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HMRC internal manual

VAT Valuation Manual

Transfer Pricing - VAT implications: interaction with import VAT and customs duties

It is recognised that many indirect tax staff may come into contact with Transfer Pricing Adjustments in relation to imported goods. The basic principle for determining the customs value is based on the World Trade Organisation (WTO) Valuation Agreement. This is in the Customs Code and Implementing Provisions. It is based on the price actually paid or payable for the imported goods with certain adjustments. Where buyer and seller are related, the price can only be accepted if the relationship did not influence the price. This is similar to the direct tax principle of requiring the transfer price to be based on an “arm’s length” price, according to Article 9 of the OECD Model Tax Convention. However, the methodologies are not exactly the same and a transfer price which has been accepted for direct tax purposes cannot be assumed to be acceptable for customs valuation purposes.

Balancing Payments connected to Transfer Pricing Adjustments may need to be considered in ascertaining whether there has been an under or over valuation of the import price of a particular transaction, and hence whether an adjustment is required to the import duty/VAT paid at the time of importation. Where this is suspected Assurance staff should consider contacting Frontiers - Imports/Exports Team for advice.