Germany vs “H-Customs GmbH”, May 2022, Bundesfinanzhof, Case No VII R 2/19

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H-Customs GmbH – the applicant and appellant – is a subsidiary of H, Japan. In the period at issue, from 17 October 2009 to 30 September 2010, H-Customs GmbH imported more than 1,000 consignments of various goods from H, which it had cleared for free circulation under customs and tax law at the defendant HZA (Hauptzollamt – German Customs Authorities). H-Customs GmbH declared the prices invoiced to it by H Japan as the customs value. Some of the imported articles were duty-free; for the articles that were not duty-free, the HZA imposed customs duties of between 1.4 % and 6.7 % by means of import duty notices.

In 2012, H-Customs GmbH applied to the HZA for a refund of customs duties for the goods imported during the period at issue in the total amount of… €. It referred to an Advance Pricing Agreement (APA) concluded between it and H for transactions in the tax field and stated that the adjustments to the transfer prices carried out on the basis of the APA had not been taken into account when declaring the goods for customs clearance and that it was now doing so.

The APA had already been concluded in 2009 as part of a mutual agreement procedure under the agreement between the Federal Republic of Germany and Japan for the avoidance of double taxation with regard to taxes on income and certain other taxes. The Federal Central Tax Office and the local Tax Office had approved the APA. The customs authorities had not been involved. The APA covered the sale of end products and components from H Japan to H-Customs GmbH as well as other business transactions related to the trade in goods.

On the basis of the APA, transfer prices were determined for certain business transactions. In the process, H initially invoiced H-Customs GmbH a certain amount for each of the goods it supplied. The sum of these amounts was reviewed after the end of the business year and, if necessary, corrected in favour of or to the detriment of H-Customs GmbH. In this way it was to be ensured that the transfer prices stood up to an arm’s length comparison. For this purpose, the German and Japanese authorities involved chose the so-called residual profit split method at the request of H-Customs GmbH and with reference to point 3.19 of the transfer pricing principles of the Organisation for Economic Cooperation and Development. According to this method, the combined profit of H-Customs GmbH and H Japan from the audited intra-group transactions was split in two stages. In a first stage, each party was first allocated a sufficient profit to achieve a minimum return. As a starting point, the returns on sales routinely achieved by comparable companies with similar operating profiles were used. In order to calculate the routine profit to be allocated, the full cost mark-up was used as profit indicators for H and the return on sales for the applicant. After apportioning the routine profit, in a second step the remaining residual profit was apportioned proportionally according to the profit apportionment factors. After determining the routine profit and the residual profit, the target range of the applicant’s return on sales (operating margin) was set. If the applicant’s actual profit was outside the target range, the profit was adjusted to the upper or lower limit of the target range and credits or debits were made to the applicant.

H-Customs GmbH’s return on sales was below the target range set out in the APA. For this reason, H-Customs GmbH and H Japan adjusted the transfer prices after the end of the accounting period for 2009/2010 by way of a credit note in the amount of … €. The report of the Main Customs Office Cologne, Federal Customs Valuation Office, to which the Fiscal Court (Finanzgericht, FG) refers in the contested judgment, states that the amount had been allocated to various product groups on the basis of an allocation key; there had been no explanation of the individual product groups. The apportionment formula applied had been specified by H; the applicant was not aware of the basis on which H had determined this apportionment formula.

H-Customs GmbH had calculated the duty to be refunded in its view by reducing the sum of all original customs values by the amount of the adjustment from the APA and then applying an average duty rate of 1.02% rounded up to the original or the adjusted customs value. The refund amount sought by the applicant resulted from the difference between the two values determined in this way. H-Customs GmbH did not allocate the adjustment amount to the individual imported goods.

In its decision of 4 June 2014, the German Customs Authorities rejected the refund application on the grounds that the method chosen by the applicant in the form of a global correction of the total price was not compatible with Article 29(1) of the Customs Code in conjunction with Article 144 of the Implementing Regulation. Article 144 of the Customs Code Implementing Regulation (CCIP). Due to the fact that the amount of the adjustment was not broken down by product, it was ultimately not possible to clarify and prove to which specific import goods the adjustment exactly related and in what amount it was to be made for them.

By decision of 2 July 2015, the German Customs Authorities rejected H-Customs GmbH’s objection as unfounded.

An appeal was then filed by H-Customs GmbH with the Tax Court. In a judgement issued in 2019 the appeal was dismissed and the assessment of the German Customs Authorities upheld.

An appeal was then filed with the Bundesfinanzhof

Judgement of the Bundesfinanzhof

The Court dismissed the appeal as unfounded and upheld the decision of the Tax Court.


The contested decision by which the HZA refused to refund the import duties sought by the plaintiff is lawful (§ 101 sentence 1 FGO). The applicant is not entitled to a refund of part of the duty it paid under the first subparagraph of Article 236(1) of the CCC.

53. aa) According to the undisputed findings of the Fiscal Court, the parties initially determined the customs value on the basis of the prices invoiced to the applicant by H during the year in accordance with Article 29 CCC using the transaction value method. At the time of the acceptance of the customs declarations, which were not submitted as incomplete, there were no indications that these prices did not reflect the actual economic value of the imported goods and did not take into account all elements of these goods that had an economic value. In particular, according to the findings of the Court of First Instance, the customs authorities were not involved in the agreement reached during the mutual agreement procedure.
54. Thus, at the time of acceptance of the customs declaration, there were neither conditions within the meaning of Article 29(1)(b) CCC which would have precluded a determination of the customs value according to the transaction value method, nor was the relationship between the applicant and H pursuant to Article 29(1)(d) in conjunction with Article 29(2)(a) sentence 1 apparent. (2)(a), first sentence, was a reason to regard the transaction value as unacceptable.
55. bb) The applicant did not prove that the imported goods had a lower value at the time of acceptance of the customs declarations.
56. (1) The subsequent adjustment of the transfer prices due to the disputed APA is not suitable in the present dispute to prove a lower transaction value (see above, under II.1.a cc (1)). In this respect, the tax court correctly referred to the ECJ ruling.
57. (2) There are no indications for a valuation pursuant to Article 30 (2) CC. The plaintiff has not submitted anything in this respect.
58. (3) Finally, the APA at issue is also not suitable to justify a subsequent adjustment of the transfer prices according to the closing method (Article 31 CC). At the time of the respective customs declarations, it was not clear whether the declared values of the goods would be corrected on the basis of the transfer prices that had yet to be determined after the end of the accounting period and, if this were to be the case, whether a correction would be made by means of upward or downward markdowns. It was also unclear how much the corrections would have to be. This meant, however, that the surcharges or deductions that might in any case only possibly result were not known at the time of the customs declaration within the meaning of Article 8(3) of the Convention implementing Article VII of the General Agreement on Tariffs and Trade. VII of the General Agreement on Tariffs and Trade of 1994.
59. (4) In the present case, it can therefore be left open whether the seller’s subsequent global credit to the originally agreed product prices resulting from the transfer pricing in accordance with the APA constitutes a reason to exclude the application of the transaction value method, which is to be applied with priority. Such a transfer price adjustment, which serves as an income tax instrument to avoid disputes and to reduce transfer price risks (see Liebchen in Mössner et al., Steuerrecht international tätiger Unternehmen, 5th ed., margin no. 13.50; cf. also Drüen in Wassermeyer MA Art. 25 MK margin no. 110), remains in any case without influence on the relevant customs value within the framework of all customs valuation methods due to the explained commodity and reference date-related nature of the customs valuation.
60. cc) Only in addition does the Court point out the following: According to the findings already mentioned at the beginning (see above, p. 4) and referred to by the Fiscal Court from the report of the Main Customs Office Cologne, Federal Customs Valuation Office, the allocation of the credit note in the amount of … € to various products was carried out on the basis of an allocation key specified by H, without any explanation of these product groups and without the applicant being able to explain on what basis H had determined this allocation key. This raises the question of whether the deductions made in the case in dispute from the prices declared on importation were based at all on data available in the Union within the meaning of Article 31 CCC and whether the HZA would therefore have been in a position to convince itself of the correctness of the apportionment made. If this were not the case, this would also preclude a customs valuation according to the final method pursuant to Article 31 (1) CC, as explained above under II.1.a bb (3). However, this is not relevant for the present dispute.
61. (2) According to all of the above, a new referral to the ECJ is not necessary.

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