Harmonization of Transfer Pricing and Customs (Currently Unavailable)

Transfer pricing concerns the arm’s length nature of any intercompany price. Any good imported into the U.S. by a related party must be arm’s length, and the IRS wants reassurance that the price is the same price unrelated parties would have charged.

Customs (“CBP”) is concerned with the arm’s length nature of the so-called Transactions value. This value is “declared” for Customs purposes when a related party imports a good into the U.S. from another related party located outside the U.S. Further, the Transaction value of imported goods must accurately reflect all dutiable cost elements.

Remarkably, CPB and the IRS have the same focus on the price of the imported good: its arm’s length nature. Given the overlap, it appears there is an opportunity for a unified approach so taxpayers would not need to keep duplicate records.

However, while the arm’s length principle for the two groups is foundational to the valuation of the imported reasonable price, the groups have a different attitude regarding the import price. The IRS thinks the imported price is above arm’s length, thus reducing taxable income. CBP believes the related party imported price is below arm’s length, thus decreasing the duty owed by the importer.

Before the Tax Reform act of 1986, taxpayers would use two prices on the same imported good. One was a low price to avoid duty and a high price to limit income taxation. The elimination of this so-called “whipsaw” occurred via the addition of IRC 1059(A). This code section permits only one price for customs and tax, and the price at issue can be no higher than the Transaction value. In effect, 1059(A) establishes a ceiling on the transfer price.

This webinar will examine the evolution of cooperation between the IRS and CBP and the many ways Transfer Pricing contemporaneous documentation and APA agreements may inform a Customs audit. Further, the collaboration continues globally as tax and customs cooperation occurs frequently in countries around the world.

Who Should Attend
Essential for all practitioners who deal with cross-border tax compliance and planning issues — and is especially important today as the IRS has aggressively increased scrutiny and enforcement activity in the international tax area. Professionals in public practice and industry will benefit from this program. Business tax and finance executives, directors, managers and staff; CPAs; Enrolled Agents; tax preparers and staff; accountants, attorneys, and financial advisors who work with and advise businesses and individuals with cross-border operations, activities and issues.

Topics Covered

• Customs and Tax valuation methods
• The Customs requirement that the circumstances of the sale denote that the price is arm's-length and that the relationship between affiliated parties does not affect the imported price
• IRC 1059(A)
• Relationship between the OECD and World Trade Organization ("WTO")
• Advanced Pricing Agreements ("APAs")
• The Transaction value for tangible goods
• Duty on Intangible Elements and assists
• Royalties and Customs penalties
• Customs value liquidation
• Transfer Pricing and Customs planning: First Sale Rule and APAs
• Dispute resolution overlaps for Customs and Transfer Pricing
• COVID — 19 impacts and Supply Chain Disruptions
• Post-importation adjustments and duty recovery

Learning Objectives

• Recognize how dispute resolution works for Customs and how Transfer documentation is used as part of the process
• Identify opportunities for joint planning between Customs and Transfer Pricing
• Identify total tax liability and required adjustment processes for customs duties and other indirect taxes
• Recognize how to ensure contemporaneous documentation fully covers the formula-pricing approach of the customs rules and comports with the economic analysis in any transfer-pricing studies or APAs
• Identify the importance of the effect of local procedure requirements on adjustment processes

Level
Basic

Instructional Method
Group: Internet-based

NASBA Field of Study
Taxes (1 hour)

Program Prerequisites
None

Advance Preparation
None