COVID-19: Using Reconciliation and Transfer Price Adjustments to Lower Duties
Companies may be able to use a sophisticated transfer pricing strategy to achieve significant duty savings and conserve cash as they deal with the COVID-19 pandemic, tariff increases in the U.S. and abroad, and other factors. Those interested should contact Sandler, Travis & Rosenberg immediately for more information.
Transfer pricing represents the price one division of a company charges another for its goods and services. Most countries have transfer pricing rules that employ the arm’s length principle, which generally requires the pricing of such transactions to not differ from the pricing of transactions between unrelated parties. Many companies adjust their intercompany prices on a periodic basis to maintain arm’s length pricing for business, tax, and customs valuation purposes and avoid potentially serious penalties by tax and customs authorities.
Retroactive transfer pricing adjustments are generally considered part of the customs value of previously imported goods and may need to be reported to U.S. Customs and Border Protection. In such cases, importers may need to tender additional duties to CBP if the adjustment increases the customs value of the imported goods, but they may also seek a refund for adjustments that decrease that value and thus the duties owed.
To lawfully do so, however, importers must be participating in CBP’s reconciliation program, which allows importers to flag the import entries; declare an initial, temporary value at the time of entry; and complete or reconcile such entries no later than 21 months after importation. Importers must also have a pre-existing formula for determining the value of downward adjustments and satisfy the related-party arm’s length pricing requirements in 19 CFR Part 152 prior to import.
Utilizing CBP’s reconciliation program and ensuring that their related-party prices meet CBP’s requirements not only permit companies to take advantage of any retroactive transfer price adjustments by reducing previously declared dutiable values, thereby lowering duty liability, but they also help provide much needed liquidity.
Sandler, Travis & Rosenberg, P.A., specializes in helping companies maximize duty savings through a variety of CBP programs and initiatives. If you feel your company can benefit from such savings, please contact customs attorneys Charles Crowley, Mark Segrist, or Lou Shoichet to learn more.