Transfer pricing and
customs valuation

What do corporate income tax and customs duties have in common? That tax opportunities and risks always exist for transactions between affiliated parties. Since the Hamamatsu case from the ECJ in 2017, the parallel between transfer-pricing (TP) and customs valuation has been a frequent topic of discussion.

The correct customs value?

As a rule, the customs value cannot be based on the sale price of the goods if the parties are affiliated (or there is no underlying transaction or no price known). Normally, either the deductive method or the computed value method is applied in this respect. When using these methods, the cost price/purchase price or the subsequent selling price of the goods is corrected to a correct customs value.

The deductive method or the computed value method?

The deductive method requires that the customs value is based upon a price per unit derived from a sale of goods after importation. In this case, the starting point is the sales price of the goods sold to a third independent party after import. Qualifying costs and/or usual profit that belongs to the sale within the EU may be deducted. The starting point of the computed value method is the total cost of manufacturing the goods in the country of origin. To this, a mark-up is added for profit and general costs. This method is generally restricted to cases where you have access to the producer’s factory costs and profit margins.

Decision in the ECJ Hamamatsu case

Recently, the highest German court has published its decision in the ECJ Hamamatsu case. It ruled that a downward TP-adjustment does not entitle the company to receive refund of import duties. Vice versa, this would mean that an upward TP adjustment does not result in liability either. Unfortunately there is no clarity on this matter yet. This case shows the importance of ensuring that your TP-documentation and customs valuation documentation are always up to date and aligned.

After all, you do not want to pay more duties than necessary. In this regard, we advise you to:

• have a multidisciplinary team assess your TP-documentation and customs valuation processes;
• perform an assessment on how year-end adjustments may be addressed; and
• in case of doubt: obtain customs rulings and/or Advanced Pricing Agreements.