The customs value declared by “Import GmbH” of the goods imported from related parties X, Y and Z was in dispute.
In the course of a customs audit, the customs office (Hauptzollamt, HZA) found that Y had invoiced “Import GmbH” for subsequent debit amounts of EUR (…) for 2015, EUR (…) for 2016 and EUR (…) for 2017. These were based on a Distribution Agreement of (…) concluded between “Import GmbH” and Y, according to which “Import GmbH” undertook to purchase products from the latter and to sell them in the defined distribution area. With the 1st Supplementary Agreement of (…), supplies from affiliated companies of the group company were also included in this agreement and thus, inter alia, also the supplies from Z. With the second supplementary agreement of the same date, it was stipulated that “Import GmbH” should receive an “agreed margin” which was described as customary for third parties.
According to the agreement, the margin resulted from the rolling three-year average of the arm’s length ranges, which were determined on the basis of database analyses for returns on sales of comparable companies. For the period at issue here, the database analysis determined an arm’s length range for returns on sales and Y determined a margin of 1.93% from this range, which was within the arm’s length range for returns on sales of comparable companies. In fact, “Import GmbH” achieved returns on sales of 23.24% (2014/2015), 26.24% (2015/2016) and 28.49% (2016/2017) by reselling the products in the (…) business unit. During the year, “Import GmbH” received invoices for the delivered goods, which had already been reduced in advance by a calculated deduction from the list price, namely the so-called “agreed margin”. “Import GmbH” declared these transfer prices paid during the year as the basis for determining the customs value in the customs declarations. Since the double-digit returns on sales actually achieved in the business years 2015 to 2017 were considerably higher than the agreed margin and thus, in the opinion of the customs office, not at arm’s length, “Import GmbH” was charged subsequent debit amounts of EUR (…) to EUR (…) (…).
According to the customs office, the unusually high profits were only possible because the transfer prices during the year had been calculated too low. The returns on sales achieved had been adjusted within the group to the margin of 1.93%, so that the aforementioned subsequent debit amounts had been determined on this basis and charged to “Import GmbH” with debit notes or paid by the latter. On the basis of the facts established, the customs office came to the conclusion that the customs values originally declared during the year had to be increased by correction factors (1.34 for the years 2014 and 2015 and 1.44 for the years 2016 and 2017) in order to determine the correct customs value for the import goods. It therefore subsequently assessed a higher duty of EUR (…) (based on a correction factor of 3.88) for the goods imported in November and December 2014 by import duty notice of 26 October 2017, which it reduced to EUR (…) (based on a correction factor of 1.34) in the opposition decision of 4 February 2020 following “Import GmbH”‘s objection.
An appeal was filed by “Import GmbH” with the administrative court, which later upheld the appeal and set aside the assessment.
An appeal was then filed by the tax authorities with the Supreme Administrative Court.
Judgment
The Supreme Administrative Court upheld the customs authority’s appeal, set aside the administrative court’s judgment and sent the case back for further fact finding.
The Court disagreed with the administrative court on several key legal points. It held that, while the customs value is determined when the customs debt arises, the customs authorities are expressly permitted under Articles 78 CC and 48 UCC to review declarations after release and correct the customs value if the legal conditions are met. Therefore, the lower court erred in assuming that transfer prices declared during the year could not be corrected retrospectively.
Where the buyer and seller are related and there is a dispute as to whether the relationship influenced the price, the tax court must investigate and evaluate the factual circumstances. If the price of related party transactions is initially set too low and increased by year-end adjustments, this indicates that the relationship influenced the price and the transaction value method under Article 29 CC or Article 70 UCC may not be applicable. In this case, the customs value must be determined using the subsidiary methods set out in Articles 30 and 31 of the Customs Code (Articles 74 and 74(3) of the Union Customs Code), but further factual findings are required.