Background
The customs value of imported goods is
a fundamental factor in determining the price at which they are
bought and sold and the profit which they realise. Companies which
conclude contracts with their suppliers or customers or set transfer
prices without regard to customs values risk incurring either excessive
duty liabilities or penalties.
The key to customs-effective pricing
is to ensure that the total consideration for imported goods is
kept to a minimum consistent with both commercial objectives and
the requirements of valuation regulations, bearing in mind that:
- Additional payments to the supplier
of imported goods (such as royalties,
licence fees, R&D
and design, tooling and engineering
costs) may attract duty if not suitably structured;
- Some other payments can be excluded
or deducted from the price of imported
goods, thereby reducing their duty liability; and
- In certain circumstances, the actual
price will not constitute an acceptable
basis for paying duty and an alternative method of valuation
must therefore be found.
For multi-national companies there is a potential conflict between
the optimum customs and tax treatment of transfer prices. Unrealistic
transfer prices can result in excessive duty liabilities and partial
disallowances for tax purposes whilst prices which are acceptable
to the revenue authority may not meet the minimum level for customs
purposes. Injudicious year-end and other retrospective price adjustments
can also create customs problems and may even invalidate the original
transfer prices.
How can we help?
- To structure
your international transactions
to pay the minimum duty;
- To draw
up customs effective agreements
with foreign suppliers and customers;
and
- To determine the optimum transfer
pricing arrangements for both customs
and corporation tax purposes.
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