With Pillar Two impacting us for the first time in 2024, it’s essential to book all year-end adjustments as early as possible this year. We are here to support you in navigating Transfer Pricing and Indirect Tax considerations during your year-end adjustment processes. With more automation tools now available, we can assist you from an operational Transfer Pricing perspective to review process steps and calculation logic, helping you identify both quick wins and longer-term opportunities for process improvement and technology enhancement. Throughout this, we take VAT and customs implications into account, ensuring comprehensive, compliant solutions.
Post-year Transfer Pricing adjustments are often finalised only after consolidated accounts have been prepared, meaning they are often reflected solely in local statutory accounts and tax returns. In such cases, important Pillar Two implications need careful attention. These include risks of tax leakage, the necessity of recording adjustments in the GLOBE return, and potential complications with the group’s CbCR and Pillar Two Transitional Safe Harbour calculations. For groups that traditionally book Transfer Pricing adjustments after consolidated accounts close, we recommend accelerating the calculation process or evaluating potential impacts on Pillar Two and CbCR positions. We’re here to assist with this shift.
Pillar One Amount B considerations
You may also be aware of the Pillar One Amount B regulations published earlier this year. These new rules will impact future price setting and year-end Transfer Pricing adjustments, as the recommended target Return on Sales (ROS) will likely apply to certain limited-risk distributors going forward.
ITX considerations for year-end transfer Pricing Adjustments
It's equally important to consider VAT and customs implications arising from year-end Transfer Pricing adjustments. Mismanagement here can lead to additional payments, interest, and penalties during audits. For example, Transfer Pricing adjustments to goods moved cross-border may trigger additional VAT, customs duty payments, or reporting obligations. Conversely, downward adjustments may entitle your company to VAT refunds and, in some cases, refunds for overpaid customs duties. By handling Transfer Pricing adjustments accurately and promptly, you can prevent financial and operational disruptions and tap into time-sensitive opportunities for country-specific simplifications.
Local Indirect Tax regulations vary considerably, with unique requirements across jurisdictions. Below are a few country-specific insights:
Country |
Local Insights |
USA |
Importers must report both upward and downward retrospective TP adjustments to customs, even if the customs duty is 0%, to avoid penalties. Many utilise the Reconciliation Programme to declare provisional import values and report final values within 21 months from the initial import date, without needing Customs’ preapproval. |
EU |
Member States have varying VAT interpretations and reporting requirements for TP adjustments. Some countries allow reporting in the adjustment month, while others may require corrections throughout the year. This inconsistency is sometimes used by tax officials to trigger VAT audits. |
India |
Import price revisions must be promptly declared to Customs, with approval from the Special Valuation Branch (SVB), making prospective TP adjustments preferred in practice. |
Turkey |
The Exceptional Declaration Method is recommended for amending customs declarations without triggering penalties, although obtaining refunds for downward adjustments can be challenging. |
Australia |
Retrospective TP adjustments should be reported through a voluntary disclosure letter to the Australian Border Force (ABF), with a binding advance ruling advisable to ensure compliance. |
Mexico |
For upward adjustments, a “global customs import return” may simplify customs and VAT reporting by allowing amendment of multiple import returns within a single customs declaration. |
If you have any questions or would like assistance, please don’t hesitate to reach out. Our Indirect Tax team is ready to help you navigate these complexities and ensure you’re fully compliant. Fill out our contact form, and let’s start optimising your year-end adjustments together.
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