United States

WCO Case Study on Customs Value and Transfer Pricing

Oct 24, 2016

Todd Smith, Principal in KPMG LLP’s Trade and Customs practice, provides a summary of a panel he moderated at the American Association of Exporters and Importers (AAEI) in Washington, D.C., involving a recent World Customs Organization (WCO) case study[1] [TRS1] on customs valuation and transfer pricing.


Todd Smith: So on the panel today, Yuliya will be presenting a case study that recently was approved by the World Customs Organization’s Technical Committee on Customs Valuation (TCCV). In addition to Yuliya being with the Customs Valuation and Rulings Branch, here in Washington, D.C., for US Customs and Border Protection (CBP), she is also the Chairwoman of the Technical Committee on Customs Valuation at the WCO. 

Several years ago, Yuliya, working with other members of the Technical Committee, including myself through my participation with the International Chamber of Commerce (ICC), introduced a case study using the OECD transfer pricing Transactional Net Margin Method (TNMM), to support whether or not prices would be considered arm's length for customs valuation purposes. That case study was finally approved by the Technical Committee, and it is a very good development because importers may now be able to leverage that instrument.  It's a case study.  It's not binding on any particular country, but it is definitely an indication of the policy and direction of customs valuation administrators around the world on the use of the TNMM method to help support related party pricing from a customs and valuation standpoint.

The TNMM is the Transactional Net Margin Method. It's an OECD method that many companies utilize for demonstrating that prices are arm's length from a tax standpoint.  In the US, the IRS basically calls that same method the CPM or comparable profits method. 

On the customs regulations, there is a circumstances of sales test, and there are three ways that you can demonstrate prices are arm's length, one of which is the normal pricing practices of the industry. The case study is basically saying that importers can take information in a transfer pricing study using the TNMM method to help support the normal pricing practices of the industry from a customs standpoint. 

Importers still cannot just take a transfer pricing study and hand that over to the customs authorities and expect the customs authorities to agree.  Importers are still really encouraged to have a customs transfer pricing study, or customs valuation analysis, to explain why information in the transfer pricing study will be able to support the customs valuation.

For more information on the WCO Case Study or Trade and Customs services, contact Todd Smith at trsmith@kpmg.com.

[1] Case Study 14.1 Use of Transfer Pricing Documentation When Examining Related Party Transactions Under Article 1.2(a) of the Agreement, April 2016


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