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backAMERItalk June, 2012

U.S. Customs to allow up or down transfer pricing adjustments for transaction value

In a major change to past policy, on May 30, 2012, US Customs and Border Protection (CBP) published in the weekly Customs Bulletin and Decisions a revocation of Headquarters ruling (HQ) 547654 of November 8, 2001 which had held that transaction value did not apply to situations in which there were post-importation transfer pricing adjustments because the price was not fixed or determinable pursuant to an objective formula prior to importation as the price was within the control of the buyer and/or the seller. An advance notice to revoke HQ 547654 was posted on the CBP website September 23, 2011 and a proposal to revoke was published on December 28, 2011 in the Customs Bulletin and Decisions.

It is now CBP's position that subject to certain conditions, outlined in HQ W548314 (May 16, 2012), the transaction value method of appraisement will not be precluded when a related party sales price is subject to 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. These adjustments, whether upward or downward, are to be taken into account in determining transaction value. Additionally, the importers who wish to apply the transaction value method arestrongly encouraged to use Reconciliation to report the adjustments to CBP and to determine the transaction value.

CBP revised the list of factors used to determine whether an objective formula is in place prior to importation for purposes of determining the price within the meaning of 19 C.F.R. §152.103(a)(1) as follows:

(1) 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;

(2) The US 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;

(3) 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;

(4) The company maintains and provides accounting details from its books and/or financial statements to support the claimed adjustments in the United States; and,

(5) No other conditions exist that may affect the acceptance of the transfer price by CBP.

In addition to the above factors, the importer must meet the normal requirements for related party transactions and show that the relationship has not influenced the price. 19 C.F.R. §152.103(l)(1) provides examples to illustrate that the relationship has not influenced the price, but other factors may be relevant as well. In the specific case before CBP, CBP allowed the importer to show foreign price lists to unrelated parties, although foreign pricing is generally not relevant, and to explain pricing differences.

In accordance with 19 U.S.C. §1625(c), the new policy is effective July 30, 2012. If you have any questions, please contact Stuart P. Seidel, or any member of the US Customs practice.

Source: Baker & McKenzie - GAI

For more information or to contact Baker & McKenzie, please click here.

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