Coexistence of Customs Valuation Transaction Value Method and Transfer Pricing Transactional Net Margin Method in Multinational Enterprises Importing Goods from Switzerland to Germany

Thèse de Master , 2024 , 108 Pages , Note: 1.3

Droit - Droit fiscal

The master's thesis explores the complex relationship between Transfer Pricing (TP) and Customs Valuation (CV) in multinational enterprises (MNEs), focusing on the compatibility of the Transactional Net Margin Method (TNMM) and the Transaction Value (TV) method.

Using a legal framework analysis, the study examines regulatory overlaps and conflicts, particularly in the context of tangible goods imported from Switzerland to Germany.

The research highlights the impact of retrospective TP adjustments on customs values and assesses whether a harmonised approach to TP and CV is legally and practically feasible.

The findings suggest that, despite their distinct objectives, both disciplines can be reconciled through proactive compliance strategies, integrated documentation, and regulatory engagement.

The thesis provides practical recommendations for MNEs, offering a structured framework to navigate these dual regulatory environments while considering administrative practices and relevant case law.

Table of Contents

• ABSTRACT
• LIST OF CONTENTS
• LIST OF ABBREVIATIONS
• LIST OF APPENDICES
• 1 INTRODUCTION
• 2 SCOPE AND METHODOLOGY
  • 2.1 SCOPE OF THE THESIS
  • 2.2 RESEARCH METHODOLOGY
  • 2.3 WORK DELIMITATION
  • 2.4 STRUCTURE OF THE MASTER’S THESIS
• 3 DEFINITION OF MULTINATIONAL ENTERPRISES
• 4 REGULATORY FRAMEWORKS OF TRANSFER PRICING TRANSACTIONAL NET MARGIN METHOD
  • 4.1 OVERARCHING FRAMEWORKS
    • 4.1.1 Arm’s Length Principle
    • 4.1.2 Associated Enterprises
    • 4.1.3 Transfer Pricing Methods
    • 4.1.4 Transfer Pricing Adjustments
    • 4.1.5 Dispute and Agreement Mechanisms
    • 4.1.6 Double Taxation Treaty between Switzerland and Germany
    • 4.1.7 United Nations Convention
  • 4.2 EU-FRAMEWORKS
  • 4.3 DE-FRAMEWORKS
  • 4.4 CH-FRAMEWORKS
  • 4.5 INTERIM SUMMARY OF REGULATORY FRAMEWORKS OF TRANSFER PRICING TRANSACTIONAL NET MARGIN METHOD
• 5 REGULATORY FRAMEWORKS OF CUSTOMS VALUATION TRANSACTION VALUE METHOD
  • 5.1 OVERARCHING FRAMEWORKS
    • 5.1.1 Transaction Value
    • 5.1.2 Related Persons
    • 5.1.3 Repayment of Duties and Binding Rulings
  • 5.2 EU-FRAMEWORKS
    • 5.2.1 Harmonisation of Customs Legislation and Transaction Value
    • 5.2.2 Related Persons, Repayment of Duties and Binding Information
    • 5.2.3 Consideration of Subsequent Price Adjustments Under Customs Regulations
  • 5.3 DE-FRAMEWORKS
  • 5.4 CH-FRAMEWORKS
  • 5.5 INTERIM SUMMARY OF REGULATORY FRAMEWORKS OF CUSTOMS VALUATION TRANSACTION VALUE METHOD
• 6 INTERPLAY BETWEEN TRANSACTION VALUE AND TRANSACTIONAL NET MARGIN METHODS IN MULTINATIONAL ENTERPRISES
  • 6.1 LEGAL AND PRACTICAL FRAMEWORKS FOR COEXISTENCE
    • 6.1.1 Is there a Relatedness between Ecomonic Actors?
    • 6.1.2 Has the Relatedness Influenced the Price?
    • 6.1.3 How to Set Up the Price under Relatedness?
    • 6.1.4 Can Transfer Pricing-related Documents be Used for Customs Valuation?
    • 6.1.5 Can Transfer Pricing-related Documents be used for Binding Customs Valuation Information?
    • 6.1.6 Customs’ Treatment of Transfer Pricing Adjustments
      • 6.1.6.1 Issue of Aggregation
      • 6.1.6.2 Legal and Administrative Divergences
      • 6.1.6.3 Downward and Upward Adjustments
      • 6.1.6.4 Consideration of Adjustments in Agreements
  • 6.2 INTERIM SUMMARY OF COEXISTENCE BETWEEN TRANSACTION VALUE AND TRANSACTIONAL NET MARGIN METHODS
• 7 PROPOSAL FOR SETTING UP STRUCTURE FOR HARMONIOUS COEXISTENCE OF TRANSFER PRICING AND CUSTOMS VALUATION
  • 7.1 STEP 1: ESTABLISH TRANSFER PRICING DOCUMENTATION
  • 7.2 STEP 2: HAVE THE TRANSFER PRICING DOCUMENTS APPROVED BY AUTHORITIES IN SWITZERLAND AND GERMANY
  • 7.3 STEP 3: ALIGN TRANSFER PRICING AND CUSTOMS VALUATION
  • 7.4 STEP 4: HAVE CONCEPT OF CUSTOMS VALUATION APPROVED BY GERMAN CUSTOMS
  • 7.5 STEP 5: IMPLEMENT MECHANISMS FOR TRANSFER PRICING ADJUSTMENTS
    • 7.5.1 Scenario 1: Upward Transfer Pricing Adjustments
    • 7.5.2 Scenario 2: Downward Transfer Pricing Adjustments
  • 7.6 STEP 6: REPORT VALUE ADJUSTMENTS TO CUSTOMS
  • 7.7 STEP 7: INTEGRATE LEGAL COMPLIANCE AND MONITORING
• 8 CONCLUSION
• BIBLIOGRAPHY
• APPENDIX

Objective & Thematic Focus

This master's thesis fundamentally aims to investigate the complex coexistence of the Transactional Net Margin Method (TNMM) for Transfer Pricing (TP) and the Transaction Value (TV) method for Customs Valuation (CV) within Multinational Enterprises (MNEs). The primary objective is to develop a structured framework that enables MNEs importing tangible goods from Switzerland to Germany to achieve regulatory compliance and effectively navigate the often-conflicting requirements of these two disciplines.

• Exploring the intersection and compatibility of TNMM and TV methods in cross-border trade.
• Conducting a thorough legal analysis of TP and CV frameworks in the EU, Germany, and Switzerland.
• Analyzing the effects of retrospective TP adjustments on customs values.
• Developing strategies for MNEs to achieve compliance and leverage administrative practices and court judgments.
• Emphasizing proactive compliance, integrated documentation, and engagement with regulatory bodies.
• Investigating harmonisation efforts and future legal developments in the TP and CV landscape.

Excerpt from the Book

Interplay between Transaction Value and Transactional Net Margin Methods in Multinational Enterprises

When comparing CV and TP definitions, one would see that similar wordings are often used in both disciplines. Some of these wordings can be found in the following comparison table:

CV TV	TP TNMM
The customs guidelines refer to the "circumstances surrounding the sale".	The OECD Guidelines refer to the "circumstances surrounding the transaction" as the factors that need to be analysed for ALP.
The pricing should consider the "practices of the industry in question" according to the CVA.	The pricing should consider the "industry practices" as stated in the OECD Guidelines.

Landwehr, WCO, Deloitte refer to the ALP within the frame of both disciplines, CV and TP. These authors and organisations also state that both disciplines utilise the same standard, the ALP, to determine the assessment basis for CV and TP.

In summary, the purpose of both CV TV and TP TNMM approaches is very similar, and this is partially reflected in the wording used in both legal frameworks. While the CV TV method determines if a price has been influenced by the relation between the EA, the TP objective is to determine the ALP acc. to TNMM. While for CV the “circumstances surrounding the sale” shall be examined or/and tests on whether the TV “closely approximates” to the TV in sales to unrelated buyers are prescribed, the TP TNMM requires to conduct comparability and functional analyses under consideration of the "circumstances surrounding the transaction".

In the end, each methodology’s goal is to determine that the pricing was set as if the parties were unrelated and had bargained under typical free-market conditions. In this context, Customs is also explicitly willing to accept different types of TP documentation.

For completeness it must be noted that alternative valuation methods should be used if a CV shows that the relationship affected the selling price. In this regard, the CV approaches according to CVA very much resemble the TV methods employed for TP, as outlined in the OECD Guidelines. Nevertheless, as specified in Subchapter 2.3, any other CV methods outside of the TV method are not within the scope of the MT and are not further addressed.

Summary of Chapters

1 Introduction: This chapter explains the increasing importance of transfer pricing (TP) and customs valuation (CV) for multinational enterprises (MNEs) in cross-border trade, highlighting the challenges of aligning these frameworks for MNEs importing goods from Switzerland to Germany.

2 Scope and Methodology: This chapter outlines the study's focus on the Transactional Net Margin Method (TNMM) for TP and the Transaction Value (TV) method for CV within MNEs trading between Switzerland and Germany, detailing the legal analysis and comparative study methods used.

3 Definition of Multinational Enterprises: This section provides a foundational understanding of MNEs, their motivation, and internal relationships, without immediately delving into specific legal definitions for CV and TP regulations.

4 Regulatory Frameworks of Transfer Pricing Transactional Net Margin Method: This chapter examines the general principles and legal frameworks of transfer pricing, focusing on OECD Guidelines and specific national rules in the EU, Germany, and Switzerland, with an emphasis on the TNMM and its adjustments.

5 Regulatory Frameworks of Customs Valuation Transaction Value Method: This chapter introduces the fundamental concepts and legal frameworks for customs valuation, emphasizing the Transaction Value method under the GATT and WTO Customs Valuation Agreement (CVA), and its application in the EU, Germany, and Switzerland.

6 Interplay between Transaction Value and Transactional Net Margin Methods in Multinational Enterprises: This core analytical chapter compares the legal and practical frameworks of CV TV and TP TNMM to explore their potential coexistence, focusing on relatedness definitions, price influence, and customs treatment of TP adjustments.

7 Proposal for Setting Up Structure for Harmonious Coexistence of Transfer Pricing and Customs Valuation: This chapter presents a step-by-step practical framework for MNEs to harmonise their customs and TP practices, integrating theoretical and legal insights to provide a feasible solution for TNMM and TV compliance.

8 Conclusion: This chapter summarizes the study's findings and recommendations, highlighting the persistent challenges and future opportunities for MNEs in navigating the dual frameworks of TP and CV, particularly concerning retrospective adjustments and the potential for new binding information instruments.

Keywords

Multinational Enterprises, Transfer Pricing, Customs Valuation, Transactional Net Margin Method, Transaction Value, Arm's Length Principle, Switzerland, Germany, EU Customs Code, Retrospective Adjustments, Regulatory Compliance, Cross-border Trade, Harmonisation, Binding Customs Valuation Information.

Frequently Asked Questions

What is this work fundamentally about?

This master's thesis examines the complex relationship and potential for coexistence between Transfer Pricing (TP) and Customs Valuation (CV) methods within multinational enterprises (MNEs), focusing on goods imported from Switzerland to Germany.

What are the central thematic areas?

The central themes include the compatibility of the Transactional Net Margin Method (TNMM) for TP and the Transaction Value (TV) method for CV, legal frameworks in the EU, Germany, and Switzerland, and the implications of retrospective TP adjustments on customs values.

What is the primary objective or research question?

The primary objective is to explore whether and how MNEs can align the TV method for customs with the TNMM for TP, providing a structured framework for regulatory compliance and efficient management of cross-border transactions.

Which scientific method is used?

The study employs a comprehensive legal analysis, divided into a legal framework analysis and a comparative study, drawing on international conventions, national legislation, case law, and administrative practices.

What is covered in the main part?

The main part of the thesis (Chapter 6) delves into the interplay between Transaction Value and Transactional Net Margin Methods, comparing legal definitions, assessing price influence, and discussing customs' treatment of transfer pricing adjustments.

Which keywords characterize the work?

Key terms include Multinational Enterprises, Transfer Pricing, Customs Valuation, Transactional Net Margin Method, Transaction Value, Arm's Length Principle, Switzerland, Germany, EU Customs Code, and Retrospective Adjustments.

How do courts in Germany and the EU treat retrospective Transfer Pricing adjustments concerning Customs Valuation?

Recent court decisions, such as the ECJ Hamamatsu case, generally rule against using a transaction value for CV that includes flat-rate retrospective TP adjustments, especially when it's uncertain whether adjustments will be upward or downward at the time of importation.

What is the significance of the upcoming Binding Customs Valuation Information (BCVI) for MNEs?

The planned introduction of BCVI in the EU by 2027 is expected to significantly impact the interplay between CV and TP, offering MNEs a binding mechanism to clarify customs valuation issues based on TP-related documents and potentially reducing disputes.

Why is the aggregation method for Transfer Pricing adjustments a point of contention with customs authorities?

Customs authorities typically examine individual transactions for CV, whereas TP adjustments are often made at an aggregate (flat-rate or product-related) level. This divergence, particularly for downward adjustments, leads to discrepancies and can cause customs to reject flat-rate adjustments.

What are the key differences in how Germany and Switzerland approach Transfer Pricing regulations?

While both Germany and Switzerland refer to OECD Guidelines for the Arm's Length Principle, German national legislation heavily regulates TP procedures. In contrast, Swiss legislation has almost no direct provisions related to ALP and TP, primarily relying on references to OECD Guidelines and administrative practices.

• Université: University of Münster (Faculty of Law)
• Note: 1.3
• Auteur: Sergo Dreving (Auteur)
• Année de publication: 2024
• Pages: 108
• N° de catalogue: V1563436
• ISBN (PDF): 9783389113097
• ISBN (Livre): 9783389113103
• Langue: anglais
• mots-clé: Customs valuation, Zollwertermittlung, Transfer pricing, TNMM, Transactional net margin method, Transaction value method, Arm's length principle, Interplay, Harmonious coexistence, Customs, Taxation, Direct taxation, Switzerland, Germany, EU, European Union, UCC, Transfer pricing adjustments, TP