Transfer pricing vs. Customs valuation - A practical approach and perspective in China

By Colbert Lam and Clinton Yau

In recent years, the heated discussions around harmonising customs valuation and transfer pricing methodologies had never ceased in World Trade Organisation member countries. The World Customs Organisation (WCO) has broken silence and published a guide on the subject matter this year in an attempt to address long-existent conflicts.

Timely for the China customs regime, the WCO Guide sheds new lights and interest on interpretation and application of transfer pricing related information on customs valuation matter in China. A practical way to gauge such interpretation is to cross-reference the recently revised Circular 2 – “Implementation Measures of Special Tax Adjustment” which incorporates the Organisation for Economic Co-operation and Development (OECD)’s transfer pricing documentation (TPD) requirements into the Chinese regime. It is crucial for enterprises in China to diligently understand how Circular 2, alongside with other developments, would potentially create benefits or pose disadvantages to its current customs valuation methodologies adopted.