Germany: The Hamamatsu TP/customs valuation case comes to a surprising conclusion

In brief

The highest German Court rules that retroactive transfer pricing ("TP") adjustments, whether upwards or downwards, do not have an impact on the customs value.


On 17 May 2022 (published end of September 2022) the German Federal Fiscal Court (or: Bundesfinanzhof. “BFH”) – which is the Highest court for tax related matters in Germany – gave its final judgement in the (in)famous Hamamatsu case. This proceeding is part of the referral to the European Court of Justice (“ECJ”) that resulted in a startling – albeit unclear – decision by the ECJ that retroactive TP-adjustments (whether upwards or downwards) are not to be considered in the determination of the customs value (C-529/16).

Similar to all ECJ-cases, it is to be verified by the local court(s) in the EU whether the ECJ’s decision is directly applicable to the matter at hand. Less surprisingly, the BFH followed the ECJ’s decision in denying the refund claim of the plaintiff (further to retrospective downwards adjustments), but surprisingly with more clarity on the following points:

  • Although the plaintiff claimed a duty refund based on retroactive transfer price adjustments by way of a credit note, the BFH stressed that for both, upwards and downwards adjustments, it is unknown at the decisive moment of acceptance of the customs declaration whether the transfer price (which was declared as definitive by the plaintiff on the basis of the transaction valuation methodology) is to be adjusted at all, and if yes, whether the adjustment will be upwards or downwards. Due to such lack of clarity at the time of importation, any adjustments have to be considered irrelevant for customs valuation purposes. Whether or not prices have to be adjusted and to which extent is an incident after the decisive moment for customs valuation purposes and hence has no relevance for the customs value, which shall only reflect the “real economic value” at the time of importation.
  • The BFH makes it clear that these principles are valid for all customs valuation methodologies, be it the transaction value methodology or any alternative valuation methodology.
  • The BFH further notes that the inability of the plaintiff to precisely allocate the credit adjustments to individual product imports shall not be relevant for its decision.

Although the BFH’s judgement is only applicable in Germany, other EU customs authorities and the European Commission eagerly awaited the outcome of this case in the hope for the development of an aligned EU approach on the treatment of retroactive transfer price adjustments from a customs valuation perspective. It remains to be seen how other EU customs authorities and the European Commission will respond to the BFH’s judgement.

Baker McKenzie will reach out to other EU customs authorities to inquire whether this BFH judgment will influence local practice. 

As with all judgments, the underlying facts are important to properly assess their bearing. Although at first reading the BFH’s judgement can indeed be understood as a general assessment that retroactive transfer price adjustments (whether upwards or downwards) do not have an impact on the customs value, the decided case had the following specifics which might narrow down such general assessment:

  1. The plaintiff’s import declarations were definitive

In the decided case, the plaintiff lodged definitive customs declarations, thereby claiming that the declared transfer price is not provisional i.e. subject to possible later adjustments. It is unclear whether the judgment would have been the same, had the plaintiff declared the transfer price as provisional, with the necessity to supplement the declared provisional value within a certain timeframe.

  1. Residual Profit Split Method

To ensure that transfer prices are set at arm’s length, the German and Japanese authorities involved chose, at the request of the plaintiff, the so-called Residual Profit Split Method, whereby routine and residual profits are split between the supplier and the plaintiff according to certain profit split factors. Although all transfer pricing methods shall ensure companies are operating at an arm’s length margin, it is not clear whether the use of other transfer pricing methods (e.g. Comparable Uncontrolled Price Method or the Cost Plus Method) can lead to the same conclusion that retroactive transfer price adjustments can be ignored for customs valuation purposes.

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