Harmonizing Import Tariff Adjustments with Local Asset Tax Depreciation
Harmonize customs valuation adjustments with local tax depreciation by capitalizing non-refundable duties and unbundled assists into the asset basis via Form 3115.
IRC Section 1059a
Meaning
Provisions of the United States internal revenue code establish rules to prevent corporations from claiming conflicting valuations for tax and customs purposes. Specifically, irc section 1059a prohibits importers from claiming a higher cost basis for income tax deductions than the value they declared for customs duty calculations. This restriction applies to transactions between related parties where the imported property has a customs value.
The rule ensures that companies do not artificially reduce their taxable income by inflating import costs.
Transfer Pricing
Taxpayers must reconcile the transfer pricing adjustments they make with their customs declarations. If a company raises its transfer price to increase tax deductions, it must also adjust and pay duty on the higher value. This creates a structural link between the valuation methods used by different government agencies.
Importers must therefore coordinate their tax planning and import compliance to avoid inconsistent records.
Exception Rule
Certain additions to customs value do not fall under this restriction if they are not included in the tax basis. These exemptions include international freight, insurance, and assembly charges that occur after the import event. Importers may adjust their income tax calculations for these items without violating the valuation alignment required by the statute.
However, the burden of proving that these costs are exempt lies entirely with the importing corporation.
Structural Risk
Corporate groups that fail to monitor this valuation alignment risk significant penalties and back tax assessments from both tax and customs authorities. Audits by either agency can trigger an investigation by the other, resulting in double exposure for inconsistent pricing. To mitigate this exposure, multi national companies develop comprehensive joint policies that align import and tax valuations before shipments arrive at the border.
These proactive measures help prevent the expensive disputes and retroactive adjustments that arise when different departments operate in isolation. In venture backed manufacturing firms, this tax compliance is often a focus during due diligence before an acquisition or public offering.