The EU Court of Justice recently issued a landmark ruling in the Tauritus case (C-782/23), offering much needed clarity on customs valuation processes in relation to complex price adjustments in cross-border transactions.
While there are several methods for determining customs value, the primary approach is the “transaction value method,” which refers to the price actually paid or payable for goods sold for export to the customs territory of the EU. Typically, this value is established at the time of importation. However, this timing can lead to challenges if the transaction is subject to transfer pricing adjustments at year-end. When multinational enterprises (MNEs) employ the transactional net margin method (TNMM), year-end corrections are often made to align with the arm’s length principle, potentially resulting in discrepancies between customs and transfer pricing values.
In principle, the transaction value method can be applied between related parties, provided that their relationship does not influence the actual price. If the price is influenced, an alternative method must be considered. Customs authorities may view ex post adjustments as indicative of such influence, suggesting that the initial price was not conclusive. Should entities choose to amend the customs value, specific procedures, such as the amendment of declarations, must be followed.
To understand the implications of the recent decision, it is crucial to reference the earlier 2017 decision by the EU Court of Justice in the Hamamatsu case (C-529/16), which is intricately linked to the recent decision. That case addressed customs valuation for imported goods and its complex relationship with transfer pricing, specifically focusing on retroactive transfer pricing adjustments between related entities and their impact on customs value.
The court in Hamamatsu ruled that customs authorities should not accept adjustments to the customs value based on transfer pricing changes, emphasizing that the customs value determined at the time of importation must be maintained. If the true price of goods was not objectively ascertainable at the time of customs declaration (e.g., due to later, unilateral profit-based adjustments), then the transaction value method for customs valuation might not be applicable. Consequently, MNEs faced challenges in determining customs value when subject to year-end transfer pricing adjustments, particularly because it is challenging for companies to claim duty refunds based on downward transfer pricing adjustments.
The recent judgment in Tauritus UAB (C-782/23), delivered by the EU Court of Justice on 15 May 2025, does not overturn or contradict Hamamatsu, but rather provides important clarifications and nuances to the application of the transaction value method, especially in cases involving provisional pricing.
This case introduces a pragmatic approach that allows companies to reconcile their customs valuation with transfer pricing adjustments. The ruling is pivotal in harmonizing customs and transfer pricing practices, addressing the challenges businesses encounter with provisional pricing in import transactions influenced by market dynamics and currency fluctuations. Historically, these adjustments have complicated the accurate declaration of customs value, leading to potential errors and disputes.
In the Tauritus case, the court reaffirmed that the transaction value method should remain the primary approach for determining customs value, even when transfer pricing adjustments are necessary. This decision facilitates simplified customs declarations, enabling businesses to report a provisional value upfront while accommodating final price adjustments through supplementary declarations. It is important to note that the final price, which may be unknown at the time of importation, must be determined based on objectively measurable criteria. Additionally, the contractual agreements between the parties involved are critical, with the final price needing to be established based on prior external criteria, such as market prices, without influence from the parties.
While both cases explore the relationship between customs and transfer pricing, significant distinctions exist.
Nature of the Adjustment:
Charlotte Broekaert
An Gijsbregts
BDO in Belgium
While there are several methods for determining customs value, the primary approach is the “transaction value method,” which refers to the price actually paid or payable for goods sold for export to the customs territory of the EU. Typically, this value is established at the time of importation. However, this timing can lead to challenges if the transaction is subject to transfer pricing adjustments at year-end. When multinational enterprises (MNEs) employ the transactional net margin method (TNMM), year-end corrections are often made to align with the arm’s length principle, potentially resulting in discrepancies between customs and transfer pricing values.
In principle, the transaction value method can be applied between related parties, provided that their relationship does not influence the actual price. If the price is influenced, an alternative method must be considered. Customs authorities may view ex post adjustments as indicative of such influence, suggesting that the initial price was not conclusive. Should entities choose to amend the customs value, specific procedures, such as the amendment of declarations, must be followed.
Connection to Hamamatsu Case
To understand the implications of the recent decision, it is crucial to reference the earlier 2017 decision by the EU Court of Justice in the Hamamatsu case (C-529/16), which is intricately linked to the recent decision. That case addressed customs valuation for imported goods and its complex relationship with transfer pricing, specifically focusing on retroactive transfer pricing adjustments between related entities and their impact on customs value.The court in Hamamatsu ruled that customs authorities should not accept adjustments to the customs value based on transfer pricing changes, emphasizing that the customs value determined at the time of importation must be maintained. If the true price of goods was not objectively ascertainable at the time of customs declaration (e.g., due to later, unilateral profit-based adjustments), then the transaction value method for customs valuation might not be applicable. Consequently, MNEs faced challenges in determining customs value when subject to year-end transfer pricing adjustments, particularly because it is challenging for companies to claim duty refunds based on downward transfer pricing adjustments.
Tauritus Case
The recent judgment in Tauritus UAB (C-782/23), delivered by the EU Court of Justice on 15 May 2025, does not overturn or contradict Hamamatsu, but rather provides important clarifications and nuances to the application of the transaction value method, especially in cases involving provisional pricing.This case introduces a pragmatic approach that allows companies to reconcile their customs valuation with transfer pricing adjustments. The ruling is pivotal in harmonizing customs and transfer pricing practices, addressing the challenges businesses encounter with provisional pricing in import transactions influenced by market dynamics and currency fluctuations. Historically, these adjustments have complicated the accurate declaration of customs value, leading to potential errors and disputes.
In the Tauritus case, the court reaffirmed that the transaction value method should remain the primary approach for determining customs value, even when transfer pricing adjustments are necessary. This decision facilitates simplified customs declarations, enabling businesses to report a provisional value upfront while accommodating final price adjustments through supplementary declarations. It is important to note that the final price, which may be unknown at the time of importation, must be determined based on objectively measurable criteria. Additionally, the contractual agreements between the parties involved are critical, with the final price needing to be established based on prior external criteria, such as market prices, without influence from the parties.
Key Differences and Clarifications Between Tauritus and Hamamatsu
While both cases explore the relationship between customs and transfer pricing, significant distinctions exist.Nature of the Adjustment:
- Hamamatsu: This case involved retrospective, profit-based transfer pricing adjustments (often arising from a TNMM) that could not be objectively determined at the time of import. These adjustments were perceived as influencing the price due to the related-party relationship, potentially invalidating the transaction value method.
- Tauritus: This case dealt with a scenario in which provisional prices were established at the time of import, with the final price determined later based on objective, contractually agreed-upon factors such as average market prices for specific goods (e.g., diesel and aircraft turbine fuel) and average exchange rates over a defined period. These were not unilateral profit adjustments but rather pre-agreed mechanisms for finalizing prices.
- Hamamatsu: The ruling emphasised that the "price actually paid or payable" must be objectively ascertainable when the customs declaration is accepted. If the final price is unknown and contingent on future, non-objective factors (such as achieving a target profit margin), the transaction value method cannot be applied.
- Tauritus: The ruling clarified that even if only a provisional price is known at the time of import, the transaction value method can still be utilised if the sales contract specifies that the final price will be established later based on predetermined objective criteria that are independent of the parties' unilateral decisions or overall profitability goals. The court affirmed that the "price actually paid or payable" still reflects the economic value of the goods, even if its exact amount is determined later by objective factors.
- Hamamatsu: This ruling implied that the type of ex post adjustments typical of transfer pricing (especially downward adjustments) were not permissible for reducing customs value and could result in the outright rejection of the transaction value method.
- Tauritus: This case explicitly recognised that when a provisional price is utilised, and the final price is determined by objective criteria, supplementary declarations (as outlined in Article 167 of the Union Customs Code - UCC) are the appropriate mechanism for amending the customs value once the final price is known. This means that if the final price is higher, additional duties must be paid; if it is lower, a refund may be claimed (subject to other conditions).
Impact of Tauritus on Hamamatsu’s Legacy
The Tauritus ruling has significant implications for both customs and transfer pricing strategies:- Implications for Customs: From a customs perspective, the transaction value method is emphasised as the appropriate primary approach for determining customs value, promoting a more streamlined process, and reducing reliance on more complex methods. It is strongly advised that entities enter into contracts in which final prices are determined by external criteria (e.g., market prices) that are not influenced by any party. Furthermore, accurate and timely declarations must be adhered to once the final price is determined.
- Implications for Transfer Pricing: It is essential to consider the customs perspective when formulating a transfer pricing policy to avoid potential disputes with customs and tax authorities. Compliance and documentation should be integral to business operations to mitigate the risk of customs claims. Additionally, a differentiated transfer pricing strategy should be developed based on objective market-based pricing mechanisms rather than profit-driven motives within the group.
Charlotte Broekaert
An Gijsbregts
BDO in Belgium