ANALYSIS: Transfer Pricing and Customs Nirvana: Is It Possible?

One of the most difficult challenges multinationals face is concurrently managing transfer pricing and customs risks. Because transfer pricing and customs are governed by different rules and often enforced by different authorities, situations can arise where a taxpayer receives a transfer pricing adjustment and also incurs additional customs duties on the same set of import transactions. This form of “double taxation” can be especially frustrating for taxpayers because it arises from seemingly contradictory positions taken by the tax and customs authorities.

Often, tax directors will focus their attention on demonstrating transfer pricing compliance, erroneously assuming that meeting the arm’s-length standard for tax purposes also will demonstrate customs compliance. In fact, certain countries, including the United States, have issued official positions confirming that a transfer pricing study, in and of itself, is insufficient for satisfying customs requirements.

This article examines how instances of double taxation arise, reviews common transfer pricing pitfalls that can create customs exposure, and provides recommendations on how to mitigate double taxation risk—in other words, achieve a “nirvana” in which the competing demands of the tax and customs authorities are reconciled. Enjoying this article? To continue reading you need to take out a FREE trial to the Transfer Pricing Library.




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