How CBP Keeps A Close Eye On Relationships Within The Customs Transaction

How CBP Keeps A Close Eye On Relationships Within The Customs Transaction

When it comes to determining valuation, a host of factors can come into play. The situations and circumstances surrounding the value of an import can be as complex and varied as the imports themselves, which is why a proper and compliant valuation can be vital to an import business. 

One of the more common challenges you might encounter when valuing an import is what Customs and Border Protection (CBP) refers to as ‘related parties.’ It’s not an overly complicated subject, but it can pose a challenge if you aren’t aware of it, so it’s important to understand before you start making plans. 

It isn’t a tremendous leap of imagination to see the web of connections in the eyes of CBP between the importer of record (IOR), their existing relationships with a potential seller, and the effect that relationship might have on valuation. In the bulk of cases, the relationship between an importer and the seller doesn’t typically lead to much significance, but in the few cases where it does, that relationship has to be taken into account when considering the method of valuation used for that import. 

The incredible deal that your family member, business partner, or a host of other high-influence relations gave you on the item you are importing is of material interest to Customs, and misvaluing your import by failing to account for this influence is a surefire way to find your import on CBP hold at Customs.

What is a ‘Relationship’ in the eyes of Customs?

Customs views six types of relationships as relevant to establishing a ‘related party.’ 

  1. Anyone in an Officer or Director role at both the seller’s and importer’s company. 
  2. A buyer or seller that holds 5% or more voting power in the other company (direct or indirect), including ownership or controlling stock. 
  3. A buyer and seller that share a partner (in a general or limited partnership) with the other company. 
  4. A spouse taking on the role of buyer or seller. 
  5. Brothers, sisters (including half-siblings), children, and anyone else in your family tree. 
  6. A buyer and seller that share control over two or more employees. 

Why does the relationship between the IOR and the Seller matter? 

The short version is that if you are using the ‘transaction value’ method of valuation–and seeing as it is commonly used for imports into the US, you probably are–and a related party has influenced that value, it’s a disqualifying factor for that method.

Should there be suspicion of related parties in a valuation, CBP may request additional documentation from the IOR supporting the valuation method used. So equipped, CBP then evaluates and determines if the prior relationship overly influenced the value of that import. 

Reasonable Care practices come into play here as the burden of proof lies entirely with the Importer of Record.

But, what about…

CBP uses two different tests to determine whether a prior relationship has overly affected the valuation of an import. 

Test 1 - Circumstances of Sale

In this test, CBP analyzes the circumstances surrounding the sale with the goal of determining two things:

  1. What is the commercial relationship between the buyer and the seller?
  2. How was the price used determined? 

If the price used was standard for that industry or was similar to other sales the seller made, and the profits made covered costs while maintaining an equivalent margin with other goods sold, then it could be construed that the relationship did not influence the price, but if that’s not the case then the import is likely to be considered misvalued, and fees may apply in some cases, so it’s best to get it right. 

Test 2 - Test Values

In this test, CBP views the circumstances of the sale against identical or similar merchandise sold around the same time, from the same country, and with the same valuation method, provided there is an established appraisal. 

It’s worth noting that importers cannot use a previously imported good, be it similar or identical, that was valued using a different method as a test value. For example, bespoke wooden clogs that were valued at the current market value using the computed valuation method cannot be used as a test value for bespoke wooden clogs valued using the transactional method. 

In the end, this is a small piece of a larger puzzle but it’s an important one. CBP’s duty, taxes, and fees are all determined based on value - it’s a calculation that is tied to their revenue. It is one of the most regularly contested and debated declarations an importer can make, and that’s the case precisely because there are so many corner cases and oddities to it - like ‘related parties,’ for example. If you are at all confused, or you want to make the most of a great deal you got from a friend, family, or relation, then we are here to help. PCB’s trade advisory team offers valuation services. We can examine your import and value it accurately so you can rest easy knowing that your import is within compliance and complication-free. Get in touch with our Trade Advisory Team today to get started!

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About Author
Breanna Leininger

Breanna has been in the industry since 2004 and has dealt with clearances and compliance concerns for a multitude of commodities for all ports of entry and all modes of transportation. She has a Bachelors in Communications, Bachelors in Political Science & Government, is a Licensed Customs Broker as well as Certified Customs Specialist. Breanna has been asked to be the speaker in a variety of events including the BC Agriculture Show, Doing Business in the US seminar and has been a contributor to Small Business BC publications. She was recently nominated for the NCBFAA Government Affairs Conference Emerging Leaders and Mentors by the NBCBA. She participates in the Northern Border Customs Brokers Association and the NCBFAA annual conferences in Washington, DC. Breanna has a deep passion for politics, global affairs, and how communication shapes policy and international business relationships. She feels very fortunate to work in an industry that allows her to take part in how policy impacts the global economy and domestic businesses of all shapes and sizes.

While we strive for accuracy in all our communications, as the Importer of Record it is incumbent upon your company to ensure that you are aware of the requirements under the new regulations so that you maintain compliance as always.
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