Important new US customs ruling

Date: February 20, 2017
Subject: Important new US customs ruling disqualifies the use of transfer pricing methods between two related entities when their U.S. subsidiaries cannot adequately demonstrate that they maintain sufficient operations in the United States to constitute the legitimate transfer of title and ownership to the related entities
In ruling H263559, U.S. Customs & Border Protection (CBP) has provided additional clarity around what constitutes a “bona fide sale for export” and how an appropriate transaction value may be determined.

In this specific instance, transactions between a Canadian garment producer and its wholly owned U.S. incorporated subsidiary (the Buyer) were reviewed. CBP conducted an extensive review including multiple requests for information, site visits and telephone calls in determining the structure, nature and relationship of the parties involved in the cross-border transactions.

From their findings, CBP determined that the transaction between the Canadian seller and the related U.S. buyer did not constitute a bona fide sale for export purposes and the value used between the related parties for entry purposes required correction.

Based on this determination, CBP classified the related buyer as sales agent instead of the actual buyer. CBP supported its position by highlighting the lack of risk transfer between the buyer and seller, the minimal physical operations of the buyer and the lack of spate books and records of the buyer amongst other criteria noted by CBP.

CBP’s position further stated the transaction value in place between the seller and the related buyer (‘sales agent’) should not be used for entry purposes. CBP determined that the ‘price paid or payable’ by the end customer of the sales agent should be the transaction value used for entry purposes.

While previous Customs Informed Compliance materials and other communication has supported similar positions, U.S. Importers should take specific note of this ruling given its additional detail and possible application to current programs.

For additional information concerning this ruling, please contact Delmar International’s U.S. Advisory Services group or your local representative.

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