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Second case study on transfer pricing and Customs valuation

30 October 2017

An important new instrument was finalized at the 45th Session of the Technical Committee on Customs Valuation which took place in Brussels from 23 to 25 October 2017 under the Chairmanship of Mr. J. Birkhoff of the Netherlands.

The instrument (Case Study 14.2) illustrates a scenario where Customs took into account transfer pricing information in the course of verifying the Customs value. This is the second case study to be issued by the Technical Committee on this topic, based on a submission by China, following issue of Case Study 14.1 in 2016.

The Organisation for Economic Cooperation and Development (OECD) has developed Guidelines for establishing the transfer price, that is the price of goods and services sold between controlled or related legal entities, in order to determine business profit taxes where businesses are related.

For Customs valuation purposes, the WTO Agreement on Customs Valuation is applied for the determination of the Customs value for imported goods. The Technical Committee has been discussing the relationship between Customs valuation and transfer pricing over the past few years.

An earlier instrument of the Technical Committee, Commentary 23.1, confirmed the principle. that business documentation developed for transfer pricing purposes may contain useful information for Customs and the use of transfer pricing study as a possible basis for examining the circumstances of the sale should be considered on a case by case basis.

The new case study provides an example of Customs making use of transfer pricing information based on the resale price method. On the basis of this information, Customs concluded that in this particular case the declared import price was not settled in a manner consistent with the normal pricing practices of the industry and thus had been influenced by the relationship between the buyer and seller. Therefore, the Customs value should be determined by application of the alternative methods of appraisement in a sequential order.

The WCO has been working with the OECD and other international organizations to promote closer cooperation between Customs and tax administrations in order to strengthen governments’ ability to identify the correct tax and duties legally due and enhance trade facilitation for the compliant business sector.

The new case study (Case Study 14.2) is available here [es] and will be published in the WCO Valuation Compendium, subject to approval by the WCO Council in June 2018.

Further information on this topic can be found in the WCO Guide to Customs Valuation and Transfer Pricing, available via this link.