Definition
A related party, according to U.S. Customs regulations, describes specific relationships between the importer and the foreign seller. CBP evaluates this relationship because it can affect the price negotiated for the goods—similar to receiving a family discount—potentially leading to an undervaluation if not properly scrutinized. The existence of a related party relationship requires specific documentation and careful consideration during the valuation process.
Determining Related Party Status
To determine if a transaction involves a related party, the Importer of Record must evaluate the relationship with the Seller of the merchandise based on the following criteria defined by U.S. Customs:
• Family Membership: Are any members of the same family involved? This includes brothers, sisters (whether whole or half blood relatives), spouse, ancestors, and lineal descendants.
• Shared Management: Do the buyer and seller share any Officers, Directors, or Partners?
• Shared Employees: Are there any shared employees between the organizations?
• Stock Ownership: Does any person directly or indirectly owning, controlling, or holding with power to vote, five percent (5%) or more of the outstanding voting stock or shares of both organizations?
• Common Control: Is one party directly or indirectly controlling or controlled by the other, or are both under common control of a third entity?
Expert Advice
If any of the above criteria apply, the transaction is classified as a Related Party transaction and must be accurately flagged on the Customs entry documentation (e.g., CBP Form 7501). Failure to disclose a related party relationship, or improperly justifying the transaction value, can lead to compliance violations, penalties, and increased scrutiny from CBP during valuation reviews. Importers must proactively assess whether the relationship influenced the price and be ready to provide evidence that the transaction value is acceptable under U.S. valuation rules.
Key Takeaways
• Related party status impacts how U.S. Customs determines the transaction value for duty assessment.
• Relationships based on family ties, shared management, 5% stock control, or common control require mandatory disclosure.
• Proper disclosure is essential to maintain compliance and avoid penalties related to undervaluation.
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