Case Overview (Germany, 2018)
In Hamamatsu Photonics Deutschland GmbH v. Hauptzollamt München (FG München, 15 November 2018, 14 K 2028/18), the Munich Finance Court considered whether a downward year-end transfer pricing adjustment (credit note) made under an Advance Pricing Agreement (APA) could retroactively reduce the EU customs value of imported goods and support a refund of customs duties.
The court ultimately denied the refund, viewing itself as bound by the CJEU’s preliminary ruling in C‑529/16 (Hamamatsu).
Key Facts
- The German company imported goods from its Japanese parent and declared customs value at import based on the intercompany invoice prices.
- A Germany–Japan APA concluded in 2009 (in a mutual agreement procedure under the tax treaty) covered fiscal years 1 October 2006 to 30 September 2010 and applied a Residual Profit Split Method (RPSM) with a target operating margin band for the German entity.
- For the period 17 October 2009 to 30 September 2010, the company imported more than 1,000 consignments; some goods were duty-free, and dutiable goods bore duty rates between 1.4% and 6.7%.
- After year-end, the German entity’s results were below the APA range and it received a credit note (CJEU reports EUR 3,858,345.46).
- The importer requested a customs duty refund (CJEU reports EUR 42,942.14) by reducing aggregate customs values and applying an average duty rate (1.02%), without allocating the adjustment to individual import entries.
The Dispute
The importer argued that, because the APA produced the group’s “final” arm’s length transfer price for the period (via a post-period true-up), the price actually paid or payable for customs purposes should be the invoice price as later reduced by the year-end adjustment—thus lowering customs value and entitling it to a repayment.
The customs authority rejected the claim, emphasizing that customs valuation under the (then applicable) Community Customs Code (Regulation 2913/92) is goods- and declaration-date specific and does not accommodate an ex post, aggregated adjustment lacking item-level linkage.
Holding (FG München)
The Finanzgericht München dismissed the claim and upheld the refusal to refund customs duties. It held that, in light of the CJEU’s ruling in C‑529/16, EU customs valuation rules (Articles 28–31 of the Customs Code) do not permit a customs value based on a transfer price made up of (i) an amount invoiced and declared at import and (ii) a flat-rate adjustment determined only after the accounting period, where it is not known at import whether the adjustment will be upward or downward.
Accordingly, the invoiced prices declared at import remained the customs value; the later APA credit note could not retroactively reduce the customs value to support a refund under the Customs Code refund mechanism.
The court allowed revision to the BFH. The BFH later dismissed the revision (BFH VII R 2/19, 17 May 2022) and confirmed that such year-end TP adjustments are irrelevant for customs value determination under the Customs Code framework.
Practical takeaways
- An APA is not a customs ruling. The APA bound tax authorities for income tax purposes, but the customs authorities were not involved, and customs valuation follows different (transaction-based) rules.
- Design TP true-ups with customs in mind. Margin-based annual true-ups create friction because, at import, the final price may be unknown and the adjustment may not be objectively quantifiable for a specific entry.
- Granularity matters. Even apart from the CJEU’s core holding, the taxpayer’s approach used an average duty rate and did not allocate the credit note to individual imports—methodologically misaligned with customs’ goods-specific valuation.
- Document and map pricing mechanics. If a group wants a customs-compatible mechanism, it needs controls that tie any pricing adjustments to specific entries/products and that can be substantiated with contemporaneous data.
Related Content
For documentation expectations around IP-heavy groups and defensible pricing narratives, see Documentation for Intangibles. For the conceptual foundation underlying transfer pricing positions (even where customs rules diverge), see Arm's Length Principle.
Frequently Asked Questions
Q1: Does an APA determine customs value in Germany/EU?
No. An APA is an income-tax instrument. EU customs value is determined under customs law at (or by reference to) the time the customs declaration is accepted, using customs valuation rules that are not automatically aligned with transfer pricing outcomes.
Q2: Can year-end transfer pricing adjustments create customs duty refunds?
Not in the scenario addressed here. Under the CJEU’s Hamamatsu ruling (applied by FG München), a transfer price that is partly an invoice amount and partly a later flat-rate true-up—where it is unknown at import whether the true-up will be up or down—cannot be used to retroactively adjust customs value for refund purposes.
Q3: What was problematic about the taxpayer’s refund calculation method?
It applied an average duty rate to an aggregated value reduction and did not allocate the adjustment to individual import declarations/entries, whereas customs valuation is transaction-specific and typically requires traceability to конкрете imports.
Q4: Is there any compliant way to align TP and customs?
Potentially, but it requires careful structuring: the adjustment mechanism must be based on objective, quantifiable data, and (in practice) must be traceable to the imported goods and declarations. This is often difficult for annual, margin-based true-ups.
Q5: Why is this relevant to transfer pricing teams?
Because TP policies that are robust for income tax (e.g., operating-margin true-ups under an APA) can create unexpected costs or disputes in customs. Cross-functional governance (TP + customs + systems) is essential when implementing true-up mechanisms.