The Transfer Pricing adjustment does not impact on the customs value of imported goods. Judgment of the European Court of Justice of December 20th, 2017


The European Court of Justice published in December 20, 2017 a sentence (case C-529/16) that decouples the prices agreed between related entities and the customs value declared. This relation was proposed by the World Trade Organization by 2015, through the publication of the Customs Valuation and Transfer Pricing Guide.

This judgment has been made in proceedings between a company located in Germany and the Principal Customs Office, Munich, Germany, following the refusal of the latter to partially refund customs duties declared and paid by the German company.

In this case, the German entity, which belongs to a group, bought imported goods from its Japanese parent company. These products were invoiced according to the transfer pricing policy of the group and at the end of the year an adjustment was carried out in order to comply with this policy. As a result of this adjustment, the German entity received a credit for a specific amount and it claimed for the refund of the customs duties related to the imported goods. For its part, the Principal Customs Office of Munich rejected such refund arguing that the method applied by the German entity (based on its transfer pricing policy) was incompatible with article 29, paragraph 1 of the Union Customs Code.

It is important to note that the transfer pricing policy was subject to an Advance Pricing Agreement and, therefore, the prices were agreed between the German company and the German Tax Administration beforehand. From the transfer pricing perspective, these prices complied with the Arm’s Length Principle laid down in the OECD guidelines. It is the basic principle of the transfer pricing policies.

The Court of the European Union answered to the request, concluding that the articles 28 to 31 of the Customs Code do not permit an agreed transaction value, composed of an amount initially invoiced and declared and a flat-rate adjustment made after the end of the accounting period, to form the basis for the customs value, without it being possible to know at the end of the accounting period whether that adjustment would be made up or down.

This is due to that the Court of the European Union considers that the prices agreed between related parties which are invoiced, declared and subsequently adjusted, do not reflect the real value of the imported goods, but a fictitious pricing, since the value is finally adjusted to the upward or downward. The sentence indicates that, according to article 29 of the Customs Code, the customs value of the imported goods is the transaction value, that is, the price actually paid or payable for the goods when they are sold in order to export to the customs territory of the European Union, adjusted if it is necessary in accordance with articles 32 and 33 of the code, which are not related to transfer pricing.

Thus, this judgment may be of particular interest to international groups of companies which declare the custom value of the imported goods on the basis of their transfer pricing policies in which upward or downward adjustments are made with retroactive effect.

Attached is a copy of the Judgment with case number C-529/16

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ECJ C 529_16 TP and customs value

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