Archives For Customs Valuation

customs-taxThe “Guidelines for strengthening cooperation and exchange of information between Customs and Tax authorities at the national level” have been formulated with the support of WCO Members and development partners, especially the Organisation for Economic Co-operation and Development (OECD) and the International Chamber of Commerce (ICC). The Guidelines aim to provide reference guidance to Customs and Tax authorities who wish to go further in their cooperation and develop operational models which enable agencies to work together to their mutual benefit.

Although there is no limit to the ways in which these two agencies can work together, and countries should consider new and innovative methods based on their organizational structure, needs and operational requirements, the Guidelines highlight some overarching principles and associated benefits concerning enhancement of Customs-Tax cooperation.

The WCO Guidelines for Strengthening Cooperation and the Exchange Of Information between Customs and Tax Authorities at the National Level are intended to supplement the ongoing initiatives in this domain. The aim is to provide general, overarching principles for cooperation which take account of operational considerations, bearing in mind the different organizational structures and national requirements of countries. It is expected that these Guidelines will be useful to Member Customs administrations in developing a sustainable cooperation mechanism (including a MoU where needed) tailored to their unique situation, in close cooperation with their respective Tax authorities

In particular, the Guidelines provide a comprehensive overview of the enablers for mutual cooperation and the exchange of information, address the scope and remit of information exchange, cover different information exchange mechanisms, list the type of activities that Customs and Tax authorities may undertake together, and provide key principles and points to consider when developing a Memorandum of Understanding/Agreement (MOU/MOA). Source: WCO

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Transcript of video
Todd Smith, principal in KPMG LLP’s Trade & Customs practice: We had over 350 people attend the webinar on Base Erosion and Profit Sharing (BEPS) from a Customs Perspective. I think the reason is because there hasn’t been a lot of discussion on how BEPS will impact customs.

I read all of the action items that the OECD published in October to identify where there would be crossover or an overlap on customs as it relates to BEPS. There clearly is going to be quite an impact.

For one thing, there is a lot of transparency that is being created overall by the BEPS initiatives, and customs auditors around the world are increasingly cooperating with the tax administrations around the world, so there will be a treasure trove of information for the customs auditors found within the Master File, the Local File and the CbC report, and just as tax administrators will use that information because of the information sharing, customs auditors will also use that information to identify targets for audits.

It will tell them, for example, where there is a related party transaction where they may not have had that information previously.

One of the big areas that we feel the customs function will be impacted by BEPS is where you have a situation where a company may need to convert a commissionaire to a buy-sell. When this happens, the importer of record could change, and more importantly the value that’s declared to customs under a commissionaire structure oftentimes is the third-party customer price. And when that entity converts to a buy-sell entity, the new buy-sell entity becomes the importer of record. It needs to achieve a margin, and the only way really to do that is to import that same product at a lower price.

And so the challenge is to convince the customs administration that the new price with the limited-risk distributor, for example, which is lower in its related party price, is still considered arm’s length, even though it’s less than the previous import value at the 3rd party customer price. Source: KPMG

Recommended reading

New WCO InstrumentAn important new instrument was finalised at the 42nd Session of the Technical Committee on Customs Valuation which took place in Brussels from 18 to 22 April 2016 under the Chairmanship of Ms. Yuliya Gulis of the United States.

The instrument contains a case study illustrating a scenario where Customs took into account transfer pricing information in the course of verifying the Customs value.

The WTO Valuation Agreement sets out the methodology for establishing the Customs value, used as the basis for calculating Customs duties. The Agreement foresees that Customs may examine transactions between related parties where they have doubts that the price has been influenced by the relationship.

The Organisation for Economic Cooperation and Development (OECD) has developed Guidelines for establishing the transfer price, that is the price for goods and services sold between controlled or related legal entities, in order to determine business profit taxes where businesses are related.

Over recent years, the similar objectives but different methodologies of transfer pricing and Customs valuation have been noted, and it has been recognised that business documentation developed for transfer pricing purposes may contain useful information for Customs. An earlier instrument of the Technical Committee, Commentary 23.1, confirmed this principle.

The new case study provides an example of Customs making use of transfer pricing information based on the transactional net margin method. On the basis of this information, Customs accepted that the sale price in question had not been influenced by the relationship.

The OECD has provided valuable input to the Technical Committee discussions in the development of the new instrument which provides helpful guidance to both Customs administrations and the business community.

Both the WCO and the OECD advocate closer cooperation between Customs and tax administrations in order to strengthen governments’ ability to identify the correct tax and duties legally due and enhance trade facilitation for the compliant business sector.

WCO Secretary General, Mr. Kunio Mikuriya, has congratulated the Technical Committee on the work achieved : “This new instrument is an important step for the WCO and demonstrates its relevance by providing guidance on the management of Customs valuation in an increasingly complex trade landscape, whilst maintaining consistency and strengthening cooperation with Tax authorities.”

The case study (Case Study 14.1) will be made available in the WCO Valuation Compendium, subject to approval by the WCO Council in July 2016.

Further information on this topic can be found in the WCO Guide to Customs Valuation and Transfer Pricing, available via this link