Transfer Pricing and Customs Valuation Q&A with the Experts
In October, MAPI held its most attended webinar of 2017: Transfer Pricing & Customs Valuation. In today’s cross-border business environment, transfer pricing and U.S. Customs valuation are integral, and companies must have a clear understanding of the unique requirements of each to the business. Leading experts, Jennifer Horvath, senior associate attorney, Braumiller Law Group and John Metrich, senior trade auditor, Deleon Trade LLC, led the webinar and discussed transfer pricing and valuation under U.S. Customs law. They walked through elements that importers need to be aware of to meet requirements and declare the proper prices and values. They also addressed transfer pricing from maquiladoras and the specific methodology to apply in those situations.
Due to the large number of attendees, we were unable to get through all of the questions during the allotted webinar time. Jennifer and John took time to address the additional attendee questions that follow.
Q1: Were there any fines issued to the company due to the 70% discrepancy in computed value vs. declared value? What is the acceptable threshold?
A1: Because the variance was quantified and disclosed to CBP via prior disclosure, the only penalty issued relates to the interest penalty that accompanies a prior disclosure submission. For computed value variances, CBP typically expects variances of 10% or less when the variances are declared via reconciliation. If CBP were to identify the variance during an audit or other inquiry, they could issue negligence or gross negligence penalties to the company if the issues were not disclosed to CBP via a prior disclosure.
Q2: Have your clients had success appealing port decisions on this to HQ?
A2: We have not encountered any decisions from the Port regarding transfer pricing that have required an appeal.
Q3: Is depreciated FIFO value acceptable for import transactions between related parties when no sales occur? i.e., assets recovery imports
A3: There could be instances where that would be acceptable, but more information is needed to determine if that would be acceptable for your specific transaction.
Q4: Would it be possible to use the final sale price to the customer rather than a computed cost in a Maquiladora scenario?
A4: The short answer is that it depends, but likely no. The final selling price to the customer in the U.S. would be similar to the starting point for a deductive value, which comes before the computed value for the basis of appraisement hierarchy. There are more specific rules that apply to determining the selling price “in the greatest aggregate quantity” rather than just taking the actual selling price. In addition, there are specific rules that apply to the elements that can be deducted. We recommend looking at 19 CFR 152.105 for more information.
Q5: What would be an acceptable INCOTERM for sales between related US/MX parties?
A5: This varies and is dependent on the business relationship and terms of the transactions between the parties.
Q6: Can you please provide an example of a maquiladora transaction that could qualify for transaction value?
A6: An example would be where the importer makes payments to the maquiladora based on a per-item basis, and the importer can substantiate that the price was not influenced by the relationship (i.e., circumstances of sale test or through test values). Many maquiladoras are not set up this way, and the U.S. importer makes lump sum payments related to the funding of operations. Therefore, payment cannot be discretely tied to specific items.
Q7: Do these transfer pricing rules apply to export? When our new acquisition (in Italy) sells on our (a U.S. company) behalf, how would commissions paid for those sales to the Italian company be factored into transfer pricing?
A7: This would be dependent on the rules in place of the specific importing country.
Q8: If company B is selling to company C and they are both subsidiaries of company A (the parent company), should we use the profit of company A for comparison?
A8: CBP would typically expect a comparison to the profit of the parent company, which could be Company A in your example. However, the profit needs to be related to sales of goods of the same class or kind, so it is not necessarily acceptable to use just the profit on the financials. It may have to be further broken down by product segment or sector.
Q9: What is an acceptable transfer pricing for used equipment that is depreciated on the company books?
A9: We do not have enough information to answer the questions. This would depend on circumstances such as whether the transaction was the subject of a sale or the equipment was damaged and was being returned for repair/alteration, as well as other factors.
Disclaimer: The responses herein do not constitute legal advice. Every transaction should be reviewed based on its specific fact pattern to ensure compliance with U.S. Customs laws and regulations.
If you are interested in learning more about trade compliance, consider attending the MAPI Global Trade Compliance Forum on April 11 in Rosemont, IL.