Transfer Pricing Ruling Issued

In what may be a major change in customs value law or might turn out to be theoretical point of discussion for accountants and lawyers, Customs and Border Protection has issued a notice revoking HQ 547654. The impact of this is that more inter-company transactions will be permitted to be appraised under the transaction value method provided the written transfer pricing policy satisfies certain criteria and even if that policy calls for post-entry price adjustments. That last bit had been the sticking point for CBP. We discussed this possibility last year here.

The critical criteria are that:

1. The be a written “Intercompany Transfer Pricing Determination Policy” is in place prior to importation and the policy is prepared taking IRS code section 482 into account; 
2. The U.S. taxpayer uses its transfer pricing policy in filing its income tax return, and any adjustments resulting from the transfer pricing policy are reported or used by the taxpayer in filing its income tax return;
3. The company’s transfer pricing policy specifies how the transfer price and any adjustments are determined with respect to all products covered by the transfer pricing policy for which the value is to be adjusted;
4. The company maintains and provides accounting details from its books and/or financial statements to support the claimed adjustments in the United States; and,
5. No other conditions exist that may affect the acceptance of the transfer price by CBP.

For companies that have previously been precluded from using transaction value because of inter-company price adjustments, this may greatly simplify the customs compliance process. That, by itself, is a very good thing. How that will translate into dollars saved by companies or collected by the government remains to be see.