The World Customs Organization has produced a case study to help better illustrate how customs authorities take into account transfer pricing information during verification of a cross-border shipment’s customs value.
The World Customs Organization has produced a case study to help better illustrate how a customs authority takes into account transfer pricing information during verification of a cross-border shipment’s customs value.
Transfer pricing refers to the determination of the price and other conditions for the transfer of goods, services and assets between affiliated companies located different tax jurisdictions. It’s long been a tricky area for customs administrations, as well as large multinational companies seeking to be compliant with customs regulations, when ensuring that proper levels of duties and taxes are being paid.
The World Trade Organization’s Valuation Agreement sets out the methodology for establishing the customs value and it’s used worldwide as the basis for calculating customs duties. The agreement foresees that customs authorities may examine transactions between related parties when they have doubts that the price may have been influenced by the relationship.
The Organization for Economic Cooperation and Development (OECD) has also developed guidelines for establishing the transfer price to determine business profit taxes in cases where companies are related.
“Over recent years, the similar objectives but different methodologies of transfer pricing and customs valuation have been noted, and it has been recognized that business documentation developed for transfer pricing purposes may contain useful information for customs. An earlier instrument of the Technical Committee,” the WCO said.
“The new case study provides an example of customs making use of transfer pricing information based on the transactional net margin method. On the basis of this information, customs accepted that the sale price in question had not been influenced by the relationship,” the Brussels-based governmental organization explained.
“This new instrument is an important step for the WCO and demonstrates its relevance by providing guidance on the management of customs valuation in an increasingly complex trade landscape, whilst maintaining consistency and strengthening cooperation with tax authorities,” said WCO Secretary General Kunio Mikuriya in a statement.
The case study (14.1), which was finalized at the 42nd Session of the WCO’s Technical Committee on Customs Valuation in Brussels April 18-22, will be made available in the WCO Valuation Compendium, subject to approval by the WCO Council in July.
More information about the topic of transfer pricing is also available in the WCO Guide to Customs Valuation and Transfer Pricing.
WCO further explains transfer pricing with case study
