U.S. interagency information-sharing on transfer prices and customs values.

• Author: Curran, Dennis J.

The IRS continues to increase its emphasis on intercompany pricing between related parties. As part of this effort, particular emphasis is being placed on the statutory requirement for consistency between customs and income tax values of property in related-party situations (Sec. 1059A).

In addition to the basic requirement that transfer prices between related parties be at arm's length, Sec. 1059A (entitled "Limitation on taxpayer's basis or inventory cost in property imported from related persons") provides that if any property is imported into the United States in a transaction between related parties, the transfer price for tax purposes cannot be greater than the value claimed for customs purposes on U.S. Customs Form 7501 plus allowable adjustments. The customs value is generally set on the final customs "liquidation," i.e., the determination of the customs duty due. With certain limited exceptions (which may present a window of opportunity for some taxpayers), the liquidation is considered final 90 days after notice of liquidation to the importer (unless a timely protest is filed). This final customs value binds the taxpayer under Sec. 1059A. If a company pays additional duties after the liquidation, due to matters such as undeclared value at the time of entry, use of provisional values, retroactive price increases, an arrangement with Customs to periodically submit certain value information, a Customs audit or voluntary internal review, a Sec. 1059A issue may be created if the taxpayer has based its costs of goods for income tax purposes on the higher values.

Regulations issued earlier this year heighten the need for taxpayers to address intercompany transactions that require the reconciliation of income tax and customs values. Temp. Regs. Sec. 301.6103(l)(14)-1T specifies procedures by which the Service may disclose tax return information to the U.S. Customs Service, and describes the conditions and restrictions on the use and disclosure of the information. The rules, issued under new Sec. 6103(l)(14), created by the North American Free Trade Agreement (NAFTA) Implementation Act (PL 103-182), permit the IRS to share information with Customs to assist in the enforcement of Customs transfer-price rules. The regulations also permit disclosure to the Justice Department for civil enforcement actions related to Customs collection efforts. In addition, Temp. Regs. Sec. 301.6103(l)(14)-1T(d) permits disclosure of information either relating...