The World Customs Organisation (WCO) announced the finalisation of an important new instrument at the 45th Session of the technical committee on customs valuation (CV) which took place from 23-25 October.
The instrument illustrates a scenario where Customs has taken into account transfer pricing (TP) information in the course of verifying the CV. This is the second case study (the first issued in 2016) to be issued by the technical committee on this topic, based on a submission by the People’s Republic of China.
The Organisation for Economic Cooperation and Development (OECD) has developed guidelines for establishing the TP in order to determine business profit taxes where businesses are related.
For CV purposes, the WTO Agreement on CV is applied for the determination of the CV for imported goods. The Technical Committee has been discussing the relationship between CV and TP 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 TP 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 TP 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 CV 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 organisations 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.