Importers to Ramp Up First Sale Valuation Compliance Following Trade Court Ruling, KPMG Says
Following a Court of International Trade opinion throwing the future of first sale import valuations from non-market economies (NMEs) into question (see 2103020040), KPMG released recommendations for U.S. importers who use the valuation practice. One recommendation in the tax firm's April 19 analysis is to establish a “reasonable care” file in which to file commercial documentation and financial statements to demonstrate compliance with first sale requirements. Importers should also determine which party can best represent the firm in the product's supply chain for the “all costs plus a profit” test for first sale valuations. The rationale for that decision should also be filed in the reasonable care folder, KPMG said.
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The CIT opinion ruled on cookware imported by Meyer from Thailand and China through a Chinese middleman. Though he stopped short of saying imports originating in NMEs could never receive first sale valuation, Senior Judge Thomas Aquilino called on the U.S. Court of Appeals for the Federal Circuit to clarify.
Anticipating greater scrutiny of first sale valuations stemming from this decision, KPMG also recommended considering obtaining affidavits from vendors in NMEs confirming that government subsidies and assistance is absent from production. If the vendor cannot produce an affidavit, then the importer should consider a supply chain shakeup.
Additional screening of the comparability of NME suppliers should also be employed, KPMG said. Greater screening efforts include identifying comparable companies in market economies, vetting companies with sales to the U.S. that have similar functions, assets and risk profiles, and including public or private companies in the study to align with the company under review. Annual audits of a company's first sale program should also be conducted, KPMG recommended. Proactively addressing seemingly small administrative challenges can spare future headaches, it said.
KPMG said the long-term implications of the Meyer decision are not clear, but importers should be cautious. “If CBP were to start presuming that related-party transactions involving suppliers in NME countries like China are inherently dubious in order to prima facie disqualify [first sale for export] FSFE transactions, it would lead to a slippery slope potentially disqualifying all transactions from NME countries, not just FSFE transactions,” the analysis said.