Transfer Pricing

What Price is the Correct Price?

Transfer pricing generally refers to the price of goods provided by one part of any organisation to another. It is typically seen in transactions between firms and their subsidiaries or affiliates in other countries.

In the context of this article, a transfer pricing adjustment is an Agreement between related companies of multi-national enterprises to retrospectively adjust the original prices of goods sold by one related company to another with the purpose of legally maximising profit and minimising taxation liabilities. In essence, a transfer price adjustment is used to manipulate pricing in order to achieve the return on sales required by taxation departments.

The adjustment may result in either an increase or a decrease in the price of the goods depending on market forces, profitability and returns on sales achieved.

From a Customs perspective, this may mean that the Customs value of the imported goods may need to be adjusted after the importation of the goods, either up or down.

Where the values are adjusted down, a potential reason for duty refund may exist.

In the alternative, where values are adjusted up, a need to tender short-paid duties may arise.

In fact, where the goods affected by the adjustment are free from import duty, the result of which being any adjustment has no impact on government revenue, you still have a compliance problem given the values declared at the time of import are, in fact, now wrong.

Any post import adjustment will therefore require attention, whether or not the government revenue is affected.

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