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Transfer pricing and Customs valuation: first European ruling on TP adjustments

The Court of Justice of the European Union (CJEU) recently ruled, for the first time, on the impact of transfer pricing (TP) retrospective adjustments on the customs value of the goods, in the Case C-529/16 Hamamatsu Photonics Deutschland GmbH.

The CJEU concluded that the EC Regulation 2913/1992 does not impose any obligation on importers to apply for any adjustment of the transaction value on the basis of a TP adjustment. Accordingly the CJEU denied the possibility for the taxpayer to claim a refund of excess duties paid at the time of importation. In doing this, the CJEU did not tackle directly the reasoning used by German Customs Authorities to deny the duty refund (i.e. no allocation of the YEA to individual import operations performed during the year), it rather preferred to use legal principle to deny the duty refund.

Furthermore, the CJEU did not comment on the esistence of an APA agreed with the German tax Authority; in fact, in the case at hand, the taxpayer had previously agreed an APA with the tax authority, including the way TP adjustments were to be made. A fortiori, one could conclude that the duty refund, as per the CJEU ruling, should be precluded for those taxpayers lacking an APA providing for a certain YEA, however it is to be noted that the CJEU reasoning did not leave open any possible (positive) impact of the APA on the transaction value of the goods for customs purposes.

The CJEU ruling has left unanswered some important questions, for example:

  • Should the same principle apply when upward price adjustments are (or should be) made by taxpayers retroactively, meaning that customs authority should not be in the position to claim higher duties (and/or penalties)?
  • Is the CJEU ruling allowing and/or even obliging EU customs authority to affirm that in case a YEA is made, the importer cannot rely at all on the transaction value method for customs valuation of the goods?
  • Does the same principles also apply under the recently enacted Union Customs Code?

Based on the above, we can conclude that, in order to mitigate risks and/or to obtain refunds of excess duties paid, the decision to enter into a customs valuation ruling seems (now more than ever) the logical option for EU importers to actively manage their customs exposures.

However, the CJEU ruling might also provide for opportunities to optimize the payment of customs duties for those who would be able to  properly arrange and manage their transfer pricing YEA mechanism.

For our further comments on the CJEU ruling, please click QG Blog_TP adjustments and customs valuation_CJEU ruling_20180208. For the ruling itself, please click CJEU ruling hamamatsu.