A recent judgement of the EU’s Court of Justice (CJEU) has put the spanner in the practice of using transfer price adjustments for customs valuation purposes.
The “Kamamatsu” case involved the use of the transaction value method for the determination of the customs value of goods imported into the EU. In sales transactions, the transaction value is based on the invoiced price of the goods. This also applies to EU imports based on intra-group sales between related companies, provided that the fact that the companies are related, did not influence the price.
EU customs services have for decades accepted the “at arm’s length” transfer price as transaction value in multinational company transactions provided that any retrospective transfer price adjustments would be corrected afterwards in the declared customs value. Upward adjustments leading to additional duty payment are to be declared and for a downward adjustment a refund of duty may be requested. The CJEU has now ruled that flat-rate adjustments of the transaction value are not possible under EU customs law.
The use of the transaction value in intra-group sales has now become uncertain. If the sales prices are subject to later adjustment, customs may now refuse to accept the sales price as basis for the customs value. Instead, importers may be forced to use complicated customs valuation methods based on retail prices or the cost price of the goods. Importers who have applied for refunds for retroactive downwards adjustments might now risk a refusal of this refund.
It is advised that companies with international supply chains to the EU, which are currently using TP with possible retroactive adjustments, should carefully assess the customs implications of this judgment and how it affects them on a per country basis.
This case also impacts the taxable base for VAT on importation as this is based on the customs value of the goods. Any change in the customs valuation methodology or any processes or procedures, may also affect the applicable VAT compliance requirements. Our advisors in EU customs and VAT law can advise on and assist in finding practical solutions.
