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IN SOLVING YOUR
PRAGMATIC MANAGEMENT OF TRANSFER PRICING ADJUSTMENTS IN ASIA FROM A CUSTOMS VALUATION PERSPECTIVE
US Life Sciences MNC
The company was relatively new in Asia with its on-shoring strategy of setting up its own related entities in various countries in the region in order to have better control over its operations rather than relying on third parties. This on-shoring strategy resulted in new related party transactions between its entrepreneur entity and its overseas sales, manufacturing and R&D subsidiaries through rendering of intercompany services such as marketing & sales support, technical assistance, warranty support etc. These intercompany services between related parties were covered under an overarching global transfer pricing policy with respective benchmarking reports to set the respective transfer prices.
Given the initial stage of its business operations in Asia, the intercompany transfer prices set relating to the goods imported widely fluctuated. In addition, the actual profit margins of the overseas related entities at their financial year ends for the first couple of years were significantly out of the EBIT benchmark studies. Year-end transfer pricing adjustments were therefore required in various countries in Asia to satisfy the respective tax authorities. The company however was not sure how best to manage these year-end transfer pricing adjustments with the respective customs authorities from a customs valuation perspective in the Asian countries affected, given that their historical customs values, the duties and import VAT consequently paid were technically inaccurate with both over and under payments.
Concurrently, the widely fluctuating intercompany transfer prices were also referred to as a basis for the customs values declared for the goods in question imported. That led to constant questioning from the various customs authorities in Asia, most of which do not view such transfer pricing arrangements favourably from a customs valuation perspective.
- Conducted detailed analysis of its transfer pricing policy, benchmarking reports and the intercompany agreements between its entrepreneur entity and overseas related entities from a customs valuation perspective in order to determine whether they should form part of the customs values declared for its imported goods.
- Identified gaps in the various agreements which gave rise to potential ambiguities with customs authorities and provided comments as to how better to phrase them from a customs valuation perspective.
- Design of a global customs valuation policy paper based on the existing global transfer pricing policy and other intercompany agreements at hand, with the intention as a robust supporting document for future customs valuation related questioning from customs authorities.
- Management of its year-end transfer pricing adjustments in selected key jurisdictions for the company in Asia. (e.g. through voluntary disclosures, advance valuation rulings and appropriate tax provisioning internally within the company)
- Provided practical tips and guidelines to the company so as to better manage questioning of its customs values declared and prevent unnecessary customs audits / investigations.
Benefits to company:
- Achieved a consistent and pragmatic customs valuation policy to be applied for its imports going forward in Asia.
- Reduced overall questioning of its customs values declared by customs authorities in various jurisdictions, leading to reduced penalties as compared to that previously due to under-declarations of customs values and underpayment of duties and import VAT. Overall faster logistical lead times without its goods held at customs clearance point were also achieved.