Transfer pricing documentation has traditionally been an instrument for tax protection of multinational companies vis-à-vis the US tax authority IRS. However, with the tightening of customs policy - particularly through the introduction of punitive tariffs under Section 232 and Section 301 - transfer pricing documentation is also becoming increasingly important for the US customs authority Customs and Border Protection (CBP).
This article sheds light on the interfaces between tax and customs law and shows why we consider an integrated documentation strategy to be advisable.
- Customs value and transfer price: two sides of the same coin
CBP primarily uses the so-called transaction value method to determine the customs value[1]. In the case of affiliated companies, the price declared on import must comply with the arm's length principle. This is where the transfer pricing documentation comes into play: it proves the appropriateness of the prices according to the arm's length principle and protects against (i) additional income tax claims or (ii) customs value adjustments.
Important interfaces between customs and transfer pricing are
- Transaction value as customs basis: The intra-group price (= transfer price) automatically becomes the basis for calculating the customs duty.
- Arm's length principle (Arm's length principle): CBP checks whether the customs value corresponds to the arm's length price and thus to the arm's length comparison. A robust and resilient arm's length comparison is now required at this point.
- Customs valuation adjustments: Are the licence fees, marketing costs or true-ups relevant to customs or correctly reported under customs law?
- Punitive tariffs as a driver for customs audit intensity
Numerous punitive tariffs have been introduced since 2018:
- Section 232 for steel and aluminium
- Section 301 for products from China.
These measures have drawn CBP's attention to the actual customs value basis of imports.
Importing companies that do not prepare their transfer pricing documentation in accordance with customs regulations run the risk that
- Customs valuation adjustments are made by CBP,
- delays occur during import clearance, or
- Fines and additional payments imposed for audits.
CBP is increasingly using data from the transfer pricing documentation to check the appropriateness of the customs value - especially for imports from high-customs regions.
- Harmonisation of tax and customs audits
IRS and CBP are currently growing closer together and increasingly exchanging information. IT tools and AI are also fuelling this development. Consistent transfer pricing documentation therefore provides double protection:
- Fiscal: Against adjustments to transfer prices or EBIT margins with corresponding income tax consequences
- Customs law: Against objections or corrections to the customs value.
The following are particularly relevant in the context of harmonised documentation:
- CBP Informed Compliance Publications[2] for the acceptance of transaction values,
- Use of IRS form 5472[3] for the disclosure of linked transactions,
- Utilisation of the CBP Reconciliation Programme[4] for subsequent customs value adjustment,
- Recommendations for companies
Companies should take the following measures to reduce the above risks:
| Measure | Benefit |
| Integrated TP and customs strategy | Avoidance of contradictory information |
| Customs-specific supplements inTransfer pricing documentation | Consideration of 19 CFR 152.103 |
| Creation of Scenario analyses on punitive tariffs | Early risk assessment |
| Applications for customs valuation adjustments at CBP | Binding customs valuation |
| Regular/annual updates the transfer pricing documentation | Adaptation to new customs measures |
- Take away
The relevance of US transfer pricing documentation for customs purposes is increasing noticeably. A consistent and robust CBP Reconciliation Programme becomes a strategic shield against punitive tariffs, more intensive audits and fines. At the same time, it is a means of utilising the CBP Reconciliation Programme required.
Companies that establish an integrated documentation strategy at an early stage not only protect themselves from a tax perspective, they also avoid customs surprises and open up opportunities for customisation.
- What happens next?
One of the next articles will show how companies that follow the master file/local file of the OECD documentation concept can convert this comparatively easily into US-compliant transfer pricing documentation.
Your contact for questions relating to transfer pricing: Carsten Schmid
[1] In accordance with 19 CFR 152.103: central US customs regulation for determining the customs value on the basis of the "transaction value" (= price actually paid or payable for imported goods).
[2] Official U.S. Customs guidance for importers to better understand and comply with obligations.
[3] IRS Form 5472: Form to disclose transactions with related parties. companies abroad.
[4] CBP Reconciliation Programme: (voluntary) procedure of the US Customs and Border Protection (CBP) that allows importers to correct certain unclear or preliminary information at the time of import, e.g. customs value, classification and rules of origin.
