KPMG report: Managing transfer pricing and customs risks of cross-border transactions

Compliance from both transfer pricing and customs perspectives remains challenging

Compliance from both transfer pricing and customs perspectives remains challenging

The prices of goods in cross-border transactions are of interest to both transfer pricing and customs authorities, but their respective approaches differ, and this could require close cooperation within multinational entities when setting and documenting prices and communicating with various authorities.

Despite efforts to converge disparate transfer pricing and customs policies, there is no internationally agreed approach. Transfer pricing policies may be a useful information source, and the related mandatory disclosure requirements (e.g., country-by-country (CbC) reports, documents attached to tax return filings, etc.) provide increasing access to information by various governmental administrations (including customs authorities). 

Compliance from both transfer pricing and customs perspectives remains challenging and requires close cooperation between teams responsible for all taxes, including customs.


While the price of goods can be perceived by tax authorities dealing with transfer pricing matters in the importing country as being too high (thereby decreasing the taxable profit), customs authorities may at the same time seek to challenge the prices perceived as being too low (thereby decreasing the customs duties to be paid in the importing country).

In an ideal world, transfer prices would be aligned with customs’ valuation. But in practice, tax authorities follow the OECD Guidelines for Transfer Pricing, while customs authorities refer to the General Agreement on Tariffs and Trade valuation code. This may lead to different treatment of year-end adjustments of transfer prices—to provide an arm’s length profit margin of distribution entities, payment of license fee for intangibles or certain service fees when those payments relate to the price of goods. Multinational entities that decide to monitor and change their transfer prices proactively during the tax year may also attract the attention of customs authorities due to the volatility of prices.

While it is increasingly recognized that transfer pricing documentation may provide a useful reference point for customs purposes, the level of detail and information therein (as well as intercompany agreements) expected by tax and customs authorities may differ. In addition, procedures may be required for the transfer prices to be accepted for customs purposes (e.g., the reporting of the existence of a transfer pricing policy in advance of imports).

KPMG observation

Multinational entities may want to review the following steps as they move to understand the interdependencies of transfer pricing and customs valuation and to achieve positive outcomes:

  • Determine that stakeholder management and processes are in place to secure a holistic approach to intercompany transactions and to involve customs and trade experts in all transfer pricing-related processes early on. The tax strategy of a multinational entity may also need to include consideration of the integration of transfer pricing with other taxes, including customs, and proactively to address tax transparency initiatives and developments. 
  • Perform a transfer pricing and customs “health checks” to review existing intercompany transactions and manage potential risks and opportunities.
  • Involve customs experts when defining or evaluating a transfer pricing policy (e.g., in conjunction with a supply chain reorganization) to review the overall structure and supporting documentation (including intra-group contracts) from a customs perspective.
  • Prepare contemporaneous documentation that addresses customs rules and is aligned with transfer pricing-related economic analysis.
  • Consider what information is available to tax and customs authorities (e.g., transfer pricing forms, documentation, etc.) and anticipate how authorities may approach that data in an effort to prepare for potential future discussions.
  • Perform a risk assessment to understand how to best address year-end price adjustments in a given jurisdiction (customs authorities in different countries may have different approaches). This is particularly important in the post-coronavirus (COVID-19) reality with some industries or companies undergoing supply chain disruptions and reorganizations. 
  • Obtain customs rulings and/or tax rulings such as advanced pricing agreements to secure the position in given countries and anticipate any issues before implementation. 

Read a September 2021 report prepared by the KPMG member firm in Switzerland


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