Imagine a product moving through international trade, subject to customs valuation by border authorities while simultaneously undergoing transfer pricing scrutiny by tax authorities. When discrepancies arise between these two assessments, businesses face potential double taxation and significant trade inefficiencies. To address this critical challenge, the World Customs Organization (WCO) and the Organisation for Economic Co-operation and Development (OECD) have joined forces to promote harmonization between customs valuation and transfer pricing practices.
The Global Valuation Challenge in Modern Trade
As globalization intensifies, multinational enterprises increasingly engage in intra-group transactions, creating complex interactions between customs valuation and transfer pricing systems. While customs valuation determines the taxable value of imported goods, transfer pricing examines whether related-party transactions comply with the arm's length principle. Differences in objectives, methodologies, and data sources often lead to inconsistent valuation outcomes, sparking tax disputes and trade friction.
To tackle these challenges, WCO and OECD organized a joint workshop designed to foster cooperation between customs and tax administrations while enhancing their technical capabilities in both valuation domains.
Workshop Overview: Building Synergies and Capacity
From September 19-23, 2016, WCO and OECD convened a specialized workshop on transfer pricing and customs valuation at the Multilateral Tax Center in Ankara, Turkey. The event brought together 34 representatives from customs and tax administrations across 15 countries spanning North Africa, the Near East, the Middle East, and Europe. Expert facilitators from WCO, OECD, and the Turkish Revenue Administration conducted sessions in English, with simultaneous interpretation available in Russian and Turkish.
Workshop Curriculum: Regulatory Frameworks and Practical Applications
The comprehensive program covered three key areas:
- Customs Valuation Rules: Detailed examination of WTO's Customs Valuation Agreement, including the six prescribed valuation methods, their hierarchical application, and operational implementation. Participants explored national best practices and anti-fraud measures in customs valuation.
- Transfer Pricing Regulations: In-depth analysis of OECD Transfer Pricing Guidelines, focusing on the arm's length principle and the five transfer pricing methods (CUP, Resale Price, Cost Plus, Profit Split, and TNMM). Discussions addressed profit shifting strategies and corresponding tax authority countermeasures.
- Interplay Between Systems: Critical examination of how transfer pricing affects declared import values (impacting customs duties) and how customs valuations influence transfer pricing assessments. The workshop emphasized developing mechanisms for inter-agency information sharing and coordinated approaches.
Practical case studies and simulation exercises enabled participants to apply theoretical knowledge to real-world scenarios, including group discussions on import price determination, transfer pricing risk assessment, and joint audit procedures.
Key Outcomes: Collaborative Approaches for Trade Facilitation
The workshop significantly enhanced mutual understanding between customs and tax officials regarding their respective domains and the complex relationship between both valuation systems. Participants recognized that strengthened inter-agency cooperation serves dual purposes: combating tax evasion while streamlining legitimate trade processes. The event established an ongoing platform for knowledge exchange and professional development in valuation practices.
Practical Guidance: The WCO Reference Manual
WCO has published the "Customs Valuation and Transfer Pricing Guide," providing operational guidance for customs and tax authorities. This comprehensive resource details principles, methodologies, and practical applications through case studies and implementation recommendations.
Future Directions: Toward a Coherent International Framework
WCO and OECD plan to deepen collaboration through several initiatives:
- Establishing information-sharing protocols between customs and tax administrations
- Developing joint audit programs to assess valuation and pricing risks simultaneously
- Promoting convergence in valuation standards and methodologies
- Expanding capacity-building programs for developing country administrations
These cooperative efforts aim to create a more equitable, transparent, and efficient international trading system that supports sustainable economic growth.