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The transaction value method is used in more than 90% of world trade, based on the WTO Agreement on Customs Valuation which sets out the rules for all customs administrations across WTO Members to adhere to when determining the appropriate customs value to use when imposing customs duties and other national taxes upon importation into the relevant member county.
In the context of related party transactions where customs values are more often scrutinized by customs authorities due to the ability to set prices which may fall foul of the arm’s length standard, it is imperative for companies to ensure that any transfer prices set will not only be acceptable from an income tax perspective but also from a customs perspective.
Whilst both principles of taxation have as its main focus the arm’s length standard to be applied to all transactions between related parties, how this finally plays out in practice could be materially different as tax authorities are more focused on year-end profits, whilst customs authorities are obliged to ensure that every transaction satisfies the arm’s length principle. In the context of customs, this would typically refer to import transactions.
Finally, as more revenue authorities around the world seek to recognize their fair share of revenue from global transactions, it will be imperative for companies to ensure that in addition to maintaining transfer pricing reports from an income tax perspective, a separate customs valuation report should also be carried out to ensure that its transfer pricing methodology can be substantiated from a customs valuation perspective.
Please click here for a copy of Deloitte’s global report on the interaction between transfer pricing and customs valuation.
For queries or assistance relating to valuation of goods imported and exported feel free to send us an email through the Get in Touch section below or via the online form on the link at the right.