Dual Agency Audit Harmonization Procedures for Cross Border Related Party Customs Valuations
Cross-border related-party imports require locking transfer pricing unit formulas into contracts prior to export to align customs value and tax audits.
Related Party Valuation
Meaning
Determination of the fair market value of goods traded between companies that share a common ownership or control. Related party valuation is a focus for customs officials who check if the declared price is influenced by the relationship between the buyer and the seller. The General Administration of Customs compares the declared value against the prices of similar goods sold between independent parties.
If the relationship is found to have affected the price, the authority will reject the transaction value and apply an alternative method. This process is designed to prevent the underpayment of import duties. Accuracy in reporting these relationships is a mandatory compliance requirement.
Assessment Method
Officers follow a hierarchy of valuation rules starting with the transaction value of identical or similar goods. When these are not available, related party valuation might rely on a deductive method based on the domestic resale price or a computed value based on production costs. The importer has the burden of proof to show that the relationship did not influence the price.
They can do this by demonstrating that the price is consistent with industry norms.
Transfer Pricing
Customs valuation often intersects with the tax bureau’s interest in corporate income tax and profit shifting. This related party valuation focuses specifically on the border price of the physical goods rather than the overall profitability of the entity. A price that is acceptable for income tax purposes might still be challenged by customs if it appears too low.
Coordination between different government departments on these figures is increasing.
Disclosure Requirement
Importers must tick a specific box on the customs declaration form to indicate if the parties are related. Honesty in this disclosure is vital to avoid a serious compliance breach during an audit. This related party valuation process can lead to the signing of a price ruling with the customs house to provide future certainty.
Documentation such as purchase contracts and cost sheets must be kept for three years.