Related Party Customs Valuation: The Acceptance Framework

Key Points

• Relatedness alone does not disqualify transaction value: 19 U.S.C. 1401a(b)(2)(B) expressly states that a price between related parties may still be accepted.
• Two acceptance paths exist: the circumstances-of-sale test and the test-value comparison; an importer needs to satisfy only one.
• "Related persons" is defined in 19 U.S.C. 1401a(g) and covers eight specific relationships, including parent-subsidiary, officer overlap, and a five-percent ownership threshold.
• The burden falls on the importer to demonstrate acceptability; CBP does not have to prove the price is wrong before questioning it.
• A CBP examination of related-party pricing routinely requests transfer-pricing studies, intercompany agreements, financial statements, and profit data, so documentation should be assembled before entry.

On this page

1. What related-party pricing means for customs valuation
2. Who counts as a related person under 19 U.S.C. 1401a(g)
3. The two acceptance paths: circumstances of sale and test values
4. How the circumstances-of-sale test works
5. How the test-value comparison works
6. Importer burden and CBP examination posture
7. What importers should do
8. Key references

When a buyer and seller are related, CBP may examine whether their price reflects arm's-length market conditions or has been influenced by the relationship. Under 19 U.S.C. 1401a(b)(2)(B), relatedness is not an automatic bar to using transaction value. The importer must instead demonstrate, through one of two prescribed acceptance paths, that the price is acceptable for customs valuation purposes. If neither path is satisfied, CBP moves down the hierarchy of alternative valuation methods.

The links in this article go to the primary documents: the statutes, regulations, and official tariff schedule pages themselves. Read the source.

What related-party pricing means for customs valuation

Transaction value, the price actually paid or payable for imported merchandise, is the preferred and default customs valuation method. For unrelated parties, CBP generally accepts the invoice price plus statutory additions. For related parties, an additional layer of scrutiny applies because the price may have been set for tax, accounting, or business reasons that have nothing to do with the fair market value of the goods.

The concern is not that related-party pricing is inherently wrong. Multinational supply chains routinely move goods between affiliated entities at prices that are commercially sound. The concern is that a price influenced by the relationship could understate customs value, reducing duties owed. Congress addressed this directly in the statute: relatedness creates a question, not an answer.

Who counts as a related person under 19 U.S.C. 1401a(g)

19 U.S.C. 1401a(g) defines related persons and lists eight categories. They include:

• Officers or directors of one another's businesses
• Legally recognized partners in business
• An employer and employee
• Any person who directly or indirectly owns, controls, or holds five percent or more of the outstanding voting stock or shares of both the buyer and the seller
• One of the parties who directly or indirectly controls the other
• Both parties who are directly or indirectly controlled by a third person
• Parties who together directly or indirectly control a third person
• Members of the same family

The five-percent ownership threshold is significant in practice. A company with a minority stake in its supplier may not think of itself as "related" in a corporate-law sense, yet it meets the statutory definition for customs purposes. Importers should audit their supplier relationships against all eight categories, not just majority ownership.

Relatedness at entry versus relatedness at time of sale

Relatedness is assessed at the time the sale occurred, not necessarily at the time of entry. If a buyer and seller were unrelated when the purchase was contracted but became related before the goods arrived, the classification of the transaction may shift. Document the relationship status contemporaneously with each purchase order.

The two acceptance paths: circumstances of sale and test values

Once relatedness is established, the importer must show, under 19 U.S.C. 1401a(b)(2)(B), that the price was not influenced by the relationship. The statute provides two routes. Satisfying either one is sufficient; there is no requirement to satisfy both.

How the circumstances-of-sale test works

The circumstances-of-sale test asks whether the price was settled in a manner consistent with normal industry pricing practices, or with the price the seller charges unrelated buyers. The analysis examines the totality of the commercial context surrounding the transaction.

Evidence that supports the test

• Comparable unrelated sales: If the seller charges the same or a similar price to unrelated buyers for the same or similar goods, that comparability supports acceptance.
• Industry pricing benchmarks: Published price lists, trade-association surveys, or other market data showing that the intercompany price tracks the market range.
• Profit adequacy at the seller level: Financial statements showing the seller covers its costs and earns a reasonable margin at the declared price, demonstrating the price is not artificially suppressed.
• Transfer-pricing documentation: A transfer-pricing study prepared for income-tax purposes (under the arm's-length standard) is admissible evidence, though CBP is not bound by IRS transfer-pricing rules and conducts its own analysis.

Limits of tax transfer-pricing studies

Importers sometimes assume that an IRS-compliant transfer-pricing policy automatically satisfies CBP. It does not. The income-tax arm's-length standard and the customs valuation standard share a common goal but use different methodologies and look at different levels of the supply chain. A study prepared solely for tax compliance may not address the CBP-specific questions, such as the price for a specific importation of specific goods at a specific port. Supplement tax documentation with customs-specific analysis.

How the test-value comparison works

The test-value path is a numerical comparison. The importer demonstrates that the related-party transaction value closely approximates one of three benchmark values established in the statute:

• The transaction value of identical or similar merchandise sold to unrelated buyers for exportation to the United States
• The deductive value of identical or similar merchandise (working backward from U.S. resale price)
• The computed value of identical or similar merchandise (building up from cost of production)

The comparison must be made at the same or a substantially similar time and at the same commercial level and quantity level, adjusted where necessary. "Closely approximates" is not defined by a bright-line percentage tolerance in the statute. CBP and the courts assess the comparison in context, considering the nature of the industry, the price range, and the magnitude of the difference.

Choosing between the two paths

Importers with robust unrelated-buyer sales data often find the circumstances-of-sale path more flexible because it does not require precise numerical matching. Importers whose seller sells exclusively to related parties, making comparables scarce, often turn to the test-value comparison using computed or deductive value benchmarks. Choose the path that your available documentation best supports, and prepare that documentation before the goods arrive.

Importer burden and CBP examination posture

The burden of demonstrating acceptability rests on the importer, not on CBP. CBP does not need to prove that the declared price is wrong before requesting additional information. A declaration of a related-party transaction value puts the importer on notice that supporting documentation may be required.

What CBP typically requests

During a related-party review, whether at entry, during a CF-28 or CF-29 inquiry, or during a formal audit, CBP commonly requests:

• The intercompany purchase agreement and any intercompany pricing policy
• Transfer-pricing studies and supporting benchmarking data
• The seller's cost buildup: materials, labor, overhead, and profit margin
• Financial statements for the selling entity
• Price lists showing what the seller charges unrelated buyers, if any
• Evidence of the commercial level and quantity at which the transaction occurred

Importers who cannot produce this documentation promptly expose themselves to CBP rejecting transaction value and substituting an alternative valuation method, which may produce a higher dutiable value. In an enforcement context, an inability to produce supporting records also bears on reasonable-care obligations under the Modernization Act.

Examination posture and audit risk

Related-party transactions are a standing risk signal in CBP's targeting algorithms. Importers with high-volume related-party imports, particularly in categories with elevated duty rates or antidumping orders, should expect periodic scrutiny. Building a regular self-review program that verifies related-party documentation is current and entry-specific is one of the most effective ways to reduce examination exposure.

When CBP issues a CF-28 (Request for Information) or CF-29 (Notice of Action) related to valuation, the clock begins running on response deadlines. Late or incomplete responses can result in the entry being liquidated at a higher value without the benefit of the importer's preferred acceptance argument.

What importers should do

• Map your supplier relationships against all eight categories in 19 U.S.C. 1401a(g) before the first shipment, and update the mapping whenever ownership or management structures change.
• Choose and document your acceptance path, either circumstances of sale or test values, and assemble the supporting materials (intercompany agreements, cost buildups, comparables, or transfer-pricing studies) at the transaction level, not just at the annual policy level.
• Do not assume IRS transfer-pricing compliance satisfies CBP; prepare a customs-specific supplement that addresses the particular goods, the commercial level, and the quantity of each importation.
• Respond promptly and completely to any CF-28 or CF-29; treat the request as a signal to verify that your documentation is complete for all related-party entries currently open for liquidation.

Key references

• 19 U.S.C. 1401a: The customs valuation statute, including the transaction-value method (subsection b), the relatedness acceptance framework (b)(2)(B), and the definitions of related persons (subsection g).
• 19 C.F.R. Part 152: CBP's implementing regulations on customs valuation, including related-party provisions.
• CBP Informed Compliance Publications: CBP's published guidance on customs valuation, available on the CBP trade outreach page.
• Harmonized Tariff Schedule of the United States (USITC): The official tariff schedule for classifying imported merchandise.
• Federal Register: Source for CBP rulemakings and notices affecting valuation practice.