Transfer pricing adjustments can also increase customs values

Ruling concerns practical issue

In many international corporations, it is common practice for goods to be produced by a company in country A and then sold to an affiliated distribution company in country B. From there, the products are forwarded to the end customers. Particularly in cross-border transactions between affiliated companies, the question of the “correct price” arises both for income tax purposes and for customs law purposes.

Arm's length principle and determination of customs value

For income tax transfer pricing purposes, it is necessary that the agreed price complies with the arm's length principle. The transaction value is primarily used to determine the customs value. One of the prerequisites for this is that the affiliation of the companies does not influence the customs value. If this prerequisite is not met, the application of the transaction value may be excluded and subordinate methods of determining the customs value may be used.

The dispute: Retrospective price adjustment and customs audit

In the dispute, the plaintiff purchased goods from its affiliated company Y. It declared the goods for release for free circulation and used the transfer prices paid during the year as the customs value. The margins underlying the transfer prices according to the so-called transaction-based net margin method (TNMM) were determined from the three-year average of the arm's length ranges, which in turn were determined on the basis of database analyses for returns on sales of comparable companies.

In fact, the plaintiff achieved significantly higher returns on sales through the resale of the products. During a customs audit, the Main Customs Office (HZA) determined that Y had invoiced the plaintiff for the difference in the form of additional charges as part of year-end adjustments.

The HZA was of the opinion that this was due to the fact that the actual returns on sales achieved were significantly higher than the agreed margin and that this was therefore not at arm's length. The customs values originally declared during the year had to be increased in order to determine the correct customs value for the imported goods.

Case law: Price reduction versus price increase

In the event of a subsequent reduction in the transfer prices set during the year (price reduction), this generally has no effect on the customs value according to the case law of the European Court of Justice (ECJ) and the Federal Fiscal Court in the “Hamamatsu” case (blog post of November 10, 2022). In its current ruling of July 15, 2025, however, the Federal Fiscal Court clarifies that the opposite scenario of a subsequent transfer price adjustment leading to an additional payment (price increase) indicates price manipulation, which can sometimes influence the customs value and ultimately also lead to additional customs charges.

Additional charges as an indication of price influence

According to the Federal Fiscal Court, the main difference to the “Hamamatsu” decision is that the constellation of price reduction (refund) does not suggest any reason to assume price influence due to affiliation, and the transaction value method can therefore be applied. In the case in dispute, however, the price was originally stated too low and subsequently increased (subsequent collection). This indicates that the affiliation between the companies influenced the price and that the customs value initially declared does not reflect the actual economic value of the imported goods.

If price influence is present, a prerequisite for the transaction value method would not be met, with the result that the transaction value method could not be applied. The customs value would therefore have to be determined using the subordinate customs valuation methods. An adjustment in the form of a subsequent correction of the customs value appears to be necessary in such cases. In this context, the Federal Fiscal Court further states that the burden of proof that there was no price influence at the time of import lies with the plaintiff. The Federal Finance Court further noted that it could also be relevant to the question of influence why the plaintiff did not adjust its internal transfer prices and thus the declared customs value at the latest after the first year for which significant additional charges had been incurred.

Since the tax court had not made sufficient findings, particularly on the question of whether the connection between the companies had influenced the price, the case was referred back to the tax court for a decision with detailed legal guidelines and instructions.

Impact on practice

Regardless of the referral, the ruling of the Federal Finance Court provides an important clarification for (customs and tax) practice: In the future, a distinction must be made between refunds and additional charges in the case of subsequent margin-related transfer price adjustments. While refunds (price reductions) will not generally lead to a refund of customs duties paid under customs law, companies must prove that there was no price influence due to affiliation in the case of additional charges (price increases). The additional charge itself is already an indication of influence.

Meaningful transfer pricing documentation can be used to prove that there was no price influence due to affiliation. If this is not successful, a subsequent correction in the form of an increase in the customs value is required.

Recommendations for action and conclusion

Companies should review their pricing and documentation processes and, especially in the case of subsequent price adjustments, ensure close coordination between the customs and tax departments in order to minimize the risk of additional claims by the Main Customs Office.

Even after this ruling, legal uncertainties remain in the area of conflict between customs value and transfer pricing. Depending on the circumstances of the case, VAT implications may further increase the complexity (blog post dated December 12, 2025). Where possible, companies should minimize risks by ensuring that their contracts and documentation are clearly worded.

Federal Finance Court, ruling dated July 15, 2025 – VII R 36/22