How CBP Keeps A Close Eye On Relationships Within The Customs Transaction
This week, we thought we would explore a little-known US Customs and Border Protection (CBP) regulation on relationships: what is the relationship between the Importer of Record and the international seller? In other words, are they Related Parties?
Relationships between two people or two companies share a common trait: great influence. Therefore, Customs is very interested in understanding if there could be such influence over the valuation of those imported goods.
Related Parties Have Influence Over Selling Price, Valuation And Therefore Duty And Tax
As we all know, the calculations of duty and tax collected by CBP are based on the valuation established for those goods. If there is a relationship between the seller of those goods and the Importer of Record, then there is the possibility of influence in the selling price, and subsequent calculation of duty and tax owed.
6 Types Of Relationships
There are six relationships that CBP would consider Related Parties that you (in the case of goods imported for personal use) or your company (for goods imported for commercial purposes) may engage in:
Family Members: Brothers and sisters (including half siblings), and anyone else in your family tree.
Shared Officers/Directors: Anyone in an Officer or Director role at both the seller’s and importer’s company will be considered a related party.
Shared Partners: If the buyer and seller share a Partner (when the company structure is a general or a limited partnership) this will be considered a related party.
Shared Employees: When the buyer and seller share control over two or more employees.
Voting Stock: The buyer or seller holds 5% or more voting power in the other company (direct or indirect) including ownership or controlling stock.
Customs May Analyze Substantiation Of Valuation
Where there is evidence of Related Parties, CBP may request that an Importer of Record provide documentation supporting the valuation method used. CBP would carefully inspect all documents provided to determine if the relationship between the seller and the importer has included the valuation provided to them.
Reasonable Care practices come into play here as the burden of proof lies entirely with the Importer of Record.
Transaction Value is the most commonly used for imports into the US. It is defined as “the price paid or payable for the merchandise when sold for exportation to the US.” (Source: 19 U.S.S. 1401a(b)(1).) Transaction value can only be used when the buyer and seller have not related in any way or if the valuation method was used meets certain tests. The two tests are:
- Circumstances Of Sale
Under this test, the circumstances of the sale are analyzed for:
- What is the commercial relationship of the buyer and seller?
- How was the price used determined?
If the price used was standard for that industry, 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.
2. Test Values
Under this test, the circumstances of the sale are analyzed against identical or similar merchandise sold around the same time period, based on the valuation method and provided there is an established appraisement.
It’s important to note that importers cannot use a previously imported similar or identical good that was valued using a different method as a test value.
For example, toasters valued using the computed valuation method cannot be used as a test value for toasters imported using the transactional method.