Related-party pricing and assists in customs value

Short answer: Customs valuation for a related-party import rests on 19 USC 1401a. The price your affiliate charges can be the transaction value if you can show either that the relationship did not influence the price (the circumstances of sale test) or that the price closely approximates a test value CBP has already accepted (19 USC 1401a(b)(2)(B)). Separately, anything you supply to the producer free or at reduced cost, such as molds, components or foreign design work, is an assist, and its apportioned value must be added to the price (1401a(b)(1)(C)). Royalties are added when the buyer has to pay them as a condition of the sale for export to the United States (1401a(b)(1)(D)).

None of those questions can be answered from the commercial invoice. They are decided on records the importer holds elsewhere: shareholder registers, pricing data for unrelated customers, tooling contracts and license agreements. Below: the related-party tests with rulings U.S. Customs and Border Protection (CBP) has applied, dutiable assists with a worked mold apportionment, royalties, and one file for value and classification evidence.

What is transaction value?

Transaction value is the price actually paid or payable for goods when sold for exportation to the United States, plus five additions if they are not already in the price: packing costs incurred by the buyer, selling commissions incurred by the buyer, the apportioned value of any assist, royalties or license fees the buyer must pay as a condition of sale, and proceeds of later resale or use that accrue to the seller (19 USC 1401a(b)(1); 19 CFR 152.103(b)). If an addition cannot be quantified from “sufficient information,” transaction value cannot be used (152.103(b)(2)).

If transaction value cannot be used, appraisement moves in a set order through identical merchandise, similar merchandise, deductive value, computed value and a fallback method (1401a(a)); the importer may ask for computed value to be applied before deductive value. How value feeds the duty calculation is covered in how to calculate import duty on a US entry.

When are buyer and seller related?

Buyer and seller are related if they fall into any of the categories in 19 USC 1401a(g) and 19 CFR 152.102(g):

members of the same family, including brothers and sisters, spouses, ancestors and lineal descendants;
an officer or director of an organization and that organization, or officers or directors who serve in each other’s organizations;
partners, and employer and employee;
any person owning, controlling or holding power to vote 5% or more of an organization’s voting stock, and that organization;
two or more persons directly or indirectly controlling, controlled by or under common control with any person.

The 5% threshold is low: a minority investor in your supplier, or a supplier that holds a small stake in you, can make the parties related. Being related does not by itself rule out transaction value. 19 CFR 152.103(l)(1) says CBP may not disregard a value only because the parties are related. The importer has to show the price is acceptable by one of two routes.

How does the circumstances of sale test work?

The circumstances of sale test asks whether the relationship influenced the price. The interpretative notes in 19 CFR 152.103(l)(1) and CBP’s Informed Compliance Publication on related party transactions (April 2007) describe three ways to show it did not:

The price was settled in a manner consistent with the normal pricing practices of the industry. The ICP cites HRL 542261 (March 11, 1981), where a price tied to a posted trade-journal price was objective evidence. In HRL 548482 (July 23, 2004), operating profit comparable to functionally equivalent companies did not establish industry practice.
The price was settled the way the seller prices sales to unrelated buyers. In HRL 547019 (March 31, 2000), CBP accepted transaction value where the seller gave related and unrelated buyers the same discounts.
The price recovers all costs plus a profit equivalent to the firm’s overall profit over a representative period, in sales of merchandise of the same class or kind. The ICP describes this as “the most objective method” when there are no sales to unrelated buyers, and the profit benchmark is normally the parent company’s.

The burden is on the importer, and the ICP says CBP often rejects claims where “the allegations are conclusory and not supported by evidence.” Transfer pricing studies and advance pricing agreements are relevant but not enough on their own: the ICP cites HRL 548095 (September 19, 2002) for that point, and says relying solely on one “would not be exercising reasonable care.” Customs values are set entry by entry and product by product, while tax rules allow aggregation. How to use a tax study in a customs file, and what year-end transfer pricing adjustments do to declared value, is in related-party prices, transfer pricing studies and customs value.

What are test values?

Test values are the second route. A related-party price is acceptable if it closely approximates the transaction value of identical or similar merchandise sold to unrelated US buyers, or the deductive or computed value of identical or similar merchandise, for goods exported at or about the same time (1401a(b)(2)(B)). The ICP adds two limits. Test values must be values CBP has actually accepted in previous appraisements; your own computed value for the same goods does not count. And they are used only for comparison: if the price does not closely approximate one, you fall back to circumstances of sale or the next valuation method.

There is no fixed percentage for “closely approximates.” Under 152.103(l)(2)(i), CBP considers the nature of the goods and the industry, the season, whether the difference is commercially significant, and whether it reflects internal transport costs in the exporting country. The regulation’s example adds a symmetry rule: if 95 is rejected as not close to 100, then 105 is rejected too. Because test values must come from CBP’s own earlier appraisements, an importer may have nothing to compare against, and the file then rests on circumstances of sale.

Which assists are dutiable?

An assist is something the buyer supplies, directly or indirectly, free or at reduced cost, for use in producing the imported goods (19 CFR 152.102(a)). There are four kinds:

Assist	Example	Value under 19 CFR 152.103(d)
Materials, components and parts incorporated in the goods	Buyer-supplied fabric, chips or motors	Cost of acquisition from an unrelated seller, or cost of production if the buyer or a related party made it, plus transport to the factory
Tools, dies, molds and similar items used in production	An injection mold shipped to a supplier	Acquisition or production cost; reduced for prior use; lease cost if leased; plus transport to the factory
Merchandise consumed in production	Abrasives or catalysts the buyer supplies	Cost of acquisition, or cost of production if the buyer or a related party made it, plus transport to the factory
Engineering, development, artwork, design work, plans and sketches	Product drawings made by a design office abroad	Counted only if undertaken outside the United States and necessary for production

Engineering and design work undertaken in the United States is not an assist. The statute limits that category to work “undertaken elsewhere than in the United States” (1401a(h)(1)(A)), and 152.102(a)(2) also excludes work by a US-domiciled employee or agent of the buyer that is incidental to engineering or design done in the United States. The regulation’s own example is designs an importer bought from a US engineering company and sent to its foreign supplier: nothing is added. Drawings bought from a design firm abroad and supplied to the factory are an assist. Repairs or modifications to a mold can raise its value, so the register has to follow the tool through its life.

How do you apportion an assist?

An assist’s value is apportioned to the imported goods in a reasonable way that follows generally accepted accounting principles (19 CFR 152.103(e)). Where all of the anticipated production goes to the United States, the regulation offers three methods: put the whole value on the first shipment, spread it over the units produced up to the first shipment, or spread it over the entire anticipated production. You can ask CBP to accept another GAAP-consistent method.

Worked mold example (all figures hypothetical). A US importer buys a $48,000 injection mold from an unrelated toolmaker and pays $2,000 to ship it to its supplier, so the assist value is $50,000. The contract is for 40,000 units, all for the US market. The first shipment is 5,000 units, and the supplier has made 10,000 units by the time it ships. The goods are dutiable at 6.5% in this example.

Method	Addition to declared value	Duty on the assist
Whole value on the first shipment	$50,000 on the first entry only	$3,250 on the first entry
Units produced up to the first shipment	$5.00 a unit on the first 10,000 units imported	$0.325 a unit, $3,250 in total
Entire anticipated production	$1.25 a unit on all 40,000 units	$0.08125 a unit, $3,250 in total

Total duty is the same if every unit enters at one rate; the method changes timing. It stops being neutral when the contract is cut short (under the third method, value is under-declared if only 20,000 units ever ship), when the rate changes during the run, or when part of the output goes to other markets, because the regulation’s methods assume all production comes to the United States. Pick one method per assist and track units until the assist is fully declared.

Three mistakes recur. The supplier’s unit price already includes amortization of a mold, and the importer adds the same mold again as an assist, so its value is declared twice. A mold is refurbished abroad at the buyer’s cost and the new value is never added. Or an engineering invoice from an overseas design firm sits in a different budget and never reaches the customs team. An assist left out of past entries is an underpayment, and correcting it may involve a prior disclosure, which is a decision to make with a licensed customs broker or trade attorney.

Are royalties and license fees dutiable?

Royalties and license fees are dutiable when the buyer is required to pay them, directly or indirectly, as a condition of the sale of the imported goods for export to the United States (1401a(b)(1)(D)). 19 CFR 152.103(f) gives the general lines CBP draws. Royalties for patents covering the process of manufacturing the goods generally are dutiable. Royalties paid to third parties for the right to use copyrights and trademarks in the United States generally are the buyer’s selling expenses and are not dutiable. The answer depends on whether payment was a condition of the sale and to whom it was paid, and the regulation’s example holds that a royalty based on the price of a product further manufactured in the United States is not dutiable.

Related-party structures need extra care here, because 152.103(f) makes the payee part of the test: a royalty paid to the seller or its parent is harder to separate from the sale than one paid to an unrelated licensor. Proceeds are a separate addition: if the buyer pays the seller $1 a unit at purchase and another $1 for each unit resold in the United States, the transaction value is $2 a unit, provided the resale amount can be determined (152.103(g)).

Multi-tier supply chains raise a different valuation question, whether an earlier sale between the factory and a middleman can be the basis of value.

Why keep value and classification evidence together?

Value and classification depend on the same product facts. An assist of buyer-supplied components changes what the article is made of, which can change its classification. Some HTSUS lines are defined by value: CBP’s footwear rulings use lines such as 6404.11.90, “Valued over $12/pair.” A declared value that omits an assist can put a product in the wrong value bracket as well as under-declare duty.

Keep one file per product family: the classification memo (GRIs, notes, rulings), the valuation memo (relationship status, the test relied on and its evidence, the assists register with apportionment method and units declared, the royalty analysis), and who reviewed each and when. Supporting records generally must be kept 5 years (19 CFR 163.4). What CBP expects that file to show is set out in what CBP expects you to document to show reasonable care.

TariffWolf works on the classification half of that file, not on valuation: it returns the 6-digit HS code with the GRIs applied, the legal notes and the CBP rulings behind it, with a reviewer and timestamp per SKU, and your broker or classifier chooses the last four digits. Valuation positions, related-party tests and royalty analysis belong with a customs attorney or licensed broker.

Frequently asked questions

Can a related-party price be used as customs value?

Yes, if the importer shows that the relationship did not influence the price (circumstances of sale) or that the price closely approximates a test value for identical or similar goods (19 USC 1401a(b)(2)(B)). CBP may not reject a value only because the parties are related, but the evidence has to come from the importer.

Is engineering done in the United States an assist?

No. Engineering, development, artwork, design work and plans count as assists only if undertaken outside the United States and necessary for production (19 USC 1401a(h)(1)(A)). Design work bought from a firm abroad and supplied to the factory is an assist.

Are royalties part of customs value?

Only when the buyer must pay them as a condition of the sale for export to the United States. Under 19 CFR 152.103(f), manufacturing-process patent royalties are generally dutiable, while third-party trademark and copyright royalties for US use are generally not.

Does a transfer pricing study prove customs value?

Not by itself. CBP’s 2007 related-party ICP treats a transfer pricing study or advance pricing agreement as relevant but insufficient alone, because tax methods aggregate across products while customs value is set entry by entry.

Map every supplier relationship against the statutory categories, choose the related-party route you can prove for each, keep an assists register with one apportionment method per tool, and test each royalty against the condition-of-sale question. Then file the valuation memo next to the classification memo and have counsel review the valuation positions.

If the classification side of that file is missing or out of date, book a call with TariffWolf and bring a few product families. You will see 6-digit HS codes with the notes and rulings behind them, ready for your broker to complete and to sit next to your valuation memo.

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