Fill and Sign the Sample Appointment Letter as Custodian Form

Determining Transaction Value in Related Party Transactions Monika Brenner Office of International Trade U.S. Customs and Border Protection Legal Requirements U.S. Customs Value Law • Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979, 19 U.S.C. 1401a Implementing Regulations • Part 152 of the CBP Regulations (19 CFR Part 152) 2 Transaction Value ƒ Price actually paid or payable for the merchandise when sold for exportation to the United States plus ƒ Packing costs ƒ Selling commissions ƒ Assists ƒ Royalties or License Fees ƒ Proceeds of subsequent resale, disposal, or use ƒ The transaction value shall be the appraised valued only certain conditions are met, including ƒ The buyer and seller are not related, or the buyer and seller are related but the transaction value is acceptable 3 Informed Compliance Tools Published Rulings: CROSS Informed Compliance Publications: ICP’s Determining the Acceptability of Transaction Value for Related Party Transactions, April 2007. • The tests for determining the acceptability of transaction value • CBP’s application of these tests • The relevance of APA’s and transfer pricing studies to the application of the circumstances of sale test • The importer’s obligations regarding the declaration of value in related party transactions. The rulings and ICP is available on the CBP website: www.cbp.gov 4 Tests for determining if transaction value is acceptable Circumstances of Sale Test The transaction value between a related buyer and seller is acceptable if an examination of the circumstances of the sale of the imported merchandise indicates that the relationship between the buyer and the seller did not influence the price actually paid or payable. Test Values The transaction value between a related buyer and seller is acceptable if the transaction value closely approximates certain “test values” which represent previously accepted customs values. 5 Relevance of Tax Considerations in Applying Circumstances of Sale Test ƒ Is transaction value acceptable under the circumstances of sale test because the transfer price meets the requirements of the tax laws? 6 Differences in Approach between Customs and Tax Laws ƒ Different value requirements and time periods Entry-by-entry, product-by-product vs. aggregation of transactions ƒ Different statutory methods ƒ Different comparability requirements: Product similarity vs. functional similarity ƒ Different measures when related party price not arm’s length Rejection of transaction value vs. adjustment of transfer price 7 Relevance of APA’s and TP Studies Pertaining to Section 482 of U.S. Tax Code to Circumstances of Sale Test Conclusions • APA or Transfer Pricing Study by itself is not sufficient to show that a related party transaction value is acceptable for Customs purposes • The underlying facts and conclusions of an APA or transfer pricing study may contain relevant information but the burden of identifying this information is on the importer 8 Importer’s Obligations Regarding the Declaration of Value in Related Party Transactions The importer must use reasonable care in declaring the value of imported goods. Questions to consider before declaring the value based on transaction value: • Is related party transaction value acceptable based on either circumstances of sale test or test values? • Do I have sufficient information and documentation to demonstrate how the test is met? 9 Effect of Post-Importation Adjustments on the Application of Transaction Value ƒ Can transaction value be applied? ƒ If so, how should these adjustments be taken into account? ƒ Are increases and decreases treated differently? ƒ What is Reconciliation and how does it relate to transfer pricing adjustments? 10 CBP’s Application of Post-Importation Rebate Provision CBP has ruled that the rebate provision does not apply when the rebate or decrease is made pursuant to an objective formula in place prior to importation. However, under current policies, many transfer pricing formulas would not qualify as objective formulas. Therefore, many post-importation rebates or decreases to the transfer price cannot be taken into account. 11 Conclusions ƒ Related Party Transactions are common ƒ Importer should analyze related party transactions from a Customs and tax perspective ƒ Analysis should be done in advance ƒ Consult ICP and CBP rulings ƒ Stayed tuned for further information about possible changes to the treatment of certain post-importation adjustments. 12