Last week, Amber Road’s Global Trade Academy hosted the webinar, Valuation ABC’s & Related Party Transfer Pricing Pitfalls, which reviewed the critical components of proper Customs & Border Protection (CBP)’s valuation declarations, appraised value under Transaction Value, and how to prove inter-company transfer pricing between related parties.
Marian Ladner, Managing Partner at Ladner & Associates PC, presented on behalf of Global Trade Academy. Marian comes from an extensive background in trade law, providing her with a wealth of knowledge on trade compliance. With only an hour to cover such a complex topic, many of our viewers had additional questions.
In this blog, Marian responds to the questions we received from the webinar attendees that weren’t addressed during the broadcast. Please note, this is not intended to be considered legal advice or to be relied upon as same.
1. If a machine is fully depreciated, do we only put the cost of freight on the import invoice? Are gauges sent to measure the finished items considered an assist?
If an item is fully depreciated, at a minimum the regulations and CBP state that the dutiable value would be the transportation cost. However, there are CBP rulings that also indicate that even if fully depreciated, the asset/assist likely has a value in addition to just the transportation cost. This should be determined case-by-case. Understand why it is fully amortized and even if in accordance with GAAP, perhaps consider how it will be received on the books and records of the receiving entity. Or if remaining on the importer’s books, whether an acceptable value needs to be determined depending upon the nature of the assist itself.
2. How about Local State Taxes? Should that need to be deducted? The vendor is adding the Local state taxes to the C/I because they are paying the local state taxes.
If you are referring to overseas local and state taxes and they are part of the price paid or payable, then yes, they are dutiable. If you are referring to US state and local taxes being added post importation, then once you confirm the sales terms; title transfer point and any relevant language in the contract; if nothing contradicts, and these costs are separately identifiable then no, they likely are not part of the dutiable value of the imported merchandise.
3. If an importer is on reconciliation, and purchase fresh produce on a consignment bases, can they use Fallback method reflecting banking records that show what was paid to the shipper.
You must first exhaust the availability of the other methods of appraisement before using 402f, the Fallback method.
4. Is the value of the transportation from supplier to the port/airport overseas at origin dutiable?
This depends on the sales terms and international transportation terms (likely, Incoterms 2010 if used). However, if we assume your example has a bona fide sale, where title and risk pass together at the foreign factory delivery point, i.e., EXW (which doesn’t address point of sale), and the commercial invoice reflects that price, with the foreign inland freight separately identified, then yes, the dutiable value would not include that transportation from the supplier to the port/airport overseas. Keep in mind, U.S. Customs and Border Protection (CBP) does not have the authority to add foreign inland freight into the dutiable value if it isn’t included in the sale and delivery for the PAPP, but similarly should that foreign inland freight be included in the price, i.e., an FOB price is reflected on your commercial invoices, CBP does not have the authority to take that value out of the dutiable value.
5. If you provide an assist (tool) to a company at a foreign country, but you purchase the part that the tool produced overseas directly from a US Supplier that is the Importer of record, how should the assist be declared?
Assuming your example means the value of the “assist” you’ve provided indirectly for the importer was supplied to the foreign country free or at reduced cost and not otherwise already included in the price, then it is the importer of record’s responsibility to declare the additional assist value on its Commercial Invoices and include it in the dutiable value of the goods at time of entry.
6. If I send parts to the foreign manufacturer to be used in production of widgets that I will import, and I charge the manufacturer for those parts, am I correct that this is NOT an assist?
You are correct if the “charge” to the manufacturer includes the value of your parts (i.e., the cost of acquisition or cost of production, PLUS transportation to the foreign manufacturer) and that charged amount is included in the price of the imported merchandise on the commercial invoice. The key here is that you are not providing something free or at reduced cost.
7. Retroactive contract pricing just came up and additional pricing from July 2017, the difference is millions of dollars, can we add the additional amount on an entry now, as an assist to bring us up to date with CBP. The items are duty free also.
Be careful here. First, I am assuming that your retroactive contract pricing resulted in an increase in the value of the imported merchandise. The determination here will really depend on the facts and circumstances of this adjustment. There are rulings that speak to a one-time adjustment that has been shown not to be dutiable. There are other rulings where the facts support an increase post entry in the value declared (i.e., a “payable” situation). And if dutiable, consider the best strategy to report - through a valid prior disclosure (“PD”) or other (and I would likely counsel a prior disclosure). Remember, a duty-free classification doesn’t mean you cannot receive a monetary penalty for these millions of dollars in pricing changes. 19 U.S.C. 1592 (aka 592 penalties) provides for non-revenue-based penalties as well. Absent a PD, mere negligence can result in a penalty of 20% of the dutiable and 40% if gross negligence, by way of example. Finally, if my initial assumption is incorrect and the retroactive adjustment results in a decrease in dutiable values, 402b(4)(B) says any decrease in the price actually paid or payable after importation shall be disregarded for appraisement purposes. Here too though, you need to consider whether the importer was exercising “reasonable care” at time of import, which is a requirement under the Mod Act.
Thank you for attending Global Trade Academy’s webinar, Valuation ABC’s & Related Party Transfer Pricing Pitfalls, we hope all of your questions are answered! The recording of the webinar will be added to Global Trade Academy's Learning Management System (LMS). If you're interested in learning more about this, download our brochure.