Customs value of goods, in case of related parties. Judgment of the European Court of Justice of January 21st, 2016
Normally, when talking about transactions between related parties the first aspect to consider is related to direct taxation and transfer pricing. However, transactions between related parties also have their impact on indirect taxation, as for example for the setting of the value in customs, which is used for settlement by the Customs authorities of the customs duties and VAT payable with the import of goods into the territory of the community.
This is the case of the last judgment of the Court of Justice of the European Union (ECJ), on January 21st, case Arturs Stretinskis, where the importer has a relationship of kinship (brother) with the seller of the goods, which leads to the tax administration to treat both as related parties and, therefore, the application of some special rules for the formation of the customs value contained in the Community Customs Code and in the Regulation 2454/93 of the Commission, whereby the provisions for the implementation of the Community Customs Code are set.
However, what is special about the case lies in that is not a transaction carried out directly between two brothers, private individuals, but that the purchaser is a private individual while the seller is a legal entity, whose Director is the brother of the buyer. Therefore, arises to the European Court of Justice whether we are facing a case of related-party transactions where to apply the special rules for the calculation of the customs value.
By virtue of article 29, paragraphs 1 and 2, of the Customs Code, the customs value of imported goods is their transaction value, i.e. the price actually paid or payable for the goods when they are sold for export, whenever not influenced by a relationship of related parties between buyer and seller, or, if any, the transaction value is acceptable for customs purposes under the rules laid down in paragraph 2 , in the light of the circumstances of the sale and when it is proven that it is next to certain values set out in the provisions like, among others, the transaction value in sales of goods identical or similar between non-related parties.
Therefore, the first thing it must be determined is whether or not it exists a relation between the parties, to be able to assess whether the customs value is correctly given as the value of the transaction or not. In this sense, article 143 of the implementing Regulation provides that there will be a link between the parties, among other cases, when:
“h) if they are members of the same family. Single persons will be considered members of the same family if their relationship is one of the following:
– Brothers and sisters.”
As mentioned above, the tax administration considered the buyer and the director of the selling company related parties, so it had doubts about the accuracy of the declared customs values. According to the appeals filed, the Supreme Court raises a question to the ECJ on whether article 143 of the implementing Regulation must also refer to situations where there is a relationship between a Director of one of the parties (legal person) and the other party of the transaction (private individual).
The Court mentioned that, although the case of kinship referred to in the Regulation ties individuals, article 143 should be interpreted taking into account the provisions of the Regulation system and the aim pursued by the same, whose own purpose is to establish an equitable system, uniform and neutral to exclude the use of arbitrary or fictitious customs values, so to ensure that the customs value reflects the real economic value.
With this approach, it is considered by the Court that there is a risk of influencing the price of goods when the relationship occurs with respect to a private individual who can influence the sale price established by a legal person, not being reason enough to excluded as related parties to two persons only because a party of the contract is a legal person.
In conclusion, it understands the Court that when an individual has, in the scope of a legal person, the power to influence the selling price of imported goods for the benefit of a buyer that has a family relationship, the circumstance that the seller is a legal person does not preclude that both sides may be considered as related parties.
The correct formation of the customs value of goods, especially for those cases in which there are related parties, is a very important aspect to be considered by companies engaged in international trade of goods, since the valuation differences can lead to a liquidation of customs duties and import VAT, with potential penalties, surcharges and delay interest, which would mean a relevant cost to the company.
Attached is a copy of the ECJ’s Decision, with case C-430/14.