BFH ruling on transfer pricing in customs

In its decision (ref. VII R 36/22) of July 15, 2025, the German Federal Fiscal Court (BFH) defined the criteria for determining the extent to which subsequent increases in transfer prices during the year lead to additional customs charges. 

The legal dispute arose from purchase transactions between affiliated companies. The companies had agreed that the plaintiff should receive an “agreed margin” described to be at arm's length. The purchase prices during the year, which also served as the basis for customs valuation, were determined by means of a database analysis, in which a calculated arm's length range for returns on sales was determined. Since the actual returns on sales were significantly higher than the agreed margin, the plaintiff was subsequently charged the difference by the group companies. The Main Customs Office considered the additional charges to be relevant to the customs value and issued corresponding additional assessment notices.  

Additional charges as an indication of price influence 

In its decision of July 15, 2025, Ref.: VII R 36/22, the Federal Fiscal Court (BFH) clarifies that subsequent transfer pricing adjustments that lead to additional payments indicate price influence, thus making an adjustment of the customs value appear necessary. Since the subsequent charging of costs also persisted for years, there was much to suggest that the transfer prices during the year were influenced by the affiliation. The burden of proof rested with the plaintiff to show that there was no price influence at the time of importation. 

Distinction from Hamamatsu 

The BFH clarifies that the ECJ’s Hamamatsu decision and previous case law (Senate ruling of May 17, 2022 – VII R 2/19) referred to cases in which a subsequent price reduction had taken place. Unlike a subsequent price increase, a price reduction did not indicate that the prices were influenced by the affiliation in the light of customs law. In this respect, these decisions were not applicable to the present case. 

What does the decision mean in concrete terms? 

In terms of customs law, this means that a distinction must be made between refunds and additional charges when making subsequent transfer pricing adjustments. In the case of refunds, a refund of duties is practically impossible, as no price influence is assumed. Consequently, the transfer price during the year is the final transaction value. 

In the case of additional charges, however, it is now incumbent on the importer to prove that there was no price influence due to the affiliation. In this case, the additional charge is already an indication of influence, which is reinforced by long-standing, consistent practice. Importers must now be able to demonstrate, by submitting meaningful transfer pricing documentation, that the prices charged during the year comply with the arm's length principle. The Federal Fiscal Court had considered (simple) benchmarking, as in the present case, to be insufficient to rule out price influence. 

Critical examination of the target margin approach in customs law 

At this point, it becomes clear that, from a customs law perspective, the application of the so-called “target margin approach” must be viewed critically and will regularly lead to discussions, as the aforementioned approach is regularly used in the management of companies with routine activities (e.g., routine distribution companies, so-called “low-risk distributors”) between affiliated companies in supply and service relationships with foreign connections in order to correct intra-year transfer prices at the end of the year in such a way that the routine company achieves a remuneration range (e.g., range of net returns of a “low-risk distributor”) that is consistent with its function and risk profile. Consequently, from an income tax perspective, such year-end adjustments result in an overall correction of earnings to achieve an arm's length remuneration, whereas from a customs law perspective, only the transaction price during the year is taken into account. Theoretically, in cases where year-end adjustments would be necessary, the prices during the year would not be at arm's length, although from a customs law perspective they are used as the basis for determining customs duties. 

Recommendations for action for internationally operating companies 

In connection with intra-group settlements (so-called intercompany transactions), internationally operating companies should review the customs values declared in light of the BFH ruling. This also includes reviewing agreements that need to be taken into account when it comes to price influence. In our opinion, this requires cooperation between the customs, legal, and tax departments (transfer pricing). It must be ensured that both transfer pricing and customs law aspects are taken into account in a legally compliant manner and in the interests of the company. 

Baker Tilly offers specific advice along the supply chain on the interrelated topics of transfer pricing, customs, and sales tax. Further information on our services is available here.