(P) Transfer pricing and customs valuation - The need for a coordinated approach

In 2015 the World Customs Organisation (“WCO”) issued the Guide on Customs Valuation and Transfer Pricing. Although the interaction between the two areas is not a new international concern, recent developments including an increasing frequency of customs controls and transfer pricing inspections, along with the enforcement of new compliance requirements in many countries, have singled out a need for an instrument to help achieve a better coordination between transfer pricing and customs valuation. This article is intended to examine to what extent such coordination is needed in Romania, from the perspective of both multinationals operating on the market – which are required to comply with the local transfer pricing and customs legislation– and of the Romanian tax and customs authorities – which need to ensure compliance with legal provisions and taxes/duties owed by taxpayers are collected. What steps need to be followed in order to ensure the coordination between transfer prices and customs value, considering that both areas now under the supervision of the National Agency for Fiscal Administration (ANAF)? Why is coordination needed? Coordination between transfer pricing and customs valuation is needed for companies which are part of the same group and carry out import/export operations. It is well known that transfer pricing and customs valuation are governed by specific sets of legislation that companies should comply with. While the customs authorities seek to ensure that the price of goods imported within a group of companies is fair when the buyer and the seller are related parties, the role of the tax administration is to make sure that the same price of goods is at arm’s length, i.e. no overpricing occurs by virtue of the related party relationship. The following example is intended to show the need for coordination between tax and customs authorities A Romanian company imports goods from the US from another group member company (related party), and the transaction price is 100 CU. The same Romanian company also imports the same quantity of the same goods from another US company (a third party supplier) and the transaction price is 90 CU. After the import, the Romanian company is subject to a tax inspection focused on transfer pricing, where the tax authorities assess that the company purchased goods from related parties for a price higher than that paid to unrelated suppliers. As a consequence, the tax authorities impose a transfer pricing adjustment, by reducing by 10 CU the expense recognised for corporate income tax purposes. This adjustment ruled by the tax authorities should also be reflected in the customs value of the imported goods by decreasing it accordingly. However, in this case (where the customs value is decreased and, implicitly, the customs duties charged), the company in question may expect the customs authorities to carry out an analysis in order to validate the conclusions of the tax authorities from a customs perspective. It is easy to observe why the price set for such imports of goods between affiliated companies should meet both sets of rules at the same time, avoiding thus the risk of having the same price accepted for transfer pricing purposes and in the same time challenged for customs valuation purposes, or vice versa. The practice of developed countries, such as the UK or the Netherlands, shows that the tax and customs administrations have developed a joint working framework to deal with such issues. The customs authorities of these countries assess the circumstances surrounding a sale of goods by extracting information on the selling price from other documents available in the transfer pricing area, e.g. transfer pricing documentations or advance pricing agreements, as appropriate.