Related-party imports sit at the intersection of two legal regimes that ask different questions and produce different answers. Transfer pricing is concerned with whether the price between connected parties is arm’s length for direct tax purposes. Customs valuation is concerned with the value of goods at the point of importation. The two do not always agree.
The practical tension arises most sharply when a group uses year-end transfer pricing adjustments — upward or downward — to bring intercompany pricing into an arm’s length range after the fact. For corporation tax purposes, this may be exactly what is required. For customs purposes, it creates a problem: the value of the goods was meant to be fixed at importation, and a later adjustment does not automatically correct the customs position.
That tension was examined in Hamamatsu Photonics Deutschland GmbH (Case C-529/16), a decision frequently cited in customs valuation disputes involving related parties. The case illustrates the difficulty of relying on a provisional or adjusted transfer price as the basis for customs valuation where the final arm’s length price was not ascertainable at the time of import.
For UK importers, the lesson is not theoretical. Related-party prices should be documented and reviewed from a customs perspective — not merely from a corporation tax perspective. The questions are not the same, and the defences available in a direct tax dispute may not translate to a customs valuation challenge.
In brief: A transfer pricing policy is not automatically a customs valuation defence. Businesses importing from related parties should review their pricing documentation and customs valuation position as separate exercises.
For advice on customs valuation disputes, related-party imports or HMRC enquiries, contact Hammad Baig.