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מחירי העברה: בלגיה- יולי 2014

15 יולי 2014


Due to globalization and the ensuing frequency of international transactions, the importance of transfer pricing in the customs environment has significantly increased. Tax and customs administrations, even within one country and sometimes within the same government department, have different approaches. Specifically, tax authorities focus on intra-group sales prices that may be perceived as higher than they should be, while customs authorities verify imported goods for which prices may be perceived as lower than the market price. While both administrations seek to achieve the same goal, i.e. arm’s length pricing, customs and tax examinations are forced to follow different regulations and may have conflicting interests. 

Transfer pricing: basic concepts 

The basic principle in transfer pricing is the arm’s length principle as described in the OECD Transfer Pricing Guidelines. The transfer price between related parties impacts the profitability of the different entities and hence the tax revenues for the different countries. Local tax authorities seek conformity with the “arm’s length principle” for intercompany transactions in order to safeguard local tax revenues. The arm’s length principle is based on the OECD guidelines, which form the basis of bilateral tax treaties involving OECD member countries and an increasing number of nonmember countries and states: “[Where] conditions are made or imposed between the two [associated] enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.”

The OECD Transfer Pricing Guidelines also describe specific methods to determine transfer prices, with the transactional net margin method being most commonly used. Finally, many countries have issued guidelines on the transfer pricing documentation used to substantiate and justify transfer prices for goods, services, intangibles, finance transactions, etc.

Customs valuation: basic concepts

Customs valuation is based on the General Agreement on Tariffs and Trade (GATT)/World Trade Organisation (WTO) Valuation Code. The GATT/WTO Valuation Code definition of “customs value” forms the basis on which WTO members have drafted the definition of customs valuation in their own customs legislation. In the European Community, the basic customs valuation rules and definitions are found in Articles 28-36 of the Community Customs Code and in Articles 141-181 and Annexes 23-29 of the Community Customs Code Implementing Provisions. 

In determining the customs value, different methods are defined which need to be used in hierarchical order. The primary method is the transaction value of the imported goods. Here, the transaction value of imported goods between related parties can only be accepted if it can be demonstrated that the price of the imported goods is at arm’s length. Furthermore, this transaction value must be adjusted under certain specific conditions.

Customs and transfer pricing: conflict of interest

Both tax and customs administrations often set rules independently for the same transaction and/or goods. Tax authorities seek conformity with the OECD Transfer Pricing Guidelines which have been put in place in many countries, whereas customs authorities conform to Article VII of the GATT Valuation Code.

This different approach to transfer pricing and valuation creates an atmosphere of uncertainty and complexity. It also leads to increased implementation and compliance costs, an absence of flexibility in conducting business operations, and last but not least creates a significant risk of penalties. In fact, even when a company complies with both the OECD guidelines/principles and the WTO Valuation Agreement there is no guarantee that there will not be a dispute between two countries or two administrations in the same country regarding the determination of the arm’s length price. This means that valuation conflicts can arise not only prior to, but also after, an audit.

Given the significant increase in the volume and complexity of intercompany transactions, the divergence in customs and transfer pricing valuation presents an obstacle to the liberalization of trade and it inhibits international development for companies of all sizes.

The table below provides a summary of the factors highlighting the differences between transfer pricing and customs valuation.


Case study

A common situation where transfer pricing may trigger customs issues relates to a retrospective adjustment of the transfer price paid for goods in a cross-border situation. Suppose you are a company acting as a limited risk distributor based in China and you purchase and import goods from a related company in Belgium. The distribution activities will be remunerated using the transactional net margin method with a target operating margin on sales. At the beginning of the year, the transfer prices will be set based on budgets provided by the Chinese entity. Hence, products will be imported based on the budgeted transfer price. Schematic overview of the flows:

At the year-end (or more frequently), a transfer pricing adjustment is made to bring the actual operating margin realized by the Chinese distributor in line with the target operating margin.

From a customs point of view, the yearend adjustment will involve a correction to the declared customs value of the import transactions affected by the year-end adjustments. If the price is adjusted upwards, both the customs value and the amount of customs duties will increase. If the price is adjusted downwards, the effect will be the opposite: both the customs value and the amount of customs duties will decrease. In the former situation, the customs authorities will expect a regularization of the declared customs values and additional customs duties to be paid. In the latter situation, the importer may be entitled to a refund of customs duties. Furthermore, in such cases of structural yearend adjustments it is advisable to conclude a customs valuation agreement with customs to agree on the frequency, timing and methodology for these adjustments.


Two different valuation regimes applicable to the same transactions forces importers to take into account the consequences of transfer pricing methodologies when assessing customs valuation. It is highly recommended to review pricing methodologies and agree with the customs administration on the procedure to be used to reassess or confirm the customs valuation of imports in an efficient and compliant manner.

By Pieter Haesaert, customs expert and by Tine Slaedts, transfer pricing partner at BDO Belgium.

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