CBP Advises Importer to Use Reconciliation for Transaction Value Post-Import Adjustments
Yearly transaction value transfer pricing adjustments made by an importer based on a contractual pricing policy should be submitted to CBP using reconciliation, the agency said in a Jan. 7 ruling that reviews an importer's use of such adjustments, among other things. The undisclosed importer requested input from CBP on the acceptability of transaction value and transfer pricing study in 2008. The request was submitted by the importer's lawyer, Damon Pike.
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The importer is a U.S. company that is owned by the a "a global manufacturer of food processing equipment such as slicer, derinder/skinner, and ice machines," the ruling said. The importer buys the manufacturer's products and imports them into the U.S. for sale. CBP said it considers a bona fide sale between the importer and manufacturer to exist. Following the completion of a transfer pricing study, the manufacturer and the importer agreed "the final transfer price between the Importer and its related Manufacturer/Seller should be set so that the gross margin will be sufficient to cover the Importer’s operating expenses and to derive a reasonable profit," it said. The parties signed a marketing contract reflecting the study's finding, said CBP.
CBP said it considers the transfer price fixed for use of transaction value, even though the companies' pricing policy allow for post-import adjustments. As a result, "transaction value is not precluded when a formal transfer pricing policy allows for post-importation adjustments, such as compensating adjustments required by the transfer pricing study and the Marketing Contract," the agency said. The contract requires the importer to calculated "its gross profit, and then compares it to the contract formula to ascertain if it falls within the required range of profits" at the end of the fiscal year. The importer subsequently adjusts its "Cost of Goods Sold" upwards or downwards so that the profit fits within the required range, it said.
The adjustments are acceptable to CBP "as long as the Importer maintains and provides accounting details from its books and/or financial statements to support the post-importation adjustments upon making a claim with CBP and describes the method of allocation of such adjustments, the Importer may claim downward and upward post-importation adjustments," it said. CBP "strongly encourage[s]" the importer to use Reconciliation to report the adjustments, rather than the "administrative letters" the importer had been using.
The importer also sought agency advice on if the circumstances of the sale establish that the price actually paid by the importer to the related seller is not influenced by the relationship. The manufacturer "creates a global suggested retail price list on an annual basis and sells the finished goods both to related and unrelated distributors under the same conditions," according to the ruling. CBP found that the price was not influenced by the relationship because information submitted by the importer shows that related party prices are determined consistent with unrelated party prices, therefore making further review of pricing unnecessary.