Intercompany Pricing &
Customs Valuation,
ACS Entry Reconciliation
Presented by
George R. Tuttle, III
George R. Tuttle Law Offices
Three Embarcadero Center, Suite 1160, San Francisco
Tel: (415)986-8780
Fax (415) 986-0908
E-mail: geo@tuttlelaw.com
The information contained in this presentation is general in nature and is not intended or written to be treated or used by any person as constituting tax advice.
Customs Valuation

An importer has a legal obligation under 19 U.S.C.
1484 to:



Declare the correct value
Provide Customs with all pertinent information so that it may
verify correctness of declared value
Customs Service has legal responsibility to verify
correctness of declared value of imported
merchandise (19 U.S.C. 1500)
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Customs Valuation:
1401a(b)(2) Related Party Rule


Statute (19 USC 1401a) requires imported goods to be appraised at
“transaction value” unless transaction value is found inappropriate
(b)(2)(A) -- The transaction value of imported merchandise shall be the
appraised value of that merchandise for the purposes of this chapter
only if 


*** (iv) the buyer and seller are not related, or
the buyer and seller are related but the transaction value is
acceptable
Burden is on importer to establish that the relationship does not
affect the price
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Transaction Value
Related Parties

When are parties related? (19 U.S.C. 1401a(f))

(A) Members of the same family.

(B) Any officer or director of an organization and such organization.

(C) An officer or director of an organization and an officer or director of
another organization, if each such individual is also an officer or director in the
other organization.

(D) Partners.

(E) Employer and employee.

(F) Any person directly or indirectly owning, controlling, or holding with power
to vote, 5 percent or more of the outstanding voting stock or shares of any
organization and such organization.

(G) Two or more persons directly or indirectly controlling, controlled by, or
under common control with, any person.
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1401a(b)(2) Related Party Rule


The transaction value between a related buyer and seller is acceptable if:
An examination of the circumstances of the sale of the imported
merchandise indicates that the relationship between such buyer and seller:


did not influence the price actually paid or payable; or
If the transaction value of the imported merchandise closely
approximates 


(i) the transaction value of identical merchandise, or of similar merchandise, in sales to
unrelated buyers in the United States; or
(ii) the deductive value or computed value for identical merchandise or similar
merchandise
value referred to in clause (i) or (ii) that is used for comparison must be exported to the
United States at or about the same time as the imported merchandise.
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Transaction Value
Related Parties

Use of test values



Prices closely approximate deductive or compute value of imported
goods
Customs will not accept this as a means of verifying value unless
there has been an actual appraisement entry at the test value
Circumstances-of-sale test



Price reflects the normal pricing practice for the industry
Evidence that the parties negotiated over price
Selling price includes all costs plus an amount for profit and
general expenses (most common method)
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Customs’ Statement of Administration
Action To Adoption of TAA

The appraisement of imported merchandise pursuant to the
transaction value method will be acceptable, even for a transaction
between related parties, if the price is settled:



"in a manner consistent with the normal pricing practices of the
industry in question, or
the way the seller settles prices for sales to buyers who are not
related to him.”
Statement of Administration Action; see also 19 C.F.R. 152.103
(l)(1)(ii).
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Related Party Rule
For Customs Valuation

Use of “Test Values”

Comparison of transfer price to:



Transaction value of similar goods
computed or deductive value of goods
“Circumstances of Sale”



Documentary Evidence of “arms length
negotiations”
Evidence of Market value of goods
Selling price equals all costs plus
profit and general expense for seller
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“All Costs Plus Profit” Method

An importer may also demonstrate that the relationship between
the buyer and the seller did not influence the price by
establishing that:



"the price is adequate to ensure recovery of all costs plus
a profit that is equivalent to the firm's overall profit realized over a
representative period of time in sales of merchandise of the same
class or kind . . ."
Statement of Administration Action, Id.; see also 19 C.F.R.
152.103 (l)(1)(iii).
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“Price Paid or Payable"

The "price actually paid or payable" is


The "total payment (whether direct or indirect, and exclusive
of any costs, charges, or expenses incurred for
transportation, insurance, and related services incident to the
international shipment of the merchandise...) made, or to be
made, for the imported merchandise by the buyer to, or for
the benefit of, the seller.”
Intercompany transfer prices may not reflect the "price
actually paid or payable" if all elements of Customs valuation
are not included in the invoiced price.
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The Generra Rule



There is a presumption that all payments made by a buyer to a
seller, or a party related to the seller, are part of the price
actually paid or payable for the imported merchandise. (Generra
Sportswear Co. v. U.S., 8 CAFC 132 (1990))
Congress did not intend for CBP to engage in extensive factfinding to determine whether separate charges, all resulting in
payments to the seller in connection with the purchase of
imported merchandise, are for the merchandise or for something
else.
The burden of establishing that payments are unrelated to the
imported merchandise rests on the importer. Moss Mfg. Co. v.
United States, 896 F. 2d 535, 539 (Fed. Cir. 1990)
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Acceptability of Transfer Prices Based On
“IRS” Transfer Pricing Methodology

HQ 546979, August 30, 2000



“While the goal of both the TAA and section 482 of the Tax
Code is to ensure that the transactions between related
parties are at arms length, the method of making that
determination is different under each law.”
“Customs approach to related party transactions differs from
the IRS approach . . . the [IRS] methods review profitability
on an aggregate basis, not a product by product basis.”
“Customs generally analyzes related party transactions at a
more detailed product by product level . . .
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Summary: Transfer Pricing

To substantiate transfer price, Importer should be prepared to
provide:

Worksheets calculating cost of materials, labor and fixed costs
for specific merchandise.

Audited financial statements, and information regarding the
seller's costs for the subject items and the actual profit for them.

Comparison of actual profit on items under review to profits
incurred by company as a whole.

Producer's profits and expenses should be consistent with those
usually reflected in sales of merchandise of the same class or
kind as the imported merchandise that are made by producers in
the country of exportation for export to the United States.
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If Transfer Price is Rejected

CBP may resort (in order of presentation) to:


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Transaction value of identical or similar merchandise
Deductive value (U.S. importer’s sales price to first
unrelated customer in U.S.)
Computed value (Cost of production plus general
expenses and profit associate with imported goods)
Fallback method (any of the above based on
reasonable adjustments).
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Section 500 Appraisements

Under section 500 of the Tariff Act of 1930, as amended, (19
U.S.C. 1500) CBP has general appraisement authority, and may:


Fix the final appraisement of merchandise by ascertaining or
estimating the value thereof, under section 1401a of this title, by all
reasonable ways and means . . . any statement of cost or costs of
production in any invoice, affidavit, declaration, other document to
the contrary notwithstanding…. 19 U.S.C. 1500(a)
Section 500 allows Customs to consider the best evidence available .
. . when the information contained in the invoice is either deficient
or is known to contain inaccurate figures or calculations ….
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Customs’ ACS Entry
Reconciliation
Why use Entry Reconciliation?

Obligation to Report The Correct & Accurate Value


All invoices for imported merchandise are required to set
forth, among other things, "the purchase price of each item
. . . .” 19 U.S.C. § 1481(a)(5).
The Statute defines transaction value as "the price actually
paid or payable for the merchandise when sold for
exportation to the United States, plus amounts equal to . . .
the value, apportioned as appropriate, of any assists . . . ."
19 U.S.C. § 1401a(b)(1).
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Why Use Entry Reconciliation?


An importer making an entry . . . must file a declaration under oath
stating that "the prices set forth in the invoice are true . . . [and
that] all other statements in the invoice . . . or in the entry itself, are
true and correct . . .” 19 U.S.C. § 1485(a)(2) & (3).
Under 19 U.S.C. § 1952, “No person, by fraud, gross negligence, or
negligence--(A) may enter, introduce, or attempt to enter or
introduce any merchandise into the commerce of the United States
by means of—


(i) any document, written or oral statement, or act which is material and
false, or
(ii) an omission which is material .. . .“
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What is Entry Reconciliation?



Legal basis for ACS entry reconciliation was added to 19
USC 1484(b) by Mod Act.
Reconciliation allows importers to file entry summaries
using the best available information and to electronically
“flag” data elements that are estimated, with the
understanding that the “actual” information will be
submitted later.
Importers provide “actual” information on a new type of
entry called a “Reconciliation” (can cover one or hundreds
of previously filed individual entries).
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What is Entry Reconciliation?



“Elements” of the entry that are flagged for reconciliation are withheld
from liquidation while all non-flagged elements are liquidated as
entered.
ACS Reconciliation does not change or replace existing laws regarding
the reporting of value. It simply provides a new process for amending
data that was previously provided to CBP.
ACS Reconciliation is the exclusive means for reconciling post-summary
adjustments to:

Dutiable value,

HTSUS Heading 9802 value,

NAFTA, Chile FTA

Limited classification issues
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Issues For Reconciliation

Classification issues will be eligible for reconciliation
only when such issues have been formally established
as the subject of one or more of the following:



Pending administrative ruling (including preclassification
rulings)
Protest
Pending court action

Reconciliation for other classification issues is not
permitted.

Quantity is not a reconcilable issue since it directly
affects admissibility.
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What is Entry Reconciliation?



Entry summaries with outstanding issues are filed as normal,
except that an electronic flag is added in the header record of the
entry that specifies an issue is outstanding.
The flag notifies CBP of the importer’s intent to file a
Reconciliation covering that entry summary at a later date.
If an entry summary is flagged for value, a SIL should not be filed
on that entry for any value issue, as no error in valuation is
involved. The issue flagged is no longer addressable on the
underlying entry. ASC Reconciliation Handbook, December 2004
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Entry Recon flagging

Flagging accomplishes the following:



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Identifies unknown information
Transfers liability for those issues to a Reconciliation
Permits normal liquidation of the remainder of the entry
summary
A filer may flag entries via an individual entry flag or
a blanket flag

Individual entry flagging-- The entry filer flags the
underlying entries on the header record of an entry
summary at the time of filing
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Entry Recon flagging

Blanket Flagging


A flag is automatically added by CBP to all entries for all
ports made under the recon-filer’s importer of record
number.
This means each entry summary must be closed by a
Reconciliation, even those entries that do not require
adjustments.

Importers who wish to obtain reports of flagged entries may
do so by contacting CBP National Finance Center.
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Time Period For Filing Recon Entry



Participants in Recon program now have up to 21
months from the date of entry of the flagged entry to
file the recon.
(Except for NAFTA claims– limit is 12 months from
date of entry filing)
Failure to file a timely reconciliation will result in the
assessment of a liquidated damage penalty.
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Types of Reconciliations

Two types of Reconciliations may be filed:


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Entry-by-Entry
Aggregate
For both, the Reconciliation will consist of three
documents:



A Header Page,
Association file, and
Summarized line item data spreadsheet
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Types of Reconciliations

Entry-by-Entry Reconciliation


This Reconciliation is a detailed submittal in which the
revenue adjustment is specifically provided for each
affected entry summary.
The revenue adjustment must be broken down to entryby-entry detail for all underlying entry summaries on the
association file submitted through ABI.
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Types of Reconciliations

Aggregate Reconciliation;




This option consolidates all entries covered in the
Reconciliation,
Applies generally to those situations that involve an increase
The association file for the Aggregate Reconciliation only
requires a list of all underlying entries and not the revenue
adjustment broken down by entry.
The Importer waives any refunds through the reconciliation
filing process for aggregate recon filing.
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Aggregate Reconciliations

The Header Sheet

The Reconciliation header provides general
information about the recon, including:

Reconciliation entry number

Type of Reconciliation

Issues on Reconciliation


Grand totals for duties and fees, both original and
reconciled
Interest
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Aggregate and
Entry-by-Entry Reconciliation

The major difference between Aggregate and Entry-by-Entry
Reconciliation is the structure of the association file


The association file contains a list of affected entry summaries
flagged for Reconciliation sorted by Port code where they were
filed.
For Entry-By-Entry Reconciliation, the following elements are also
required:


The actual amount of fees (broken out by class code), duties and fees,
deposited per underlying entry summary
The reconciled amount of fees (broken out by class code), duties, and
fees owed for each underlying entry
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Aggregate and
Entry-by-Entry Reconciliation

Summarized Line Item Data Spreadsheet


The third element of the Reconciliation must show, at a macro
level, all substantive changes reported in the Reconciliation.
The data must be presented in a standard format (See sample
spreadsheet).

The data elements in the spreadsheet are the same for both
Entry-by-Entry and Aggregate Reconciliations.
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Summarized Line Item data Spreadsheet
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Aggregate and
Entry-by-Entry Reconciliation

Summarized Line Item Data Spreadsheet



The summarized line item data spreadsheet captures adjustments that have
an effect on reportable data elements declared throughout the reconciliation
period without reference to the underlying entry numbers
Each combination of HTS, country of origin, Special Program Indicator (SPI),
and calendar year of release (per Census requirements) will require a
separate line.
Each spreadsheet line is to show the original and reconciled data.


The original data is extracted from the rolled-up groupings of the entry lines from
flagged entries
The reconciled data is either input manually or prorated automatically via formula
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Customs Validation of Data

Customs compares information on duty/fees paid



From Header record, association file and summary line item
data file against
Customs liquidation extract report
Recon entry will be rejected if there is a total difference in
duty/fees paid information of more than $20.
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Why A Recon Entry May be Rejected



Customs line item entry report and Customs Liquidation extract
report do not reflect SIL or PEA activity until entry is liquidated.
Possible Importer/ Customs Database mis-matches.
Customs uses rounding of values while importer uses exact
values. This can lead to mis-matches in value when comparing
importer data to Customs data.
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Recon Entry Resources


CBP Automated Commercial System
(ACS) Reconciliation Prototype
Operations Guide. Version 4.0
Exhibit 5T - Reconciliation - Technical
Information for Pre-Assessment Survey
(TIPS)

Reviews red flags and best practices
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