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Division amidst Diversity: The Customs-Transfer Pricing Nexus in Asia

Trade between related parties constitutes a significant portion of the global merchandise trade. In the US alone, related party trade accounted for 40.8 per cent of total trade in 2010.1 Although there is no definite statistic on how this relates to total world trade, the United Nations Conference on Trade and Development (UNCTAD) estimated that in 2010, foreign affiliates of multinational corporations accounted for more than 10 per cent of global gross domestic product (GDP) and one third of world exports.2 This suggests that related party prices play a significant role in assessing company profits as well as the customs value of individual goods crossing through borders. This figure may likewise highlight the relatively high risk of a company being targeted for compliance by two separate government authorities – the tax authority and the customs authority. Given the complexities and the inherently opposing forces of transfer pricing (TP) and customs, getting it right for both authorities may pose a challenge.