Through years of practice, we have noticed that many companies engaged in international trade or importing goods from different jurisdictions make pricing decisions without seeking legal advice. Instead, these decisions are often made without a full understanding of the broader regulatory and financial implications. One recurring issue is how companies, particularly those with subsidiaries, approach the valuation of imported goods.
A frequent tendency is to understate the value of imported goods to reduce U.S. customs duties. This practice, especially when dealing with related-party transactions, may become even more prevalent as tariffs continue to rise. While this approach might seem like a cost-saving measure, it comes with significant risks.
On the other side of the equation, the IRS—primarily concerned with transfer pricing abuse rather than customs duties—may take a different stance. The agency could argue that the declared price of goods is too low, thereby increasing the amount of taxable profits that should be recognized in the U.S. In such cases, companies may find themselves in a complex legal battle, saving on customs duties but facing scrutiny from the IRS over whether profits were allocated correctly under transfer pricing rules.
This creates a delicate balancing act: lowering customs value to minimize duties might trigger tax audits, while increasing declared values could result in higher customs fees. Companies must ensure their pricing strategies align with both customs regulations and transfer pricing principles to avoid legal complications.
Navigating these challenges requires strategic planning, compliance with international trade laws, and a deep understanding of both customs and tax regulations. Seeking legal guidance early can help businesses mitigate risks, optimize their import strategies, and ensure compliance with evolving regulations.