CBP Contemplates Expanding Acceptability of Transfer Price
Formulas Involving Post-Importation Adjustments Under Transaction
February 2012 | By means of a notice published on
its Website, U.S. Customs and Border Protection (CBP) announced that it
is re-examining the applicability of transaction value to imported goods
for which the price paid is subject to post-importation adjustments
based on a company’s transfer pricing policy or formula.
Although CBP regulations provide that transaction value may be
arrived at by the application of a formula, CBP has found in many cases
that post-importation transfer pricing adjustments could not be
accounted for under transaction value either because (1) the price was
not determined through an objective formula, or (2) the adjustments
resulted in a decrease in the transfer price which was considered a
post-importation rebate which, by statute, cannot be taken into account
in determining transaction value.
CBP is now considering accepting post-importation price adjustments
in determining final, dutiable transaction value provided that the
transfer pricing policy is established before importation and:
- there is a written “Intercompany Transfer Pricing
Determination Policy,” which sets out how the transfer price is to
be determined prior to the importation;
- the importer/buyer is the U.S. taxpayer, and it uses its transfer
pricing methodology in filing its corporate tax returns and in
determining the transfer price for the products covered by the transfer
- the company’s transfer pricing policy specifically covers the
products for which the value is to be adjusted;
- the policy specifies what adjustments are to be made to the transfer
price, and how those adjustments are to be determined;
- the adjustments, although to a certain extent within the
“control” of the parties, do not result in value
- if adjustments are made, the company provides detailed explanations
and calculations of the adjustments incurred in the United States and
claimed after the importation;
- the relevant transfer pricing policy pursuant to which adjustments
are claimed is in effect prior to the importation; and
- there is an absence of other circumstances which may indicate that
the compensating adjustments do not result in an arm’s-length
price between the parties.
No single one of the above factors would be considered determinative,
and the finding as to whether an objective formula exists would be made
on a case-by-case basis.
In addition, CBP is considering the view that downward adjustments in
the transfer price made pursuant to the transfer pricing policy would
not constitute post-importation “rebate[s] of, or other
decrease[s] in, the price paid or payable.” Thus,
adjustments resulting in a reduction in the transfer price would be
acceptable in arriving at the transaction value of imported goods.
CBP notes that, as with any other related party transaction,
companies would still need to be able to demonstrate that the
transaction value is acceptable either because the circumstances of the
sale indicates that the relationship between buyer and seller did not
influence the price actually paid or payable, or because the transaction
value closely approximates one of the test values under the statute.
Finally, CBP contemplates that importers wishing to claim
post-importation transfer pricing adjustments would be required to use
CBP’s reconciliation program in order to properly account for the
total “price paid or payable” for imported merchandise
affected by such adjustments.
Content provided by M. Barry Levy, Donna L. Shira, and Kenneth R. Paley, at Sharretts,
Paley, Carter & Blauvelt, P.C., International Trade Counsel for the
Toy Industry Association.