How Do Import Duties Affect Transfer Pricing?


The price of goods and services between several organizations within a single multinational corporation is referred to as transfer pricing. As it may affect the amount of tax they pay in several nations, it is crucial for companies involved in international trade. Import duties heavily influence transfer pricing since they can change the price of items and, in general operations, the company's profitability.

Import taxes may apply when a multinational corporation purchases goods from one of its overseas subsidiaries. The importing nation levies a tax on the value of the imported products through these charges. The type of goods and the country of origin might affect the import duty amount.

Import tariffs can significantly affect transfer pricing because they affect the Cost Of Goods Sold (COGS). The total cost of goods sold (COGS), which includes materials, labor, and other fees, is the price of making or buying a good.

A subsidiary in a high-tax nation would be able to claim a higher tax deduction for the cost of goods sold if, for instance, a company in a low-tax country sells goods to a subsidiary in a high-tax country at a price that does not fully reflect the cost of importing the items. This might result in a reduction in taxes paid in the nation with high taxes and a transfer of profits to the country with low taxes.

It is important for multinational corporations to accurately account for these costs in the COGS calculation to prevent transfer pricing difficulties connected to import tariffs. Ensuring that import duties are appropriately recorded and included in the transfer price may entail collaborating closely with tax consultants and customs experts. Implementing internal controls and rules to guarantee correct and consistent transfer pricing throughout the firm may also be necessary.

How Much Do Import Duties Cost?

It differs according to countries and their taxation laws. While sile countries will prefer to waive some goods, others deliberately introduce high tariffs on the same goods. So, it all boils down to the country you are operating in. Another development that determines the cost of import duties is the country's calculation pattern. In the Netherlands, for example, every imported good are charged according to its value. It is always 21% of the total value of the goods. That is to say, if the total value of an imported item is £1000, a receipt of £2100 will draft, to be said to the Dutch government through their port authority.

Also, in the United States, unlike the Dutch, the cost of import duties is calculated according to the country it comes from, so one can't say the exact amount they charge per good. But their import duties range from 0 - 37.5%, although this semi-fixed rate is 5.63%.

How Do You Pay For Import Duties And Taxes?

Again, this differs according to the country you are importing into. In the United States, import duties are only paid in U.S. Dollars and can be paid through multiple transactions. Payments can be made through personal cheques, payable to Customs and Border Protection, and must be withdrawn from any bank in the United States. It can also be paid with government cheques, traveler's cheques, or money order, but only if the stipulated about is at most $50 of the money owed as a duty.


It is important to add that for multinational corporations involved in international trade, import duties can significantly affect transfer pricing and the tax ramifications. For transfer pricing to be precise and compliant with tax laws, import tariffs must be adequately accounted for in the COGS calculation