The customs value is the basis of the duty payable
The connection between the transfer price and the customs duty payable during importation comes from the fact that the basis of the customs burden imposed during the import procedure (duty and import VAT) is primarily the transactional value of the goods imported from a third country, which is the customs value of the goods.
Determining of customs value and customs duty in the case of independent parties
The transactional value in importation and therefore the customs value can be determined easily in the case of a transaction between independent parties. It basically means the consideration paid for the goods and application of the adjustment (increasing or decreasing) items defined in the Customs Code.
During the customs procedure, the customs authority may check the customs value after customs clearance also as part of the relevant inspection. In this inspection, the authority focuses on whether the customs value declared at the time of customs clearance was true, i.e. to what extent it corresponded to the transactional intentions of the parties and complied with the norms governing the definition of customs value.
Serious sanctions may be applied if the customs value is determined in violation of legal regulations. In extreme cases, the customs value, i.e. the basis of the customs duty may be determined by the customs authority itself. Between independent entities, it is fundamentally the transactional value that is acceptable as the customs value, having regard to the fact that there is no relationship between the parties that would have an influence on the transaction concluded between them.
Determining of customs value and customs duty in the case of related parties
The formula is not that simple though in the case of related parties. These entities basically define business processes between them and, as a result, the transactional value serving as the basis of the customs duty also through transfer pricing.
As we are talking about related parties, it is a highly sensitive issue whether the transfer price determining the customs duty payable by these parties was created in a way that passes the customs authority’s control of customs duty and satisfies the requirements relating to customs value of the authority and of legal regulations.
Interim changing of the transfer price results in a change of customs duty also
This already complex issue is complicated even further by the rule which provides the opportunity of changing the transfer price during the year. A potential change may have an effect on the customs clearances performed earlier at a certain the customs value.
Changing of the transfer price may induce a change in customs value. As a result, the company may have additional customs duty payment obligation or may have the opportunity to reclaim customs burdens. For this reason, attention must be paid in this regard to the changes in transfer prices.
Knowledge of the connection between the transfer price and the customs value is essential for the Company being able to proactively manage transfer price adjustments and to eliminate potential risks and avoid sanctions relating to importation. For entities conducting import transactions concerned by transfer prices, an examination of the relationship between the transfer price applied with the customs value is a must and these entities also need to check whether a change of the transfer price makes a subsequent amendment of the customs value necessary. If the customs value changes as a result of the change of the transfer price, an amendment of the customs clearance concerned may be necessary.
