If your UK import model relies on a related-party transfer price to reduce customs value, a recent HMRC Advance Valuation Ruling just changed the calculus — significantly.
When it comes to valuing goods for import under a B2B2C model, there has long been ambiguity. Ask three experts and you may get four answers. Some will say cost of goods (COGS) is appropriate. Others will tell you the related-party transaction is acceptable. Still others will tell you the retail sale to the ultimate consumer is the correct value for customs. All the while, you are being pitched a B2B2C solution that claims to reduce your import duties by 60 to 80%. You need a definitive answer. And now you have it.
A recent HMRC Advance Valuation Ruling settles the matter. HMRC reviewed a setup where a foreign merchant establishes a UK entity and uses a merchant of record to sell to UK consumers. The applicant argued that the upstream sale between the foreign merchant and the UK subsidiary is the sale for export — not the sale to the end consumer. HMRC sharply disagreed.
“Customs valuation does not simply follow title sequencing, invoice mechanics, or carefully arranged contractual steps. It follows the transaction HMRC believes matters most for the import.”
This Ruling Did Not Come Out of Nowhere: The Rules Changed a Decade Ago
To understand why HMRC reached this conclusion, it helps to understand the regulatory backdrop. In 2016, the European Union’s Union Customs Code (UCC) eliminated “earlier sales” provisions that allowed importers to anchor customs value to an upstream transaction in the supply chain rather than the final sale. In its place, the EU mandated a “last sale” construct: customs value must be based on the sale occurring immediately before goods enter the importing country. The UK was subject to this framework from the moment the UCC took effect, and after Brexit carried the same principle forward in its own domestic legislation. The World Customs Organization endorses the last sale approach as the international standard under the WTO Customs Valuation Agreement.
Start With the Model
To understand the ruling, it helps to start with the structure put before HMRC. In the model described in the application, a foreign merchant sets up a UK entity and operates a “localized” UK website. UK consumers place orders on that UK-facing site. A UK merchant of record is presented as the seller to the end customer, and the consumer’s payment goes to the merchant of record. Behind the scenes, the UK retail entity orders stock from the foreign parent company at a related-party price before the goods enter the UK. After import, the UK retail entity sells the goods to the merchant of record, and the merchant of record then completes the consumer-facing sale to the end customer.
In simple terms, the transaction chain looks like this:
- A foreign merchant sets up a UK entity with a localized website.
- A UK consumer purchases on that site.
- A UK merchant of record is shown as the actual seller to the consumer.
- The UK entity orders the goods from the parent company at a related-party price before import.
- After import, the UK entity sells to the merchant of record, which has already contracted with the end consumer.
The core customs question is which of those transactions should be treated as the sale for export to the UK for valuation purposes.
What the Applicant Argued
The applicant asked HMRC to confirm that the relevant valuation sale was the upstream intercompany sale between the foreign retailer and the UK retail entity. The applicant argued this was the sale executed immediately prior to import, that title passed to the UK retail entity before the goods entered the UK, and that the supporting commercial invoice and transfer documentation for that sale accompanied the goods.
The applicant also argued that the end-customer transaction should not be treated as the sale for export because, at the time of import, the end-customer sale was only an agreement to sell, not a completed sale. The applicant relied on UK sale-of-goods concepts, arguing the consumer-facing transaction would not be concluded until the goods were delivered and accepted by the end customer.
The application further pointed to draft WCO guidance and earlier HMRC workshop feedback that appeared to support the idea that, in a similar e-commerce fact pattern, the upstream sale into the UK entity could be the sale for export, while the UK customer sale would be domestic.
What HMRC Decided
HMRC agreed that Method 1 should be used – that is, “the price paid or payable by the buyer to the seller for the goods when they are sold for export to the UK.” But HMRC rejected the proposed valuation transaction entirely.
Before issuing the formal ruling, HMRC explained that its current policy is to identify the last sale for export within the commercial chain, viewed from a commercial rather than a chronological perspective. HMRC said the sale between the UK online store and the UK customer was the last sale commercially, and that without that sale there would be no movement of goods into the UK at all. HMRC therefore treated that sale as the relevant sale for export for customs valuation purposes.
The ruling certificate and cover letter repeat that conclusion. HMRC considers the relevant sale for export to be the sale to the UK end customer, not the sale between the UK retail entity and the foreign retailer, because it is the last sale in the commercial chain.
That is the heart of the ruling.
Why the Ruling Is Especially Significant
What makes this ruling notable is that the applicant worked through a top UK trade law firm and presented a carefully constructed, compelling case. Even so, HMRC focused on the commercial sale it believed actually drove the movement of goods into the UK — not the contractual mechanics that had been arranged around it. That is a sharp reminder of how HMRC approaches these structures: the question is not which sale appears most convenient from a documentation standpoint. It is which sale is the commercial trigger for the importation.
This is entirely consistent with the post-2016 framework. The UCC did not just change a technical rule — it signaled a shift in how customs authorities across the UK and EU were expected to look at multi-party supply chains. HMRC’s ruling applies that lens directly.
What This Means in Practice: The Numbers
Many B2B2C structures are built around the assumption that customs value can be anchored to the upstream related-party transfer price rather than the downstream customer-facing sale. HMRC’s ruling challenges that assumption directly, and the financial consequences can be material.
Consider a straightforward example. A foreign parent sells goods to its UK entity at a related-party price of £60. Those goods are sold to the UK customer for £100. Under the assumption many merchants have made, customs value begins at £60. Under HMRC’s ruling, the analysis starts with £100. At scale, a 40% higher duty bill adds up quickly. Factor in import VAT, which is also calculated on the customs value, and landed-cost assumptions built into your pricing model, and the full economic impact of getting the valuation wrong can be significant.
The Broader Lesson for B2B2C Models
This ruling does not say that B2B2C structures are invalid. It does not say that a merchant of record model cannot work. What it says is more specific and more important: where multiple sales exist, HMRC will ask which sale is the last commercial sale that truly underpins the importation of the goods into the UK. In this case, HMRC concluded that was the sale to the UK retail entity.
That is the real significance for merchants using UK entities, localized websites, and MOR arrangements. The valuation analysis does not turn on the sale that seems most convenient from a transfer-pricing or documentation standpoint. It turns on the downstream sale that HMRC sees as the commercial trigger for the import.
“If your UK import model relies on a related-party transfer price, now is the time to revisit the customs valuation analysis before the structure is scaled.”
What Merchants Should Do Now
Review your UK customs valuation methodology against the last-sale principle. If your model anchors customs value to an upstream intercompany price, consult a trade lawyer to assess exposure. Passport’s trade compliance team has navigated this regulatory landscape directly and can help merchants understand what a compliant UK import structure looks like in practice. Reach out to discuss your specific situation.
Authored by Thomas Taggart
VP of Global Trade | Passport
Thomas Taggart is a cross-border commerce leader with more than 20 years of experience in international shipping and regulatory affairs. As the Head of Global Trade, Thomas helps ecommerce brands go global by simplifying international trade, tax, and product compliance issues. Prior to Passport, he brought international shipping solutions to market through multiple roles in UPS’s product development organization.