Customs Valuation and Transfer Pricing: Is it Possible to Harmonize Customs and Tax Rules?

by Juan Martin Jovanovich

Overview

About this book:

Customs Valuation and Transfer Pricing helps customs administrations to examine the acceptability of a transaction value fixed between related parties in determining the customs value and assists multinational companies in determining acceptable transfer prices for customs purposes and in preparing supporting documentation. Issues of transfer pricing have come to the fore in both international tax and customs regimes. In particular, the problem of how to apply the two systems of valuation to the same transaction is of widespread concern. This well-known book, now in a fully updated second edition, is a problem-solving guide for professionals charged with valuating transactions in their client’s or company’s best interests. Through detailed examination of relevant guidelines, transfer pricing methodologies, and business realities prevailing among multinational enterprises, it offers a cogent and convincing account of how tax and customs transfer pricing regimes may be harmonized.

What’s in this book:

The second edition incorporates many of the relevant intervening international developments in the field; for example, the most recent commentaries, case studies, and draft instruments of the Technical Committee on Customs Valuation and rulings issued by the United States. Among other essential elements, the author discusses the following in depth:

• the OECD Transfer Pricing Guidelines;
• the GATT/WTO Customs Valuation Code (GVC) and other valuation rules in key jurisdictions and regional agreements;
• the OECD and UN model tax conventions;
• the arm’s length principle;
• methods, both traditional and new, of determining whether the parties’ relationship influenced the price; and
• additions to and deductions from the customs value.

This second edition discusses new developments in the field, including a chapter on Commentary 23.1 and Case Study 14.1 of the Technical Committee on Customs Valuation of the World Customs Organization (WCO) – the first international instruments linking transfer pricing and customs valuation. The book concludes with an analysis of the circumstances and conditions under which the introduction of transfer pricing year-end adjustments to transaction value would be consistent with Article 1 of the GVC.

How this will help you:

The book will continue to provide practitioners, customs administrations, and academics with a comprehensive knowledge of transfer pricing principles applicable in the tax and customs fields and a highly practical analysis of the intersection of transfer pricing and customs valuation. It will be welcomed by customs administrations charged with examining the acceptability of a transaction value fixed between related parties and multinational companies as a truly actionable tool they can use to optimize decision-making as it relates to transfer pricing and customs valuation in a “real world” setting.

Product Details

ISBN-13:	9789041161345
Publisher:	Wolters Kluwer
Publication date:	11/21/2017
Edition description:	2nd ed.
Pages:	200
Product dimensions:	6.20(w) x 9.70(h) x 0.70(d)

Table of Contents

Preface xi

Acknowledgments xiii

Introduction 1

Chapter 1 General 5

1 Rules to Be Harmonized 5

2 Is It Necessary or, At Least, Advisable to Harmonize Both Tax and Customs Transfer Pricing Regimes? 7

3 Is Harmonization Feasible? 10

3.1 Circumstances That Make the Comparison and, Thus, the Harmonization Difficult 10

3.2 Circumstances That Facilitate the Comparison and, Thus, the Harmonization 14

3.3 Other Important Considerations Regarding Harmonization 15

3.4 Conclusions Regarding Feasibility of Harmonization 18

Chapter 2 The Arm's Length Principle 21

4 Definition: OECD Guidelines 21

5 Recognition of the Arm's Length Principle in the GVC 22

5.1 Structure of the GVC: Application of the Provisions of the GVC to Related-Party Transactions 22

5.2 GVC Article 1.2: Recognition of the Arm's Length Principle 22

6 The OECD Guidelines Can Be Used to Determine Whether Transaction Price is Arm's Length under GVC Article 1.2 24

6.1 General Considerations 24

6.2 The Transfer Pricing Issue at the TCCV: From the First Debates at the 20th Session to Commentary 23.1 and Case Study 14.1 27

6.3 Commentary 23.1 of the TCCV: The Bridge Between the Tax and Customs Transfer Pricing Worlds 34

7 Guidance for Applying the Arm's Length Principle: Use of Such Guidance under GVC Article 1.2 37

7.1 Comparability Analysis 37

7.1.1 Characteristics of the Property 40

7.1.2 Functional Analysis 43

7.1.3 Contractual Terms 47

7.1.4 Economic Circumstances 48

7.1.5 Business Strategies 50

7.2 Evaluation of Separate and Combined Transactions 52

7.3 Use of an Arm's Length Range 56

7.4 Use of Multiple-Year Data 58

Chapter 3 Determining Whether the Relationship Influenced the Price: Arm's Length Prices 61

8 The OECD Arm's Length Methods and the Methods Laid Down in GVC Articles 2, 3, 5 and 6 61

9 Test Values 63

10 Considerations Regarding the OECD Arm's Length Methods 63

11 Traditional Transaction Methods 64

11.1 Comparable Uncontrolled Price Method ("CUP") 64

11.1.1 Examples of Application of the CUP Method under GVC Article 1.2(a) 69

11.1.2 Test Values under GVC Article 1.2(b)(i) 69

11.1.3 Case Study 69

11.2 Resale Price Method 75

11.2.1 Internal and External Comparables 77

11.2.2 Application of the Method 79

11.2.2.1 Product Comparability 79

11.2.2.2 Functions 81

11.2.3 Superdeductive Value Method 82

11.2.4 Considerations Regarding Intangible Property 83

11.2.5 Time Elapsed Between Purchase and Resale 83

11.2.6 Case Study 84

11.2.7 Case Study Submitted by China to the TCCV 87

11.3 Cost-Plus Method 88

11.3.1 Internal and External Comparables 90

11.3.2 Application and the Method 91

11.3.2.1 Product Comparability 91

11.3.2.2 Economic Circumstances and Relative Efficiency 91

11.3.2.3 Functions Performed 92

11.3.2.4 Accounting Consistency 93

11.3.3 Case Studies 94

12 Transactional Profit Methods 103

12.1 Transactional Net Margin Method 103

12.1.1 Case Studies 106

12.1.2 Case Study 14.1 of the Technical Committee on Customs Valuation 106

12.2 Profit Split Method 111

12.2.1 Functioning of the Method 113

Chapter 4 Tax Bases: Customs Value and Tax Value of Imported Goods - Adjustments 115

13 Introduction 115

14 IRC Section 1059A 118

15 Definition of the Term "Related Parties" 120

16 Tax Base of Customs Duties 121

16.1 Transaction Value 122

16.1.1 Existence of a Sale 122

16.1.2 Sale for Export 123

16.1.3 Cash or Kind: Direct or Indirect Payment 124

16.1.4 Activities Benefiting Both Buyer and Seller 126

16.1.5 Discounts 127

16.1.6 Interest Charges 129

16.2 GVC Article 8: Additions to the Price Paid or Payable 130

16.2.1 Commissions and Brokerage: Buying Commissions 130

16.2.2 Containers and Packing 132

16.2.3 Assists 133

16.2.4 Royalties and License Fees 136

16.2.5 Proceeds of Resale, Disposal or Use of the Imported Goods 141

16.2.6 Transportation and Related Charges 143

16.3 Deductions from Price Paid or Payable 143

16.4 Conclusions Regarding Customs Value 144

Chapter 5 Price Review Clauses and Formula Pricing 145

17 Introduction 145

18 Price Review Clauses: Formula Pricing 147

19 Case Studies 153

20 Year-End Adjustments in the United States 160

Conclusions 167

Appendix: Additional Case Studies 173

Bibliography 179

Index 185