Peru’s customs auditors focus on transfer pricing reports

November 1, 2013

The customs valuation treatment of related-party sales is an increasing concern for importers based in Peru. Based on recent audits, the Peruvian customs authorities are becoming more interested in companies’ transfer pricing reports, particularly when a report concludes that the local margin on the distribution of imported goods is above the comparable range.

The customs authorities are interpreting this finding as a “red flag” that the declared customs value could be lower than it should have been, since the company made more profit on the local sales than others in the same industry.

Customs valuation and transfer pricing — same aims, different rules?

Despite the shared ideal of using an “arm’s length” price for transactions between related parties, the Peruvian tax and customs rules are derived from a completely different sets of rules and are enforced by different authorities within the same institution.

Even though the customs authorities are not permitted to use information in a taxpayer’s transfer pricing report to challenge the customs value, they are heightening their scrutiny of the customs value in such cases.

Transaction value

Pursuant to the World Trade Organization (WTO) Valuation Agreement, the transaction value, the preferred method for customs valuation, is the price paid or payable between a buyer and a seller.

Transaction value is acceptable for related-party sales if either an examination of the circumstances of the sale indicates that the relationship between the parties does not influence the price actually paid or payable, or if the transaction value of imported merchandise closely approximates a test value.

Burden of proof on importers

In Peru, however, there is little guidance as to how to meet these criteria, and the burden of proof is on the importer. As a result, importers must provide extensive documentation and analysis to demonstrate to the customs authorities that the transaction value is the acceptable valuation method – despite the related-party sale.

Otherwise, the importer may be denied the use of the transaction value and must resort to subsequent methods of customs valuation, as established under the WTO Valuation Agreement; for example, the transaction value of identical or similar goods sold to unrelated buyers in the same country of importation or the deductive value.

The full version of this article was published in EY´s Indirect Tax Briefing, issue 8 (PDF, 3.28 MB)

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