How Transfer Pricing Affects Importers: Valuation and CBP Audit Risk

Transfer pricing is the intercompany pricing method related companies use to set the price of goods, services, or intellectual property that they transfer between each other. When a business purchases imported goods from related parties, U.S. Customs and Border Protection (CBP) evaluates whether the relationship between the buyer and seller influenced the price of the imported merchandise. Under 19 U.S.C. §1401a, CBP may still use transaction value in related-party transactions if the importer demonstrates that the price is acceptable under CBP’s statutory tests.

Key takeaways:

• Transfer pricing in U.S. imports affects not only tax planning but also customs duties and compliance because the IRS and CBP evaluate related-party pricing under different rules.
• The IRS applies the arm’s-length standard to allocate profits between countries, while CBP focuses on the price actually paid or payable for imported goods under transaction value rules.
• In related-party transactions, CBP accepts transaction value only if the circumstances of the sale test is met or the price closely matches certain test values.
• Importers must also include dutiable additions such as assists, royalties, resale proceeds, packing costs, and tooling in declared customs value to avoid penalties and audit issues.
• Retroactive transfer pricing adjustments and inconsistencies in valuation can trigger CBP scrutiny, making proactive review and customs broker support important for managing compliance.

This article is for U.S. importers that purchase goods from related companies and will help them reduce import costs while understanding how transfer pricing customs value affects imported goods.

What Is Transfer Pricing in the Context of U.S. Imports?

Transfer pricing is the intercompany pricing method multinational importers use to set the price of goods sold between related companies. In a U.S. import transaction, that related-party price can affect both tax reporting and customs duty liability.

From a tax perspective, the Internal Revenue Service (IRS) focuses on ensuring that profits are properly allocated between countries according to the arm’s length standard. The arm’s length standard is a tax pricing rule that requires related-party transactions to be priced as if the parties were unrelated.

However, CBP evaluates these transactions differently.

Under the customs valuation statute, 19 U.S.C. §1401a, CBP determines the dutiable value of imported goods primarily using the transaction value method, which uses the price actually paid or payable for the merchandise when sold for export to the United States. Customs valuation rules are implemented through 19 CFR Part 152.

In practical terms, a transfer price that satisfies the IRS does not automatically satisfy CBP, because the two agencies review related-party pricing for different legal purposes.

The key difference:

• Internal Revenue Service (IRS): The IRS is a federal agency that reviews transfer pricing to determine whether profits are properly allocated between related companies for tax purposes.
• U.S. Customs and Border Protection (CBP): CBP is a federal agency that reviews the declared value of imported goods to determine whether the importer paid the correct amount of customs duties.

Because these regulatory frameworks serve different objectives, a price that satisfies IRS transfer pricing rules may still be challenged by CBP during a customs review or audit.

Related-Party Transactions Under U.S. Customs Law

A large percentage of imported goods entering the United States are purchased from related companies. Customs regulations, parties may classify the parties as related if they:

• Are officers or directors of one another’s businesses
• Are legally recognized business partners
• Have an employer–employee relationship
• Directly or indirectly control each other
• Are members of the same family
• Own or control at least 5% of each other’s voting stock

When buyer and seller are related, CBP determines whether the transaction value is acceptable. Transaction value between related parties is acceptable if either the circumstances of the sale test is satisfied or the price closely approximates certain test values. 

The table we’ve provided shows why an importer can be compliant from a tax-planning perspective and still face customs valuation issues during a CBP review.

Only if the importer passes neither of the above-mentioned tests will CBP move to the next valuation method in the statutory hierarchy.  To ensure your transactions hold up to CBP scrutiny, take care to incorporate all necessary costs into the valuation of your imported goods.

Dutiable Additions That Importers Often Miss

Even when CBP accepts transaction value, certain costs must be added to the declared customs value. These dutiable additions frequently arise in related-party transactions and CBP often discovers them during audits. Dutiable additions are the costs the importer must add to the declared customs value even when the importer’s transaction value is otherwise acceptable.

Common dutiable additions include:

• Assists: Materials, components, molds, engineering work, or tooling supplied by the importer to the foreign manufacturer.
• Royalties and License Fees: Payments related to imported merchandise that the buyer must pay as a condition of sale.
• Proceeds of Subsequent Resale: Revenue that flows back to the seller after goods are sold in the United States.
• Packing Costs: Charges related to packaging required for shipment to the United States.
• Tooling and Molds: Production tools supplied by the importer that are used in manufacturing imported goods.

Failure to take these additions into account can lead to punitive actions by CBP.

Potential Consequences for Inaccurate Valuation

Incorrect customs valuation can expose importers to significant financial and regulatory consequences.

These may include:

• Supplemental duties
• Interest on unpaid duties
• Civil penalties under 19 U.S.C. §1592
• Increased customs bond requirements
• Higher CBP scrutiny on future entries

Because customs valuation errors can affect multiple entries over multiple years, a CBP audit can create significant duty exposure. Importers should review customs value after any transfer pricing adjustment and determine whether a reconciliation entry, post summary correction (PSC), or other corrective action is required.

Retroactive Transfer Pricing Adjustments

Many multinational companies make year-end transfer pricing adjustments to align profits with tax planning objectives. These adjustments — which companies sometimes refer to as "true ups"—may raise or lower the effective price of imported goods.

Two common adjustment scenarios are:

• Upward Adjustments: The importer increases the effective purchase price after the end of the fiscal year.
• Downward Adjustments: The importer reduces the effective purchase price due to profitability targets.

These retroactive adjustments create challenges for customs valuation because importers pay duties at the time of entry based on the declared price.

If downward adjustments reduce the effective price of imported goods, CBP may consider the original declared value inaccurate unless importers follow proper reconciliation procedures.

Why Transfer Pricing Is a Red Flag in a CBP Audit

Transfer pricing issues frequently arise during CBP audits and compliance reviews.

Common audit scenarios include:

• Focused Assessments: CBP’s comprehensive audit of an importer’s compliance program.
• Risk-Based Targeting: Importers with large volumes of related-party imports may be flagged for additional review.
• Valuation Inconsistencies: Differences between customs values and financial records can trigger scrutiny.

Because multinational corporations often rely on sourcing goods from related parties, these transactions naturally attract CBP’s attention.

When to Involve a Licensed Customs Broker

Importers should consider consulting a licensed customs broker when:

• Transfer pricing adjustments occur regularly
• Related-party import transactions represent a large portion of total imports
• CBP issues an audit notice
• Assists or royalty payments may affect declared value
• Reconciliation or PSC filings are required

A post summary correction, also known as a PSC, is a CBP filing used to correct certain entry errors after the importer has filed the entry summary.

A reconciliation entry is a customs filing process that allows an importer to flag certain elements for later reporting when the correct value or other data is not known at the time of entry.

A customs broker can assist you with reconciliation entries, reviews of dutiable assists, and document preparation in response to CBP inquiries.

Transfer Pricing Is Not Just a Tax Issue: USA Customs Clearance Can Help

Our team of licensed customs brokers provides expert assistance to importers who need to report valuation changes after a transfer pricing adjustment.

What we do:

1. Review related-party import transactions to determine how transfer pricing may affect declared customs value.
2. Identify whether year-end transfer pricing adjustments create a need for reconciliation entries, post-summary corrections, or other corrective filings.
3. Evaluate dutiable additions such as assists, royalties, license fees, resale proceeds, packing costs, and other costs that may need to be added to customs value.
4. Compare customs entry data, financial records, and transfer pricing documentation to identify valuation inconsistencies that could trigger CBP scrutiny.
5. Prepare and submit reconciliation entries, post-summary corrections, and related customs filings to address valuation changes after importation.
6. Help coordinate responses to CBP questions, audit notices, and compliance reviews involving transfer pricing and customs valuation.
   

Typical timeline: We begin reviewing your import valuation issue as soon as we receive the correct documentation and coordinate corrective filings based on entry dates, adjustment timing, and CBP deadlines.

What you’ll need: Entry summaries, commercial invoices, transfer pricing documentation, adjustment records, royalty or assist details, financial records tied to imported goods, and any CBP correspondence or audit notices.

Why choose us: We are licensed customs brokers with experience in customs valuation, related-party imports, reconciliation filings, and CBP compliance matters that can arise after transfer pricing adjustments.

Outcome: Your business gets a clearer path to customs compliance, more accurate declared values, and reduced risk of additional duties, penalties, delays, or audit complications.

Give us a call at (855) 912-0406 to learn more about how we can help your business’s importing efforts. You can also reach out to us on our contact page.