The APA, the Credit Note and the Trademark Fee

A related-party relationship does not by itself require rejection. Under Article 1.2 of the WTO Valuation Agreement, the transaction value is acceptable if the relationship did not influence the price. Customs must examine the circumstances of sale and, if it has doubts, give the importer an opportunity to demonstrate that the price is arm's length. Relevant tests include whether the price is consistent with normal pricing practices in the industry, whether it covers all costs plus a representative profit, and whether it is comparable to prices in sales between unrelated parties. The APA is evidence of a tax arm's-length price, but it is not binding on customs because transfer pricing and customs valuation use different tests and points in time. Customs may use the APA and the transfer pricing study as persuasive support, but it can still reject the transaction value if the circumstances show influence. If rejected, customs must proceed to the alternative methods: identical or similar goods, deductive value or computed value. M should present the APA, comparables and evidence that the price was fixed before import and not adjusted to influence duty.

The credit note is a post-importation price reduction. Customs value is determined at the time of importation. A year-end credit note based on actual sales generally does not reduce the customs value unless the buyer had a right to the reduction at the time of import and the amount was determinable then, or the national regime allows a post-clearance refund for contractually agreed price adjustments. M must show that the credit note relates to the imported goods and not to marketing or other services. The trademark fee falls under Article 8.1(c). The licence wording 'not a condition of sale' is not conclusive; customs will examine whether M could sell the imported goods without paying the fee and whether the fee is related to the imported goods. Because P is the seller and the trademark appears on the goods, there is a strong link, and customs may include the fee. If M can show the fee is a separate right to use the brand for local marketing and is genuinely not a condition of sale, exclusion may be defensible. The artwork is an assist under Article 8.1(b)(iv): design work necessary for production of the imported goods and supplied free to the seller. The USD 75,000 is added, apportioned over the relevant production. Payment to an unrelated design firm does not matter.

Exposure arises from two possible adjustments: additional value from the trademark fee and artwork assist if customs includes them, and a re-determined transaction value if customs rejects the APA-based price. The credit note may reduce exposure only if M can establish a right to a refund under the applicable rules; otherwise it is not a defence. M should quantify the additional duty and interest entry by entry, using the import values and duty rates. To limit penalties, M should consider a voluntary disclosure before customs issues a formal assessment, provide corrected calculations, pay the duty and interest, and show that the APA and transfer pricing study were disclosed and relied on in good faith. A reasonable-care argument is stronger if M had a customs valuation policy, kept the licence and assist records, and corrected the error promptly. M should also check whether the credit note supports a separate refund claim and whether any penalty regime allows mitigation for cooperation. A written corrective action plan will help in any settlement.