useful information

Relationship study

05 de enero de 2015

The Relationship study is related to valuation methods; these methods are included in one of the agreements approved during the Uruguay Round of GATT, contained in the final record signed in Marrakech in the year 1994.

There are several methods to determine goods customs prices in order to pay the import duties but the most frequently used in the one set forth in article 1 of the Valuation Agreement and called the “transaction price”, which takes as basis for the import taxes calculation the price actually paid or to be paid. However, the Customs authorities might object the “transaction price” if the seller and the buyer are related (for example the case of a parent company and its subsidiaries). In this case, the importer (buyer) must prove that the relationship did not affect the price.

The Relationship Study and the Transfer Prices are related to goods’ prices established for tax purposes but  they should be supervised by the Customs Office and the Tax Authorities (DGI).

In summary:

a) what is a relationship study? If the importer wants to prove that the relationship did not affect the price, he should submit a technical report to the Customs authorities called a “relationship study”, analysing accepted prices of identical or similar goods, the price structure between buyers and sellers and several additional elements, in order to prove that despite the existing relationship, the price paid should be accepted because the relationship did not affect the price.

b) when is there a relationship between importer and exporter?   The causal links are specific and are explained in article 15 of the Valuation Agreement. Among others, we can mention the existence of a (juridical or de facto) control from the seller over the buyer or vice versa, the fact that both have directors, shareholders or superiors in common, the fact that buyer and seller are business partners, etc.

c) when is it convenient to declare the relationship? The study is not compulsory but when doing the customs clearance (DUA) it is necessary to declare if there is a relationship or not. Therefore, all those companies that are somehow related (subsidiaries or otherwise) with their suppliers should state that they have a relationship. They should also declare if the relationship affected the price or not. If the importer understands that it did not affect the price, it should be convenient to follow a technical exchange with the Customs authorities, during which the relationship study can be very useful to convince them that the relationship did not affect the price and therefore it should be accepted as a customs tax calculation basis.

d) what are the consequences of not declaring the relationship? If in the DUA it was stated that there is no relationship (or there is but it does not affect the price) and no study was submitted, the Customs authorities shall study the case and if they decide there is a relationship and it affected the price, the importer shall be subject to a review in the tax base and consequently the reassessment of taxes in the last 5 years, plus the corresponding fines.

In Grupo EPP, we consider this subject of vital importance for those who belong to this sector; therefore we recommend our clients and all those related to foreign trade to be informed of the applicable regulations in this subject.