Buying from your own factory should be simple. Why CBP treats related-party prices as guilty until proven innocent, and how to prove them.
When a DTC brand buys inventory from its own overseas factory or a related supplier, the price on the commercial invoice was set by people on both sides of the table who answer to the same owner. CBP knows there was no adversarial negotiation pushing the price toward market value. That does not make the price wrong, but it removes the presumption that it is right, which is the entire basis of transaction value as an appraisal method.
This matters because transfer pricing for tax purposes and customs valuation for duty purposes pull in opposite directions. Tax teams want higher transfer prices in low-tax jurisdictions; customs teams want defensible, often lower, dutiable values. CBP auditors are trained to spot the gap. A brand whose tax transfer price and declared customs value tell different stories should expect questions, because the inconsistency is visible in the paperwork.
The core test is the circumstances-of-sale analysis: does the relationship between buyer and seller affect the price? CBP looks for evidence that the price was settled the way unrelated parties would settle it, considering the same commercial factors. Failing that, importers can use a test value, showing that the declared value closely approximates the transaction value of identical or similar merchandise sold to unrelated buyers.
In practice, auditors start with comparables. They want to see what unrelated buyers pay for the same or similar goods from the same seller, or what the related seller charges unrelated buyers. Brands that cannot produce either end up in a facts-and-circumstances fight that is expensive to win. The importers who sail through are the ones who built the comparable set before the audit notice arrived.
The foundation is a transfer pricing study that addresses customs valuation explicitly, not just tax compliance. Many tax studies ignore the customs angle entirely, which leaves the importer with an expensive document that answers the wrong question. The study should document the pricing methodology, show the arm's-length range, and explain in plain terms why the related-party price falls where it does.
Layer on contemporaneous evidence: quotes from unrelated suppliers for comparable goods, the related seller's price lists for unrelated buyers, and records showing the price responds to market conditions over time. A transfer price that never moves while commodity costs swing wildly looks administered, not negotiated. A price that moves with the market looks like a price, which is the whole point.
If CBP issues a CF 28 request for information on related-party pricing, treat it as the opening of a valuation case, not a routine inquiry. Respond with the full comparable package, organized around the circumstances-of-sale test, and involve counsel experienced in customs valuation specifically. The worst response is a thin letter asserting the price is fine; auditors read that as having nothing to show.
For ongoing protection, consider whether a binding ruling or an advance valuation arrangement fits the situation. These are not available for every fact pattern, but where they are, they convert an argument into an answer. And keep the file current: a three-year-old study describing a supply chain that has since changed is barely better than no study at all.
Not automatically. Tax studies target the arm's-length standard for income allocation, while CBP applies the circumstances-of-sale test for dutiable value. A study can serve both masters only if it was built with both in mind; most are not.
Then there are no same-seller comparables, and the analysis shifts to what unrelated buyers pay for similar goods from other sellers, or to a computed-value build. This is harder but entirely doable; it just requires more homework and better documentation.
Over-declaring avoids the scrutiny but overpays duty on every entry, which compounds fast at DTC volumes. The right answer is the defensible value, supported by evidence, not the safe value. Precision beats caution when the documentation is solid.