1. GLOBAL SERVICE/ INDUSTRY AUDIT / TAX / ADVISORY / LINE OF BUSINESS Current Topics in Global Trade Management John Patrick O’Shea Senior Manager Trade and Customs Melville, NY February 07, 2008 John Patrick O’Shea Senior Manager Trade and Customs Melville, NY February 07, 2008

2. 2 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that is will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

3. 3 Global Trade Reviews, Related Party Transactions, First Sale for Export

4. 4 In the current trade environment we have been seeing an increase in multi- national corporations conducting global process and procedure reviews The reviews are being conducted primarily to: Create harmonization in trade practices and procedures Drive efficiencies in supply and value chains To reduce costs and mitigate risk The reviews are cover both import and export practices Global Trade Reviews

5. 5 Managing Risk – Related Parties New Interpretation

6. 6 April 2007 – Informed Compliance Publication – Related Party Pricing; Transfer Pricing. Key Findings: An Advanced Pricing Agreement or Transfer Price Study ‘by itself’ is not sufficient to show that related party transaction value is acceptable for Customs purposes. Although the transaction based methods (e.g., CUP) used by the IRS in determining an arm’s length price under Section 482 have some similarities to the customs methods, they are not the same. The comparable profits method (CPM) has little similarity to the customs methods. The underlying facts and conclusions of an APA or TP study may contain relevant information regarding the application of the circumstances of the sale test. However, the burden of identifying this information is on the importer. Importers are obligated to use “reasonable care” in declaring the value of imported goods in accordance with customs methods. Managing Risk – Related Parties Informed Compliance Publication (ICP) Excerpts

7. 7 DifferencesCustomsIRS Different Objectives Maximize COGS / Import Value Minimize COGS / Import Value Different Law 19 USC 1401a Section 482 Different Focus Per unit price of imported goods Aggregate income of importer Different Time Periods Entry-by-entry declarations Annual period Different Comparable Sets Product / Industry comparability Functional comparability Different Tests Circumstances of Sale Test / Test Values IRC §1.482-3 Methods Different Measures if not Arm’s Length Rejection of transaction value / invoice price Adjustment of transfer price / invoice price Managing Risk – Related Parties Tension Between Customs and Tax

8. 8 Without proper planning, certain other payments may also be subject to customs duties. In many countries the following charges may be dutiable or non-dutiable depending on how they are structured: Without proper planning, certain other payments may also be subject to customs duties. In many countries the following charges may be dutiable or non-dutiable depending on how they are structured:  Royalty payments – payments may be subject to customs duty.  Cost Sharing Agreements - payments may be subject to customs duty.  Management Fees - payments may be subject to customs duty.  “Indirect Payments” to the Seller - payments may be subject to customs duty.  Transfer Pricing Price Adjustments - may be subject to customs duties. In addition, without proper planning, downward adjustments in price may not result in duty refunds. Managing Risk – Dutiable Charges

9. 9 First Sale for Export  The First Sale Method of Appraisement allows importers to assess duty on the lower price in a series of sales. Typically, this would allow importers to assess duty on the price between a foreign factory and middleman.  On January 24, 2008, U.S. Customs and Border Protection (“CBP”) published a notice in the Federal Register seeking to eliminate the use of the First Sale for Export Principle.  The new interpretation states that in a series of sales the dutiable value would be based on “the price paid in the last sale occurring prior to the introduction of the goods into the United States.”  CBP is seeking to revoke its own rulings and other administrative issuances allowing for “first sale” appraisement and to limit the application of the judicial precedent that underlies the “first sale” concept.  As a result, CBP's proposed action would overturn nearly 20 years of legal and administrative precedent and would cause importers to reevaluate their current customs valuations

10. 10 The information contained herein [or insert the title of the presentation, report, or talkbook] is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © (year) KPMG (member firm name if applicable), the (jurisdiction) member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in (country). (Insert document code) Presenter’s contact details John Patrick O’Shea KPMG LLP (212) 954 - 7275 jposhea@kpmg.comwww.kpmg.com Copyrights and Disclaimers may vary between applications. Please consult the GB&RC MicroWeb for specific policies. http://www.gbmc.kworld.kpmg.com/BRC/resource/default.asp?getnode=339 Please delete this message prior to printing or presenting