ECJ: customs value for transfer prices

The ECJ recently delivered an important ruling with regard to the Customs valuation for transfer prices (Case C-529/16). Since the majority of import contracts between two affiliated companies are concluded on the basis of a transfer pricing agreement, this ruling is particularly important for international groups. Entrepreneurs importing goods on the basis of transfer pricing agreements should now check whether their customs clearance still complies with the current legal situation.

Calculation of customs value for transfer prices

The customs value corresponds in principle to the agreed purchase price. In the case of a purchase between affiliated companies, however, this only applies if the price corresponds to the[bold] arm’s length principle[/bold]. In principle, the customs administration recognises the purchase price if it has been determined according to one of the transfer price methods recognised by the OECD.

It is assumed that the purchase price determined using a recognized transfer price method corresponds to a purchase price between non-affiliated companies. The arm’s length principle is therefore complied with in these cases.

ECJ rejects subsequent adjustments to customs values

The question as to whether subsequent compensation payments by the related buyer or seller also had to be taken into account retrospectively in order to increase or reduce the customs value had not yet been clarified. In the dispute, the plaintiff as importer and buyer of the goods had subsequently paid compensation payments to the related seller. In arguing that the purchase price had actually been lower than originally declared, the applicant had applied for reimbursement of import duties.

The ECJ refused to correct the customs value by compensatory payments made after importation. According to the ECJ, the Customs Code does not require the importing company to subsequently adjust the declared transaction value upwards or downwards. Accordingly, the Code does not allow for any subsequent adjustment of the transaction value, at least with regard to the main proceedings.

The scope of the judgement should not be underestimated

At present, it is not possible to estimate to what extent the judgment of the European Court of Justice can also be applied to other constellations. The transfer pricing method chosen by the plaintiff in the original case was the so-called residual profit-split method. However, traders should expect that a subsequent adjustment of the transaction value is unlikely to have any effect on the declared customs value for the other transfer pricing methods either. It will also be exciting to see how the customs administration reacts when companies initially set import prices rather lower in order to save on import duties.

However, as one of the few judgements on transfer prices, it is important that this judgement be taken into account by internationally affiliated companies and that further developments be monitored.

O&W Attorneys at Law advise you on the effects of ECJ case law on your customs clearance on the basis of a transfer pricing agreement.

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Lawyer Dr. Tristan Wegner

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