CBP Finds Importer's Adjustments Don't Satisfy Criteria for 'Related Party' Sales Adjustments

A pharmaceutical product importer cannot claim downward adjustments to the price actually paid to a foreign related supplier without providing information required for post-import adjustments to related party transactions, said an Aug. 18 CBP ruling (here). The ruling, HQ H204329, was the result of an 2012 internal advice request on the treatment of extra payments made by the importer to its related supplier for tax purposes. CBP had added the payments to the values originally declared on entry documentation. The importer, redacted in the ruling, argued to CBP that even though the post-importation tax-related adjustments were assigned to certain products, the payments were made solely for tax purposes and that the previously declared customs values should remain.

The importer, subject to a prospective transfer pricing agreement known as an Advance Pricing Agreement, made accounting adjustments to its profits, including fund transfers between it and the related supplier, to stay within the required net operating margins, said CBP. While there are some cases that post-import adjustment may not be related to the imported goods, "this is not the case here," the agency said. The importer ultimately set its prices pursuant to a bilateral APA and profit adjustments resulted in the revisions to the parties’ supply agreements, said CBP. The profit adjustments must be reported to CBP since they ultimately relate to the imported goods, it said.

In order for the company to claim post-import adjustments it would need to meet the standards CBP set for related party transactions and post-import adjustment (see 12060427), the agency said. While the importer said it used transaction value method, the company didn't give any information on the five factor criteria CBP set for "cases that involve compensating (post-importation) adjustments made to the profitability of related parties pursuant to APAs or transfer pricing studies," it said. While the importer's lawyer argued that the criteria do not apply in this case, CBP disagreed because it's already established that the adjustments relate to the value of the imported goods and must be reported to the agency, said CBP.

By not including the required related party pricing information, the importer "has failed to demonstrate that the adjusted prices have not been influenced by the relationship for purposes of the circumstances of the sale or test values tests," said CBP. As a result, "to the extent the value of the goods has increased, any duties owed should be tendered" and "downward adjustments will not be recognized," said CBP.