Custom Implication on Related Party Transactions

The Bureau of Customs and Bureau of Internal Revenue are very keen in reviewing transfer prices between related parties.

Both income tax and customs rules seek the same result, ensuring that prices between related parties are “at arm’s length,” set as if the parties were unrelated. But the rules are different. Income tax Transfer Pricing rules are essentially based on guidelines established by the Organization for Economic Co-operation and Development, OECD as adopted by local rules, while Customs valuation principles are established in the WTO Valuation Agreement as adopted in the Customs Modernization and Tariff Act (CMTA). 

A high transfer price generally results in a high duty, but low-income tax; a low transfer price results in lower duties and higher income taxes.

Thus, corporate taxpayers who source their imported goods from their related foreign suppliers should ensure that they do not only comply with Transfer Pricing (TP) rules but also with the rules pertaining to valuation of imported goods for customs purposes.

At the end of this course, you should be able to: 

• Explain the basic rules of importation using the transaction value (TV) system,
• Discuss the customs implication on related party transactions,
• Explain the link between customs valuation and transfer pricing,
• List the available remedies for importers in case valuation issues are raised by the Bureau of Customs (BOC), and

Identify the effects of upward or downward adjustments when comparing transfer pricing audit vs customs audit