CBP’s New Transfer Pricing Policy Goes into Effect
Last week, a new rule finalized U.S. Customs and Border Protection (“CBP” or “Customs”) went into effect regarding transfer pricing. This marks a new policy for CBP and offers companies involved with related-party sales opportunities for post-importation adjustments to the price of the imported goods.
Historically, CBP allowed post-importation price reductions on the entered value only where the adjustments were made according to a formula in place prior to import and written transfer pricing policies and there was no “control” in the adjustments. Under the new policy, CBP will accept an importer’s use of transaction value in related-party sales if a specific 5-factor test is met, summarized as follows:
1. A written “Intercompany Transfer Pricing Determination Policy” must be in is in effect prior to importation that takes into account Internal Revenue Code § 482 (Allocation of income and deductions among taxpayers)
2. The U.S. taxpayer importing company uses its transfer pricing policy in filing its income tax return, and adjustments under the policy are reported in the income tax return;
3. The transfer pricing policy states specifically how the transfer price and adjustments are determined as to all products covered by the policy;
4. The company maintains and provides accounting details in its books and financial statements to support the claimed adjustments in the U.S.; and
5. No other conditions exist that may affect the acceptance of the transfer price by CBP.
If these factors are met and it can be shown that the relationship between the importer and exporter influenced the “price actually paid or payable,” Customs will now allow importers to make both upward and downward post -importation adjustments into account to determine the “transaction value,” used for entry purposes.
Importers are reminded that under this new post-importation adjustment policy, CBP strongly recommends participating in its Reconciliation Prototype Program, although it is not required for use of the new policy.
For companies engaged in a large volume of related-party import transactions, the new transfer pricing policy provides greater opportunities for duty savings and even duty refunds.
Tax advisors and companies needing assistance with this new Customs transfer pricing policy and any other U.S. Customs issues can contact Jon Yormick, firstname.lastname@example.org or calling Toll Free (Canada & U.S.), +1.866.967.6425, or +1.216.928.3474.