Background

There are a number of duty savings strategies companies can use to conserve cash, lower customs duties and tariffs, and seek refunds. These strategies are always a high priority for businesses involved in international trade, but particularly so during this difficult period.

This is the second in ST&R’s series of articles examining these strategies in more detail and covers the use of transfer pricing and U.S. Customs and Border Protection’s reconciliation program. The first article addresses the first sale rule.

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 CBP. 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 CrowleyMark Segrist, or Lou Shoichet to learn more.

Copyright © 2020 Sandler, Travis & Rosenberg, P.A.; WorldTrade Interactive, Inc. All rights reserved.

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