Transfer Pricing and Customs Valuation: Key Insights for CEOs and CFOs

Transfer Pricing and Customs Valuation are two fundamental parts of managing cross-border inter-company transactions. It is a central part of business operations. Yet, these two valuation methods can conflict with each other resulting in challenges with customs authorities or tax authorities.

In this article, we’ll explore how transfer pricing and customs valuation intersect. In particular, we’ll look at why understanding both is essential, and what actions CEOs and CFOs can take to avoid compliance issues.

Transfer Pricing and Customs Valuation

Both are valuation methods applying to the same transactions to determine the value of the goods, however, with different objectives:

Transfer pricing is a corporate tax matter.

It is concerned with the value of the goods for the collection of corporate tax. Its legal basis is found in each country’s corporate tax law.

Customs valuation is a customs matter

It is concerned with the value of the goods for collecting import duties and taxes. Its legal basis is found in the WTO agreement on customs valuation and the national customs codes.

Transfer Pricing and Customs valuation are interconnected

Transfer pricing is not only a tool for corporate tax purposes. It also plays a critical role in customs valuation, which can significantly impact the business bottom line.

Differences in objectives can lead tax authorities to accept a transfer price that customs authorities reject. When customs authorities find a price too low, they may revalue the goods, resulting in higher import duties and taxes.”

Alignement of Transfer Pricing and Customs Valuation

In the context of customs valuation, the transaction value is the price paid for goods sold between unrelated party.

For multinational companies moving inventory between entity (related parties), the transaction value is often an internal, inter-company price. Related entities within the same group determine this transaction value through transfer pricing—that is, by setting the prices for goods and services they exchange

Can the transfer price be accepted as a customs value? The use of transfer prices for customs valuation is not straightforward.

From a customs valuation perspective, the relationship between the buyer and the seller in related-party transactions can’t influence the price paid. To be accepted by customs, the transfer price must reflect market conditions. In other words, it must be consistent with prices that would be charged in similar transactions between unrelated parties under free competition.

Furthermore, the acceptability of the price paid for customs valuation purposes is based on the terms of the WTO Customs Valuation Agreement. Thus, the acceptance of transfer prices by a country’s tax authorities does not automatically constitute a criterion for the acceptability of the transaction value for customs purposes. 

In the internal management of companies, the corporate tax aspect, due to its relative importance, is often the primary consideration in establishing transfer prices. However, in practical terms, the alignment of transfer prices for tax and customs valuation for customs purposes greatly simplifies the management of companies’ imports and exports. However, it is not always the case.

Why Customs Authorities Care About Transfer Pricing

Customs authorities are increasingly scrutinising transactions between related parties for two key reasons:

Risk of Manipulation

Related parties, such as entities of the same group, have the ability to influence each other and establish advantageous relationships and transactions for profit shifting and tax avoidance. This is especially important since multinational companies often account for a significant share of imports worldwide. Two-thirds of international transactions involve multinational companies, and about half of these transactions are between group entities. Consequently, the WTO International Agreement on Customs Valuation requires any importer, in transactions between related parties, to be able to demonstrate that their relationship does not influence the declared value.

Revenue Considerations

Customs duties and import taxes are vital sources of revenue for some governments. Because related-party transactions are so common, customs authorities are monitoring them closely. This to ensure the transaction value accurately reflects the true value of the imported goods. And to check that companies are not artificially reducing prices through internal pricing arrangements.

World Customs Organisation (WC0) Council

At the June 2025 WCO Council sessions, discussions focused on improving the use of transfer pricing documentation to support Customs valuation and ensure accurate pricing and tax collection. Stronger cooperation between Customs and tax authorities was deemed essential for aligning approaches and providing businesses with more certainty.

While Customs and tax valuation methods differ, transfer pricing data can be useful for Customs, particularly if it includes transaction-specific import data. However, timing issues, such as year-end transfer pricing adjustments, pose challenges.

The OECD and WCO support greater alignment through guidelines, case studies, and tools like the Guide to Customs Valuation and Transfer Pricing. Nonetheless, legal gaps and differing national frameworks remain obstacles. Early collaboration, legal reform, and joint training for tax and Customs officials were recommended to bridge these differences.

From the business perspective, ongoing challenges including skepticism from authorities, timing mismatches, post-import adjustments, and knowledge gaps among Customs officials. Overall, better integration and cooperation were identified as key to reducing disputes and compliance burdens.

Practical Implications for Businesses

Managing transfer pricing from both a tax and customs perspective requires careful balancing. Here are some key points to consider:

Proactively Align Transfer Pricing with Customs Valuation

When establishing transfer prices, it’s important to consider how customs authorities will view those prices. Failure to do so can lead to rejections of the transaction value at the border. It can also result in a need for retroactive adjustments. Both of which can complicate customs clearance and result in additional costs.

Provide Adequate Documentation

Customs authorities may require significant documentation to ensure that the price paid in related-party transactions is not influenced by the relationship. This can include evidence of market pricing or justification for the profit margin that the company is applying. Inadequate documentation could lead to audits or the rejection of the declared transaction value.

Monitor Retroactive Adjustments

One of the complexities of managing transfer prices in customs valuation is the potential impact of retroactive changes. If a transfer price is adjusted after importation, it could affect past customs declarations, which could trigger customs audits or require revaluation of previously imported goods. CEOs and CFOs should ensure that any retroactive adjustments are carefully managed to avoid complications with customs authorities.

Customs Compliance is as Important as Tax Compliance

Although transfer pricing is often primarily a tax consideration, it’s a critical factor of customs compliance. If customs authorities find that the transfer price does not reflect the market value, they may reject the transaction value, leading to delays, additional paperwork, and potentially higher costs. This can be a serious issue for companies with large volumes of imports.

A Holistic Approach to Transfer Pricing

For multinational companies, managing both tax and customs compliance is a delicate balancing act. Transfer pricing must be structured in a way that satisfies the requirements of both tax and customs authorities, without triggering additional costs or regulatory challenges.

For businesses with inter-company transactions, it’s crucial to recognise the intersection between tax and customs considerations when setting transfer prices. By proactively aligning transfer pricing with customs requirements, maintaining adequate documentation, and anticipating the implications of retroactive adjustments, businesses can streamline their cross-border operations, generate savings and reduce the risk of costly disputes with customs authorities.