The legal differences between a customs valuation and the applicable transfer pricing rules may lead to different values being identified for the same transaction, with the risk (for the taxpayer) of being double-monitored by their customs agency and their tax revenue agency. In this regard, the Italian customs agency, considering the increase in intercompany transactions at the international level, has highlighted the need to identify a point of convergence between the different disciplines (tax and customs) governing the determination of transfer prices.
The common point between the two disciplines concerns the need to verify that the value of the goods transferred is not influenced by a corporate relationship between the parties involved in an intercompany transaction. Indeed, for customs valuation purposes, import transactions between two distinct and legally separate entities of the same multinational enterprise group are treated as related-party transactions. Such transactions may be examined by the relevant customs agency to determine whether the price declared for the imported goods is influenced by such a relationship.
Italian working group and World Customs Organization guidance
In Italy, a working group composed of the Italian Revenue Agency and the Italian customs agency was set up in 2014 to identify commonalities and feasible solutions to bring transfer pricing adjustments back to the customs value.
One of the main issues concerns cases where intercompany transactions between related parties are subject to price adjustments after the customs declaration of exports.
In the past, price adjustments were not subject to customs adjustments and therefore no reconciliation of values was necessary for customs purposes.
In this regard, the World Customs Organization (with the publication of the Guide to Customs Valuation and Transfer Pricing) has clearly specified how transfer pricing studies can be taken into account by customs for examining the circumstances of a sale.
The result of the working group led to the publication of two circulars (Circular No. 16/2015 and Circular No. 5/2017), which specified the following:
The traditional methods provided by the OECD for determining intra-group transfer prices can be accepted by customs with varying degrees of reliability; and
Economic operators can submit transfer pricing documentation prepared for transfer pricing purposes to customs agencies and communicate the existence of any advance pricing agreements.
Furthermore, in some cases (the importation regime), the Italian customs agency recognises the economic operator’s right to apply for an advance ruling (for customs purposes), which allows it to define the customs taxable base in advance for calculating any import duties with a lump-sum amount.
In such cases, the customs value determined does not represent a provisional value subject to modification but rather a definitive value without the need to amend the customs declarations already submitted. This provides certainty and stability for the economic operator and simplifies the customs declaration process.
The use of simplified declarations
A further challenge arises when the price of goods cannot be determined with certainty at the time of the customs transaction, and price adjustments are made during, or at the end of, the year with retroactive effect.
In situations where the price of goods is not determinable at the time of customs clearance, customs authorities may allow the use of a provisional value based on the information available.
The Italian customs agency also highlights the possibility of using the simplified declaration as a tool. The simplified declaration allows the economic operators to agree with the customs office that a customs declaration will be submitted using a provisional value and then the declaration will be supplemented with missing information or documents, and additional taxes will be paid or a refund obtained for any overpaid amounts.
The simplified declaration provides flexibility for economic operators when the exact value of the goods is not known at the time of customs clearance. It allows them to proceed with the customs declaration using an estimated value, which can be adjusted based on additional information or documentation.
If the provisional value declared initially results in an underpayment of customs duties, the operator would be required to pay the additional amount owed. Conversely, if the provisional value leads to an overpayment of duties, the operator can seek a refund for the excess amount paid.
Clarification still required
It is evident that the treatment of transfer pricing adjustments for customs purposes should be clarified as soon as possible, considering the need for many businesses to manage the implications arising from price adjustments.
The relevance of adjustments in customs matters has also been addressed by the European Court of Justice (ECJ) in the Hamamatsu case (Case C-529/16 of December 20 2017).
The case concerned the possibility of using retroactive year-end transfer pricing adjustments for intra-group transactions for customs purposes. The ECJ ruled that the provisions of the EU regarding customs do not allow for price adjustments, made after the previous customs values were declared at the time of importation, as they were not quantified ex ante. The ruling does not provide a definitive solution to the issue, and it is clear that there is a lack of guidelines to shape the behaviour of economic operators.
Therefore, it is necessary to provide clear guidance on how transfer pricing adjustments should be treated for customs purposes. This would help to address the uncertainties faced by economic operators and enable them to comply with customs regulations effectively.
