Transaction Value Should Include Post-Importation Adjustments to the Transfer Price, CBP Holds

On May 30, 2012, U.S. Customs and Border Protection (CBP) issued a revocation of Headquarters Ruling Letter (HRL) 547654, dated November 8, 2001, relating to transfer pricing and the acceptability of post-importation adjustments, claimed pursuant to a formal transfer pricing policy. In addition, CBP also revoked any treatment previously accorded by it to substantially identical transactions. (Notice of the proposed revocation was published on December 28, 2011, in the Customs Bulletin, Vol. 46, No. 1. According to CBP, multiple comments were received concerning the notice of the proposed revocation). 

In HRL 547654, Customs held that transaction value did not apply 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. It is now CBP's position that subject to certain conditions, 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. 

Specifically, in HRL W5148314, dated May 16, 2012, CBP considered whether the related party price determinable pursuant to the transfer pricing policy, constitutes a formula at the time of importation for purposes of determining transaction value, and if so, is it acceptable to take post-importation price adjustments (upward and downward) into account in determining transaction value. 

Based on the comments CBP received in response to the proposed revocation of HRL 547654, 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 CFR 152.103(a)(1) as follows: 

    *    A written "Intercompany Transfer Pricing Determination Policy" is in place prior to importation and the policy is prepared taking Internal Revenue Service (IRS) code section 482 into account;

    *    The U.S. 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;

    *    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;

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

    *    No other conditions exist that may affect the acceptance of the transfer price by CBP.

CBP stated in HRL W5148314 that it, "is of the view that post-importation adjustments (both downward and upward), to the extent they occur, may be taken into account in determining the transaction value under 19 U.S.C. §1401a(b). We find the downward adjustments in the transfer price made pursuant to the valid transfer pricing study are not rebates of, or other decreases in, the price actually paid or payable that are made or otherwise effected between the buyer and seller after the date of importation of the merchandise into the United States [...]. Instead, the post-importation adjustments represent an element of the determination of the price actually paid or payable in accordance with 19 CFR §152.103(a)(1). Therefore, the post-importation adjustments made pursuant to the transfer pricing policy in this case simply reflect what should have been reported as the invoice price upon entry, had the exact price information of the imported merchandise been available at the time." 

CBP urged importers who may anticipate post-importation adjustments to use the Reconciliation program. While not mandatory, reconciliation will allow importers to collect information to document their transactions as at arm's length. If importers claim the adjustments outside of the Reconciliation program, they are expected to demonstrate at the time of entry that the price is at arm's length and to provide supporting information.