Linking Customs Valuation and Transfer Pricing in the U.S. And Beyond

Abstract

The exponential growth of international trade and the rapid expansion of corporate supply chains due to the rapid globalization of recent decades have placed increasing strains on systems of trade regulation and tax administration designed for a world of discrete states and corporate entities. A particular area where this tension has become pronounced is in the disconnect between customs valuation and transfer pricing, the legal regimes for valuing international transactions for purposes of assessing import tariffs and corporate income tax respectively. While both systems establish similar broad baselines — the “arm’s-length principle” for transfer pricing and the “transaction value principle” for customs valuation — because of the different goals of each system and the scope of transactions to which each applies, the specific methods used differ, leading to confusion and inefficiency. Efforts to coordinate the two systems, both at an international level and in the U.S., are progressing but incomplete. This paper illuminates the disparity in these two systems, with a specific focus on the U.S, through studying current laws, regulations, and practices in both areas, along with the steps taken thus far to align them, concluding with recommendations for how these efforts should be continued. This paper was written for the Transfer Pricing: Special Topics graduate-level seminar at Georgetown University Law Center during the Spring 2015 term.