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Transfer pricing and customs duties are both levied on transactions involving movement of goods and use methodologies that, superficially at least, look similar. However given the contrasting incentives between corporate tax authorities (goods’ to bed priced low) and customs authorities (goods’ to be priced high insofar as import taxes are payable against this value) there is a natural conflict between these seemingly superficially aligned rules.

This article advocates adopting a joint transfer pricing and customs approach that:

  • Considers materiality of the issue and identify the ‘low hanging fruit’;
  • Analyses options for properly considered and implemented ‘unbundling’ (e.g. post import IP/services);
  • Minimises or appropriately planning for transfer pricing adjustments; and
  • Builds compliant good prices to avoid post import challenges and/or admin burden.
  • Designs appropriate legal and transaction documentation;
  • Considers engaging with both authorities.

Whilst there continues to be challenges in convincing customs authorities to accept transfer pricing approaches, international and local country developments suggest that there is a movement towards greater harmonisation, but this needs careful consideration, documentation and engagement to ensure any tensions are mitigated and efficiencies are maximised.

Read full article here.