WCO Offers New Customs Valuation and Transfer Pricing Guide

The World Customs Organization created a new guide to help in customs valuation and transfer pricing issues, said the WCO in a press release (here). The guide is meant to aid in interactions between customs and tax regimes when dealing with international transactions within a multi-national group (MNE), said the WCO. Customs operations' "aim is to ensure that the price for transactions of imported goods is not influenced by the relationship between buyer and seller," whereas tax agencies "look at the same transactions to ensure the conditions are consistent with the 'arm’s length principle' for profit tax purposes," said the WCO.

The guide "sets out the relevant methodology for both regimes and explores the linkages and the possibilities for Customs to use transfer pricing information to examine related party transactions," said the WCO. It "provides technical background and offers possible solutions regarding the way forward, and shares ideas and national practices, including the trade view," the WCO said in the guide (here). The WCO said it is also working with the Organisation for Economic Cooperation and Development and World Bank Group to "encourage Customs and tax administrations to establish bilateral lines of communication in order to exchange knowledge, skills and data, where possible, which will help ensure that each authority has the broadest picture of a MNE’s business, its compliance record and can make informed decisions on the correct revenue liability."

While intergovernmental bodies have discussed the relationship between customs valuation and transfer pricing in recent years, it's now clear "that "any alignment or merger of tax and Customs methodologies is not a realistic proposition given the particulars of the existing legal frameworks upon which they are based," said the WCO. Therefore, some significant questions must be addressed, it said. For instance, "to what extent can information contained in transfer pricing documentation, primarily developed for taxation purposes, provide useful information for Customs to determine whether or not the price declared for imported goods has been influenced by the parties’ relationship, in order to make a final determination of the Customs value?," the WCO asked. Also, what impact should post-import adjustments for transfer pricing have "in determining the Customs value of the imported goods?," it asked.

The guide includes input from the International Chamber of Commerce on what it considers best practices for customs valuation and transfer pricing. Among the ICC recommendations are that in cases following transfer pricing adjustments, companies be relieved from an obligation to submit an amended declaration for each initial customs declaration and pay penalties as variations of the transfer price. The ICC also recommended "customs administrations recognize that the functions and risks undertaken by the parties as documented in a transfer pricing study following an OECD transfer pricing methodology are crucial to the economic assessment of the circumstances of the sale." The WCO also examines various national initiatives in for transfer pricing considerations. Canada, Australia, the United Kingdom and the U.S. and featured as examples of national policies.