Customs Valuation and
links to Transfer Pricing
Sergio Mujica, WCO Deputy Secretary General
April 23, 2013
Buenos Aires, Argentina, 47th CIAT General Assembly
Today’s Agenda
 A quick view of WCO
 Article VII GATT: Basic principles
 WTO Valuation Agreement
 Comparison with OECD TP Guidelines
 Activities to date and way forward
World Customs Organization (WCO)
 Exclusively focused on
Customs matters
 Global Membership: 179
countries
 Representing 98% of
global trade
WCO Mission
To enhance the effectiveness and efficiency of Customs…
Trade Facilitation
and Security
Protect
society
Collect fiscal
revenue
...which promotes
Economic prosperity and social development
l
WCO Objectives
…to secure the highest degree of harmonization,
standardization and simplification of Customs systems
WCO Objectives
…to provide a platform for international cooperation
TAX
STATISTICS
TRANSPORT
WCO
LAW ENFORCEMENT
HERITAGE
ENVIRONMENT
HEALTH
STANDARDS
DEVELOPMENT
ENDANGERED SPECIES
WCO Objectives
…to provide Capacity Building
Article VII of GATT
Basic Principles

Based on ACTUAL value of the imported merchandise

Where not ascertainable (e.g. no sale), use nearest
ascertainable equivalent value

It must NOT be based on arbitrary or fictitious values

Actual value may be represented by …
…invoice price
WTO Valuation Agreement (I)
Primary basis for customs value is “transaction value”
= price actually paid or payable plus certain adjustments (e.g.
certain commissions and royalties)
Transaction value to be used to “greatest extent
possible”
Typically, developed countries use transaction value
for 90-95% of all importations
WTO Valuation Agreement (II)
 The Agreement provides a hierarchy of alternative
methods to be used when transaction value
cannot be used (e.g. no sale)
 The Agreement also contains a number of trade
facilitation provisions
 All WTO Members are obliged to implement the
provisions of the Agreement in national law and
apply it at the practical level
WTO Valuation Agreement (III)
 Where parties are related, the declared price can be
accepted as long as the relationship did not
influence the price.
The Agreement provides two options for testing this:
 Test values
 Examine “circumstances of sale”
OECD Transfer Pricing Guidelines
Comparison with WTO Valuation methodology
OECD methodology
WTO Valuation methodology
Traditional transaction
Methods:

Comparable Uncontrolled Price
(CUP)

Resale Price Method
Identical and similar goods method
(Article 2 & 3)
Deductive value method (Article 5)

Cost-plus Method
Computed value method (Article 6)
Profit Methods:


Transactional Net Margin
Method
Profit Split Method
Key Differences
Customs Valuation
Transfer Pricing

Goods only

Goods, services & property

Transaction based

Based on aggregates/annual

Confirmed at point of customs
clearance

Confirmed retrospectively (some
years after event)

Mandatory hierarchical order of
alternative methods

Allows choice of the most
appropriate method

Application of WTO Agreement is
mandatory

Supported by international
guidelines; not mandatory
This makes comparison of Customs values and transfer
prices very difficult
Competing tensions
Customs authority objective
Direct Tax authority objective
Ensure all appropriate elements are
included in the customs value
Ensure the transfer price does not
include inappropriate elements
Pull in opposite directions
Trade objective
Trade objective
In general, to minimise Customs value
= reduced duty liability
In general, to maximise transfer price
= reduced taxable profit
What is the issue for Customs?
Key questions:
 To
what extent, if at all, can a transfer price study be
accepted as the basis for a customs value?
 How
should post-importation adjustments be dealt
with?
Commentary 23.1
Examination of the expression “circumstances
surrounding the sale” under Article 1.2 (a) in relation
to the use of transfer pricing studies
 First text of the TCCV to refer to transfer pricing
 Key questions:



Has price been settled in a manner consistent with the normal pricing
practices of the industry?
Is price adequate to ensure recovery of all costs plus a profit representative of
the firm’s (seller’s) overall profit realized over a ... period of time?
Acknowledgement that a TP study may be of use in
examining a related parties transaction
Activities to date
… and way forward

Two joint WCO/OECD conferences - 2006, 2007

On agenda of Technical Committee on Customs Valuation
(TCCV) since 2007

TCCV produced Commentary 23.1 in 2010
Scheduled next steps:

WCO continues to work on the issue with OECD and with
business
Two joint WCO/OECD workshops in 2013 to provide training
and awareness-raising to both Customs and tax officials


WCO will attend OECD’s relevant meetings and vice versa
Cooperation is indispensable…
Thank you
Sergio.Mujica@wcoomd.org