policy” is in place prior to importation and the policy is prepared taking IRS code section 482 into account;
- Importer is U.S. taxpayer. The U.S. taxpayer uses its transfer pricing policy in filing its income tax return, and any adjustments resulting from the transfer pricing policy are reported or used by the taxpayer in filing its income tax return;
- Policy covers adjusted products. The company’s transfer pricing policy specifies how the transfer price and any adjustments are determined with respect to all products covered by the transfer pricing policy for which the value is to be adjusted;
- Specifies U.S adjustments. The company maintains and provides accounting details from its books and/or financial statements to support the claimed adjustments in the United States; and
- Adjustments maintain ‘arm’s length’ price. There is an absence of other conditions which may indicate that the compensating adjustments do not result in an arm’s length price between the parties.
The CBP decision amounts to a significant change from previous policy, according to industry lawyers.
(See ITT's Online Archives 11123025 for a summary of CBP's proposed revocation)