Just a quick reminder for those of you working at multinational companies which operate on a calendar year basis – do not forget to ask your tax colleagues whether any retroactive transfer pricing adjustments were made at, or before, year-end (assuming that they do not send this information to you on their own). This is particularly important this year in light of the significant, unexpected cost increases many companies faced in 2018 as a result of the Trump Administration’s trade policies. For example, the Section 232 duties imposed on steel and aluminum imports, and the Section 301 duties on imports of Chinese-origin goods, were not foreseen when the transfer prices were set in late 2017. As a result, the additional duty expense these actions represent may have skewed a company’s results for the year, thereby making it more likely that a retroactive transfer price adjustment was needed in order to maintain the arm’s length nature of the transactions.
If such adjustments were made (whether upward or downward), please be sure to consider the customs valuation implications here. The failure to declare upward transfer pricing adjustments is a very common enforcement issue in many jurisdictions (largely because the issue is so easy to identify and often involves significant amounts/penalties); whereas downward adjustments could lead to a refund of customs duties, taxes and fees in some jurisdictions (including the US, Canada, etc.). A quick note to your tax colleagues now could save a potential headache down the line, or put some money back in the company’s pocket.
We regularly assist clients with (i) the internal discussions with tax to identify whether any adjustments or other additions to value exist, and (ii) reporting any relevant adjustments/additions to value to Customs Authorities where needed. If you would like any assistance with these issues, please let us know. [Author: Ted Murphy]