The statute defines related broadly, and the breadth is the point. Family members, business partners, employer and employee, officers or directors of each other's organizations, and anyone who directly or indirectly owns or controls 5 percent or more of another entity's voting stock all qualify. Two companies under common control are also related. A parent selling to its subsidiary is the obvious case, but the definition reaches much further: a company that owns 6 percent of a supplier's voting stock is related to that supplier for valuation purposes, whether or not anyone thinks of them as connected.
The 5 percent threshold is low on purpose. It catches the ownership stakes that can move a price without amounting to control. An importer who does not know the ownership structure of their supply chain can file a related-party entry as if it were arm's length, and CBP can reject the value on that basis alone. The first step is not legal analysis. It is a factual one: who owns what, and does the 5 percent line get crossed anywhere in the chain?
When CBP has doubts, the importer can show the relationship did not influence the price in two ways. The first is the circumstances of the sale: show the price was set consistent with the industry's normal practices, or that the seller charges unrelated buyers the same way. If the parent sells to its subsidiary at the same price it charges independent distributors, with the same terms, the circumstances support the price. The second is the test value: show the related-party price closely approximates an accepted value for identical or similar goods, either the transaction value of identical or similar goods sold to unrelated US buyers, or the deductive or computed value of identical or similar goods.
The comparison has to be honest about differences. Commercial level, quantity, and the statutory additions all affect the price, and CBP adjusts for them before deciding whether the prices closely approximate each other. A test value that ignores a volume discount or a different distribution level is not a test value. It is a number that happens to be near the price, and CBP will say so.
The evidence should be assembled before the entry is filed, not after CBP asks for it. A transfer pricing policy that shows how the price is set. Price lists showing what the seller charges unrelated buyers for the same goods. Profit data by product class, showing the price covers all costs plus a profit level equivalent to the seller's overall profit on sales of the same class of goods over a representative period. CBP ruling 545031 is the pattern to follow: the ruling walks through the circumstances-of-sale analysis the way CBP expects it to be presented.
The alternative is to file the related-party price with no support and hope CBP does not ask. That hope has a short life. CBP asks about related-party pricing routinely, and an entry filed without evidence is an entry that gets its transaction value rejected, which moves the valuation down the ladder to methods that need data the importer does not have. The evidence is cheap to prepare and expensive to reconstruct after the fact. Prepare it first.
Keep reading: Royalties and License Fees: When CBP Adds Them to Value, First Sale Rule: How It Cuts Duty on Multi-Tier Transactions.
No. Related-party transactions do not automatically disqualify transaction value, but CBP pays close attention. The statute defines related broadly, and when CBP has doubts, the importer gets an opportunity to show the relationship did not influence the price. The burden is on the importer to show it, with evidence, not assertion.
Owning or controlling 5 percent or more of another entity's voting stock makes the parties related. The definition also covers family members, business partners, employer and employee, officers or directors of each other's organizations, and companies under common control. Two companies under common ownership are related even if neither owns the other directly.
A test value is an accepted value for identical or similar goods that the related-party price can be compared against: the transaction value of identical or similar goods sold to unrelated US buyers, or the deductive or computed value of identical or similar goods. If the related-party price closely approximates a test value, CBP accepts it. The comparison has to account for differences in commercial level, quantity, and the statutory additions.
CBP rejects transaction value and moves down the valuation ladder: identical merchandise, similar merchandise, deductive value, computed value, fallback. Each step needs data the importer may not have, which is why the related-party evidence should be prepared before the entry, not after CBP asks for it.