Modern enterprises operating within corporate groups and engaged in international trade must navigate the complex challenge of reconciling two distinct yet interconnected legal frameworks: customs regulations and transfer pricing rules. Although these systems serve different purposes – the former focuses on determining the customs value of goods, while the latter ensures that intercompany transactions reflect market conditions – they often apply to the same transactions, creating significant tensions and compliance risks.
Key differences and points of intersection
Customs valuation is typically based on the transaction value – the price actually paid or payable for the goods. However, in related-party transactions, customs authorities may challenge this value, arguing that the relationship between the parties could have influenced the price.
Transfer pricing, by contrast, requires that transactions between related entities be conducted on an arm’s length basis. In practice, this involves the application of comparative methods, such as the Transactional Net Margin Method (TNMM), which may result in price adjustments after the goods have already been imported.
Conflicts and risks
The most significant risks arise in scenarios where:
- Transfer pricing adjustments are made post-import, leading to discrepancies between the customs value and the value recognized for tax purposes;
- Transfer pricing documentation reflects different profit margins than those used in customs declarations;
- Retrospective discounts or additional payments are made, which may be interpreted differently by customs and tax authorities.
A lack of alignment between customs documentation and transfer pricing records can trigger audits, financial penalties, and even the reclassification of transactions.
An integrated approach – aligning both regimes
The key to mitigating these risks lies in adopting a unified approach to customs and transfer pricing compliance. This includes:
- Ensuring consistency between customs declarations and transfer pricing documentation;
- Promoting close collaboration between a company’s tax and customs functions;
- Utilizing mechanisms such as Advance Pricing Agreements (APAs) and Binding Valuation Information (BVI);
- Structuring supply chains with both regulatory frameworks in mind.
Customs duties and transfer pricing: conclusion
While customs and transfer pricing fall under separate legal regimes, their interaction is inevitable in cross-border operations. The absence of harmonization between OECD and WCO guidelines, combined with varying interpretations by tax and customs authorities, requires businesses to proceed with caution and strategic foresight. A coordinated, transparent, and well-documented approach can help reduce compliance risks and ensure operational certainty.
If your organization is navigating challenges at the intersection of customs and transfer pricing, our experts are ready to support you in developing a robust, integrated compliance strategy.
Find out more about transfer pricing services: ASB Group: Transfer pricing in CEE
