Transfer pricing adjustments to the price of imported goods remains a key area of focus for the Australian Customs & Border Protection Service (Customs) and many importers misunderstand the interaction between customs valuation and transfer pricing.
Statement B_IND08, updated earlier this year, affirms the position of Customs that transfer pricing adjustments that relate to the price of goods imported into Australia are to be disclosed and accounted for—regardless 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.
Regular adjustments to the price of imported goods, however, 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 may be appropriate to protect importers from customs penalty action in this area.
It is common for transfer pricing adjustments to be accounted for in an importer’s financial statement as adjustments to cost of goods sold (COGS) or management fees. Note that customs duty 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, prudent companies would consider transfer pricing and customs in conjunction with each other—and not as separate and distinct taxation issues.
For more information, contact a customs and excise tax professional with KPMG in Australia:
+61 2 9455 9330