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Proposed amendments to Customs Practice Statement about applications for a valuation advice relating to transfer pricing

Proposed amendments to Customs Practice StatementThe Australian Customs and Border Protection Service (CBP) has released proposed amendments to Customs Practice Statement 2009/21 – Applying for a Valuation Advice (VA) relating to Transfer Pricing for public comment. Practice Statement 2009/21 is relevant to all importers who import goods into Australia from related parties. 

The closing date for comments to CBP is 26 November 2012.

Valuation advice and transfer pricing adjustments

A Valuation Advice provides an importer with certainty that the customs value being declared to CBP at the time of import cannot be challenged by CBP for five years, provided the facts outlined in the VA application have not changed.

While it is recommended that a VA should be sought by importers who import from related parties, it is a requirement that a VA be obtained in the case where there is a retrospective transfer pricing adjustment which affects the customs value of goods that have already been imported (regardless of whether there is a customs duty impact).

Furthermore, it is strongly recommended that a VA be obtained where there is a change to the transfer price which affects the customs value of imports going forward.

In the case of retrospective transfer pricing adjustments, depending on the direction of the adjustment, the impact could involve one of the following:

  • A requirement to pay additional customs duty and import GST
  • Entitlement to receive a refund of customs duty
  • No customs duty impact; only an import GST impact.

Proposed changes

The proposed changes to Practice Statement 2009/21 would increase the evidentiary requirements on importers to demonstrate that the price is arm’s length under the customs valuation rules (i.e. that the transfer price is a valid customs value). It is important to note that customs valuation methodologies “are not analogous to the Berry Ratio or OECD methodologies” as accepted by the ATO for transfer pricing purposes. Importantly, the proposed changes state that in order to use the Transaction Value or the Fallback Transaction Value customs valuation methodology (i.e. the transfer price as the customs value), the importer needs to provide information that shows that the relationship between the purchaser and the vendor of the goods has not influenced the price. The proposed changes outline the options available to demonstrate that the relationship between the parties has not influenced the price. The options outlined are:

A. Test values test – this requires a comparison with other imports into Australia from the same exporting country of similar goods from an unrelated party

B. Circumstances surrounding the sale test – there are three paragraphs in the proposed changes:

    1. “The price of the goods had been settled in a manner consistent with normal pricing practices of the industry in question or with the way the seller normally settles prices for sales to buyers who are not related to the seller;
    2. The price is adequate to ensure recovery of all costs plus a profit which is representative of the firm’s overall profit realised over a representative period of time (e.g. on an annual basis) in sales of goods of the same class or kind;
    3. Any other information to show that the price reflects the market price of the imported goods between unrelated parties subject to the same conditions of sales, e.g. quantity, level of sales, times of sales.”

Based on Deloitte’s experience in the United States in applying the same tests, tests A and B.1 are difficult to apply given that the required information is generally not available to the importer. Accordingly, test B.2 is generally the test that is applied. This test is essentially a cost plus test and appears to require cost data from the foreign manufacturer as well as profit data of the “firm” split out to only cover goods of the same class or kind. There are numerous rulings in the United States on the interpretation of this test and it will be interesting to see how CBP interprets the test requirements in Australia.

Our Customs and Global Trade specialists are available to discuss the impact of the proposed changes and any issues your company may have in relation to the customs treatment of related-party imports.


Michael Roche
Tel: +61 2 6263 7059

David Ware
Tel: +61 3 9671 7518


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