Reducing Customs Value in the United States: Lawful Strategies to Optimize Costs – The Case of ALFA Srl

Introduction

Many Italian companies exporting to the United States face a significant tariff burden due to the high customs value attributed to imported goods. However, according to U.S. Customs and Border Protection (CBP) regulations, there are entirely lawful and compliant opportunities for optimization within the framework of international tax compliance policies.

For ALFA Srl ("ALFA"), a company actively exporting to the U.S., lowering the declared customs value can result in direct duty savings and, indirectly, enhanced competitiveness in the U.S. market. This article presents a technical and operational approach, with practical examples and applicable guidance.

Transaction Value Method and the First Sale Rule

CBP primarily determines the customs value using the transaction value method, which is based on the actual price paid or payable for the goods, including additional charges such as packaging, technical assistance, and royalties.

One of the most effective, albeit more complex, strategies is applying the First Sale Rule. This rule allows customs valuation to be based on the first sale in the supply chain (e.g., between the manufacturer and ALFA), rather than the last sale (between ALFA and the U.S. distributor BETA).

To apply the First Sale Rule, the following conditions must be met:
- The initial sale must be a genuine transaction conducted at market conditions;
- ALFA must assume the typical risks and benefits of the buyer;
- Comprehensive documentation (contracts, invoices, Incoterms, proof of payment, and business correspondence) must demonstrate the independence and authenticity of the negotiation.

Transactions Between Related Parties

In cases where ALFA purchases from a related company, such as China Co., it is crucial to demonstrate that the intercompany relationship did not influence the pricing. CBP does not apply OECD transfer pricing rules but uses its own arm’s length standards to verify that prices are comparable to those in transactions between unrelated parties.

Therefore, ALFA must prepare a detailed evidentiary file including benchmarking studies, functional analyses, and economic justifications to support the declared values.

Manufacturer's Price vs. Distributor's Price

Opting to use the manufacturer’s price for customs valuation can lead to significant savings, as it excludes the distributor’s profit margin and operating costs. However, this approach requires:
- A more structured supply chain management;
- Comprehensive supporting documentation;
- A direct relationship between ALFA and U.S. Customs.

Conversely, using the distributor’s price results in a higher customs value but allows for simpler customs clearance and reduced documentation requirements, aligning more closely with standard market practice.

Who is the Importer of Record (IOR)?

The chosen optimization strategy also impacts the identification of the Importer of Record (IOR)—the entity formally responsible to CBP.

- ALFA as IOR: Recommended when applying the First Sale Rule and using the manufacturer’s price. In this case, ALFA must register with CBP, handle customs procedures, activate a bond, and provide detailed supporting documentation for customs declarations.

- BETA as IOR: Preferable when using the distributor’s price. In this scenario, ALFA delegates operational management to an entity already established in the U.S. market, minimizing the impact on its internal structure.

Operational Conclusion

To optimize the tariff burden on exports to the United States, ALFA should assess:
- The legal and operational feasibility of applying the First Sale Rule;
- The advisability of becoming the IOR, assuming direct responsibility with CBP;
- The coordination of customs strategy with group-wide transfer pricing policies;
- The implementation of a structured documentation system to support customs declarations.

Operational Checklist for ALFA Srl

- Verification of multi-tier contractual flows
- Analysis of related-party transactions
- Evaluation of the implications of assuming the IOR role
- Implementation of document control tools
- Coordination with tax and customs advisors

About Diacron Group

The Diacron Group offers integrated tax, accounting, and customs advisory services through both local and international experts. We support Italian companies in their internationalization efforts, helping them manage the tax and customs implications of exports to the United States in a compliant and efficient manner.

For further information, please contact Diacron US.