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How to navigate uncertainties in tax and customs compliance in the pandemic

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Sui Fun Chai

30 Sep 2021
Categories Thought leadership
Jurisdictions Singapore

Adjusting transfer prices to cope with the vagaries of the COVID-19 pandemic can trigger consequences in tax and customs compliance. 

The world has lived in the shadow of the COVID-19 pandemic in the last 18 months. Businesses faced significant stresses and uncertainties during this period. They continuously adapted their business models and supply chains to respond to the challenges brought on by the pandemic. With vaccination intensifying and countries increasingly moving towards managing an endemic scenario, more economies are now trying to open up with more activities, hoping to get back to pre-COVID-19 conditions. 

Taking stock for both companies and tax authorities

Many companies reviewed their initial COVID-19 responses. They introduced and finetuned organisational and operational improvements to stave off the risks to their businesses. Countries, too, have in varying degrees relaxed or introduced flexibilities in their taxation and customs rules. Now, these countries are heightening their interests in tax and customs audits. 

For example, in May 2021, the Biden administration announced its intention to increase funding for the Internal Revenue Service by US$80b to beef up audits. The Philippines Bureau of Customs also announced that they collected ₱247m in additional revenue from customs post-clearance audits in the first two months of 2021. As of August 2021, we have seen an unprecedented 134 nation agreement to a global minimum tax on corporations.

The taxation landscape is changing — and changing fast.

Increased complexities of profitability adjustments 

Many sectors like airlines, hotels and travel services faced excess supply and falling prices and revenues. But in sectors such as freight shipping, groceries and medical supplies, demand outstripped supply; they mostly enjoyed extraordinary financial performance. For companies in these sectors, profitability adjustments or transfer pricing (TP) adjustments between related entities at the fiscal year-end will be more complex or possibly more extensive in scope than before. 

Each wave of the pandemic and how it took shape in different countries wreaked operational havocs. Some of these havocs were, and still probably are, unthinkable in intensity, consequences and far outside of planners’ expectations and assumptions. Absent guiding precedents, responses were, and still are, often based on what looked like the best solutions to defuse one operational crisis after another. More likely than not, these operational solutions are not backed up by detailed studies or even documentations. When the tax regulators reviewed all these transfer price adjustments at year-end, would they do so with the benefit of hindsight, or would they cast their minds back to the turmoil that necessitated the rapid operational changes that underlie the changes to the transfer price adjustments?  

It is hard to tell what is more likely.  

Still, before our memory fades, we urge companies to look back and document as many details as possible to defend against the risks of a hindsight bias.

Regional disparities on customs treatment for adjustments

A change in transfer price calls for a corresponding adjustment to the customs value of the products imported by affiliate companies. Doing so, one must work through the appropriate procedures to pay the additional duties and indirect taxes resulting from these price adjustments. Herein lies the challenge: the “appropriate procedures”, along with practices and requirements, are different from country to country. For businesses with global or regional markets and value supply chains, this is a navigational maze. As the saying goes, complexity increases the rate of errors and mistakes – and likely controversies and penalties.

This article compares the situation in India with Singapore and Taiwan to illustrate the diverse challenges that could exist for global or regional supply chains. 


As far as it is known, the Indian customs authorities do not offer publicly available guidance on treating related party prices and TP adjustments. For matters on customs valuation, it is a fairly common practice for the customs authorities to refer these to the Special Valuation Branch of customs. When this happens, the importer has to comply with additional procedures and documentation. The challenge is that this process may take six months to more than a year to complete.  

Any change in the final customs value means an underpayment or overpayment in import duties and goods and services tax (GST). Penalties may apply if the correct duties and taxes are not paid. Hindsight and insistence on absolute rational logic by the customs authorities will be the key challenges here.  

There is no one-size-fit-all solution. The better approach is to think about what could trigger the Special Valuation Branch involvement and work hard to figure out what the transfer price document or processes should entail to avoid or lessen the likelihood of these triggers. 


Singapore is a free port. Consequently, most goods enter Singapore without customs import tariffs. There are exceptions, such as stout, beer including ale, and tobacco products. That said, there is still a need to consider proper customs value adjustments and the resulting change to excise duties and import GST payable. Such considerations led the Inland Revenue Authority of Singapore (IRAS) to issue specific guidelines in November 2020 on the GST implications for TP adjustments, covering imports as well. 

There is also a separate set of guidelines issued by the Singapore Customs on the TP adjustments for dutiable motor vehicles. Among other things, importers are asked to allocate the upward and downward TP adjustments for each motor vehicle and report the adjustments to the Singapore Customs for verification before declaring the short payment permit or claiming a refund of the overpaid excise duties. 


Taiwan government issued guidelines to assist and support companies on TP adjustments and customs valuation. Specifically, in November 2019, the Ministry of Finance issued a tax ruling (Ruling No. 10804629000) clarifying the requirements the taxpayers must satisfy to make a one-time TP adjustment to related-party transactions. Subsequently, the customs administration issued Guidelines for Verifying the Customs Value under One-off Transfer Pricing Adjustments during the Fiscal Year

These guidelines helped clarify and align the corporate income tax and customs requirements that taxpayers must satisfy to make one-time TP adjustments. But there are practical issues raised by companies. 

The American Chambers of Taiwan highlighted that many importers of records face difficulties when applying these guidelines. One of these difficulties is to provide a proforma commercial invoice upon the importation of goods and a final commercial invoice when applying for the one-time TP adjustment. Due to the needs of companies’ internal accounting systems to avoid fraud or discrepancy between different invoices and journal entries in accounting records, many companies are unable to comply with the two invoice requirement. This and other practical difficulties are still pending resolution by the authorities, and it is well-worth further monitoring for companies who are keen to adopt these guidelines. 

What companies can do

As seen from above, there are different challenges in different regimes for customs value adjustment and the payment or refund of the indirect taxes payable. There are situations, such as in India, where government guidance is limited. This means greater time, energy and care to navigate through the system. Perhaps even more time to figure out in advance what will trigger challenges and what ought to be done to avoid or reduce the incidence and intensity of these challenges. There are also situations, such as in Singapore, where clear and established procedures offer greater certainty and fewer surprises. Finally, there are also situations such as in Taiwan, where the challenge comes in a different form. Here, the mismatch is between what the regulators require and the practical commercial ramifications the taxpayers must consider.   

Among the things that companies can do are:

  1. Understand the regulators’ potential bias towards hindsight and anchoring on rational decisions. These are common human inclinations. The effects are likely more pronounced when more time is taken by companies to complete the year-end TP adjustments. When times are approaching normality, people tend to have a vague memory of past events and stresses. 
  2. Companies cannot avoid running into customs valuation challenges. Sometimes we need to think like the regulators rather than think about what we believe the regulators are likely to consider. This is about thinking in reverse. For example, from the perspective of the regulators, what they want to see in order to be persuaded of both the necessity for the changes in the transfer price and the magnitude of the changes. Do this correctly, and it is possible to identify at least some of the obstacles and hurdles that require tackling in advance. This does not remove all the challenges. However, it does shave off some of these before they emerge.
  3. Companies must proactively engage the customs and tax authorities to obtain certainty about the procedures and payments required. One way is through a formal ruling from the authorities on the disclosure procedures to declare changes in customs value and make additional payments or obtain refunds. This is possible if a formal ruling process is in place. In its absence, the better approach is to actively engage the customs authorities in discussions. Among other things, the objectives are to seek acknowledgement of the TP adjustments as well as the administrative mechanism to follow when making the declaration. 
  4. In all cases, companies should consider how to explain the rationale of import price changes in supporting documentation and whether this documentation follows local TP and customs valuation legislation. These supporting documents can then be readily shared with customs and tax authorities when queried or during audits.
  5. Lastly, there is little or no universal approach here. The approach for each country is bound to be different. What works in one country does not necessarily work in another. Again, the better approach in each case is to consider the nature of the challenges, break these down into sub-challenges to see if it is possible to pinpoint the root cause(s), and then develop the options around them.

The co-authors of this article are Chai Sui Fun, EY Asean International Tax Policy and Controversy Leader and Mok Sze Xin, Associate Director, Indirect Tax from EY Corporate Advisors Pte. Ltd.