Customs value and transfer pricing adjustments: significance of recent ruling by Amsterdam Court of Appeal

In the past year, the Amsterdam Court of Appeal ruled in a case concerning the customs value of imported goods and the consequences of transfer pricing adjustments. The ruling confirms that transfer pricing decisions made for tax purposes may, under certain circumstances, lead to additional customs duties being levied.

In practice, it often happens that the final price of goods upon importation is not yet determined. This is often the case when the final price depends on factors that only arise after the goods have been released. This is particularly relevant in transactions between affiliated companies, for example when prices are adjusted retrospectively as a result of profit adjustments based on an Advance Pricing Agreement (APA). In such situations, the actual price paid is only determined after the goods have been imported.

On December 17, 2017, the Court of Justice of the European Union issued a preliminary ruling in the Hamamatsu case, which has led to considerable debate within customs law. In short, the Court ruled that the transaction value method cannot be applied when the price used consists partly of an amount declared on importation and partly of a flat-rate transfer pricing adjustment made retrospectively, while it is not clear in advance whether this adjustment will be positive or negative.

The Hamamatsu judgment thus raised the broader question of whether, when determining the customs value, any account can be taken at all of subsequent payments resulting from transfer pricing adjustments. In other words, to what extent does this judgment preclude the use of the transaction value method for provisional transfer prices?

Although the Hamamatsu judgment has been analyzed extensively, the different national interpretations within the EU Member States and the resulting legal inequality have not yet led to a change in the law or an unambiguous interpretation at EU level.

The recent ruling by the Amsterdam Court of Appeal is one of a series of decisions that further clarify the scope of the Hamamatsu ruling. In our opinion, this ruling contributes to further clarifying the Dutch customs authorities' view of the relationship between transfer pricing and customs value.