CBP Finds 'Marketing Support' Payments Made Post-Import Doesn't Affect Transaction Value

Some marketing support payments made from a parent company to an importer after the merchandise was imported does not affect the transaction price paid or payable, said CBP in a Sept. 12 ruling, HQ H125118 (here). The ruling came in response to an application for further review of a protest filed by the Pike Law Firm for an undisclosed importer. The importer is an exclusive distributor of motor vehicles imported from the parent company for resale in the U.S., CBP said.

The marketing support payments, which include media and production costs that the parent company agreed to reimburse the importer for in 2008, should reduce the Costs of Goods Sold (COGS), the importer said. Such a reduction would also lower the invoice prices of imported vehicles and parts, lowering the customs values, said CBP. While the importer and the Internal Revenue Service previously reached a an Advance Pricing Agreement (APA), a prospective transfer pricing agreement, to cover all of its imported items from 2002 through 2008, the APA did not cover "marketing support," payments, said CBP. For "administrative convenience," the "tax accounting of these payments was left unchanged from the book accounting because at the end, the goal of bringing Protestant’s operating profit back into the APA range could be accomplished by leaving the payments booked as reductions in marketing expenses."

Despite advice from the company's accounting firm that the costs be counted within the COGS, the payments have been accounted for as a reduction of marketing expenses, said CBP. Because the payments "were tax adjustments, were not covered transactions under the APA, and did not change the price actually paid or payable, these payments should not be considered part of the value of the imported merchandise for customs purposes," the agency said.

Additionally, because the reimbursements from the parent company to the importer were deemed necessary after the merchandise was imported, "such payments were not part of the price actually paid or payable," the agency said. As a result, CBP also found that it's unnecessary for it to rule on whether the importer meets the criteria for its APA to be "considered an objective formula for purposes of appraising the merchandise under transaction value."