Gina Grier Office of Regulations & Rulings

1. Gina GrierOffice of Regulations & Rulings U.S. Customs and Border Protection Common Value Mistakes & How to Avoid Them

2. MISTAKE #1: DECLARING A “FIRST SALE” PRICE WITHOUT HAVING AN ADEQUATE PAPER TRAIL • In import transactions involving multiple parties and more than one sale, the importer may declare the lower price paid by the middleman to the manufacturer, instead of the higher price paid by the importer to the middleman, provided – • The sale was bona fide; • That when sold the goods were clearly destined for the United States; and • The sale was an “arm’s length” transaction.

3. MISTAKE #1: DECLARING A “FIRST SALE” PRICE WITHOUT HAVING AN ADEQUATE PAPER TRAIL • T.D. 96-87, General Notice on Determining Transaction Value in Multi-Tiered Transactions, Vol. 30/31, No. 52/1 Cust. B. & Dec. (January 2, 1997) – • CBP presumes that the price paid by the importer is the basis of transaction value and the importer bears the burden of rebutting this presumption. • A complete paper trail is required to support a first sale claim. • The importer must provide a detailed description of the roles of the various parties, and if they are related, must provide information to show that the first sale is at arm’s length. • Sufficient information must also be provided with regard to the statutory additions to transaction value.

4. MISTAKE #1: DECLARING A “FIRST SALE” PRICE WITHOUT HAVING AN ADEQUATE PAPER TRAIL • An incomplete paper trail – • May raise questions as to the role of the middleman (independent buyer/seller or agent?). • May indicate that the goods were not “clearly destined.” • May omit required information concerning statutory additions to the price actually paid or payable. • Will result in the denial of a “first sale” claim. • May indicate the lack of the exercise of reasonable care if value is declared at the factory to middleman price.

5. MISTAKE #2: NOT INCLUDING ALL NECESSARY PAYMENTS IN THE TRANSACTION VALUE • CBP presumes that all payments made by the buyer to the seller, or to a party related to the seller, are part of the price actually paid or payable for the imported merchandise. • This presumption may be rebutted, however, by evidence that establishes that the payments are clearly unrelated to the imported merchandise. • It is a common mistake for importers to fail to include all necessary payments in their declared value, especially when they make several different payments to the seller.

6. MISTAKE #2: NOT INCLUDING ALL NECESSARY PAYMENTS IN THE TRANSACTION VALUE • Examples of overlooked payments include – • R&D payments • Tooling payments • Quota payments • Warranty charges paid by the buyer to guarantee that the imported merchandise is free from defects • Payments to reimburse the seller for finishing services performed on the goods, such as labeling, pressing, stone washing, bleaching, quality control etc.

7. MISTAKE #3: DECLARING A TRANSFER PRICE UNDER TRANSACTION VALUE WITHOUT FIRST ENSURING THAT THE RELATIONSHIP HAS NOT INFLUENCED THE PRICE • When the buyer and seller are related, the importer must use reasonable care to determine whether transaction value is acceptable based on either the application of either the circumstances of sale or the test values tests. • The importer must have sufficient information available to demonstrate how it meets the particular test upon which it is relying before a declaration is made based on a related party transaction value.

8. MISTAKE #3: DECLARING A TRANSFER PRICE UNDER TRANSACTION VALUE WITHOUT FIRST ENSURING THAT THE RELATIONSHIP HAS NOT INFLUENCED THE PRICE • Common errors include – • Circumstances of Sale • Alleging that the transfer price is negotiated at arm’s length but having no evidence to reflect such negotiation. • Claiming a “first sale” price on the basis that the price was settled in a manner consistent with sales to unrelated buyers but not having documentation regarding both the related and unrelated party sales. • Alleging that the transfer price is sufficient to cover all the seller’s costs plus the requisite profit, without having supporting records, such as profit and loss statements and accounting records.

9. MISTAKE #3: DECLARING A TRANSFER PRICE UNDER TRANSACTION VALUE WITHOUT FIRST ENSURING THAT THE RELATIONSHIP HAS NOT INFLUENCED THE PRICE • Common errors include – • Test Values • Attempting to claim that transaction value is acceptable because the transaction value is the same as the value calculated under the deductive value or the computed value for the imported goods at issue; this ignores the rule that test values must be values previously determined by CBP pursuant to an appraisement. • Substituting the test value for the transfer price on the entry documents, in contradiction of the value law that indicates that the test values are to be used for comparison purposes only.

10. MISTAKE #3: DECLARING A TRANSFER PRICE UNDER TRANSACTION VALUE WITHOUT FIRST ENSURING THAT THE RELATIONSHIP HAS NOT INFLUENCED THE PRICE • Common errors include – • Advance Pricing Agreements (APA) & Transfer Pricing Studies • An importer may have an APA or a transfer pricing study that establishes that the price it pays to its related seller is an “arm’s length” price for IRS purposes. • The importer may assume that because the price is acceptable to the IRS, it is acceptable to CBP, too. • However, the IRS and CBP use different methods to ascertain if a related party price is free of influence from the relationship between buyer and seller. • Although some of the information in the APA or transfer pricing study may be relevant, to use transaction value the importer must still satisfy either the circumstances of sale or test value test.

11. MISTAKE #4: INCORRECT USE OF “TERMS OF SALE” • Buyers and sellers frequently misuse terms of sale, e.g., “FOB Factory,” “CIF LAX,” “FOB Nogales” (FOB & CIF terms are for use with vessels only). Better alternatives for the above examples may be “Ex Works” (specify in contract if seller to bear loading costs & risk of loss); “CIP LAX,” “DAF Nogales.” • Can complicate appraisement, because may lead to confusion over when title passes or whether transportation costs are included in the price. • Buyers and sellers should familiarize themselves with the correct use of terms of sale and specify in contracts and transaction documents the terms they have selected for a particular transaction.