Practice Statement B_IND08, updated earlier this year, affirms the position of Customs that transfer pricing adjustments which relate to the price of goods imported into Australia should be disclosed and accounted for. This is irrespective of whether the goods are imported free of customs duty or are dutiable goods.
Increasing price adjustments (true-ups) generally result in additional customs duty and goods and services tax (GST) liabilities. Conversely, decreasing price adjustments (true-downs) often provide considerable opportunities for importers to obtain refunds of the customs duty originally paid. However, regular adjustments to the price of imported goods can give rise to questions from Customs about the appropriateness of the pricing between the parties from a customs perspective. Therefore, a customs ruling on related party pricing and range of acceptable adjustments to pricing is recommended to protect importers from customs penalty action in this area.
It is common for transfer pricing adjustments to be accounted for in importers' financial statements as adjustments to Cost of Goods Sold (COGS) or management fees. It is important to note that customs is a transactional tax and whether or not a transfer pricing adjustment relates to goods or other activities of the business is dependent on the nature and activities of that business. A broader consideration of the reasons for adjustments gives rise to both opportunity and risk to an importer. Accordingly, we recommended that transfer pricing and customs are considered in conjunction with each other and not as separate and distinct taxation issues.
Customs opportunity or risk? Which is relevant to your company’s transfer pricing adjustment?