cargo container lot

A note on proposed duty valuation changes.

Changes proposed by the Canada Border Services Agency (CBSA) will have a sizeable financial impact on businesses that import into Canada through a Canadian subsidiary, or sell imports via a Canadian branch or dependent agent.

As per Bennett Jones:

The draft amendments, if adopted in their current form, will cause an increase in declared values for duty and consequently amounts of customs duties and GST payable when goods are imported into Canada. If the importer—resident or non-resident—has agreed, prior to importation, to sell the goods to a customer in Canada, the importer must use its selling price rather than its purchase price as the basis for the value for duty. The amendments will also affect the costs of wholesalers, retailers, and e-commerce sellers

CBSA Proposes “Last Sale” Rule for Customs Valuation

At present, most goods imported into Canada are valued for customs purposes using the transaction value method, based on the price paid (or payable) in the goods’ sale for export to a purchaser in Canada. While ‘sale for export’ is not specifically defined in the legislation, a Supreme Court case (Mattel 2001) interpreted it to mean ‘the sale by which title to the goods passes to the importer’.

The new rules outlined in the Canada Gazette will fundamentally change these concepts. The proposed amendments overturn the Mattel ruling and repeals entirely the current definition of ‘purchaser in Canada’. The effect means that neither title transfer nor the purchaser’s residence/permanent establishment will be factors in establishing the correct value for duty. Instead, the amendments mean valuation would be based on the last sale price in the transaction (defined as any of agreements, understandings or arrangements, and not necessarily a sale or agreement to sell) that causes the importation in Canada. Parties affected would include non-resident importers (NRIs).

The CBSA argues that the current method of determining imported goods’ value for duty (VFD) creates an unfair advantage for NRIs – businesses located outside of Canada who ship goods to Canadian consumers. Under the current arrangement, NRIs can declare a lower VFD by using an earlier sale price – and not the price paid by a Canadian buyer who brought the goods into the country, resulting in lost revenue on duties and Goods and Services Tax (GST).

The Government of Canada’s website states that these proposed amendments align with the World Trade Organization (WTO) Customs Valuation Agreement, and the practices of trading partners such as the European Union and other WTO members (although not the U.S., which maintains a ‘first sale’ valuation rule in certain circumstances).

For many of our U.S. clients currently selling into Canada (particularly NRIs), this could have significant impact on GST valuation and increase the price of their products in Canada.

The CBSA has requested input from the trade community. Comments can be submitted on the Government of Canada website. And follow our blog for updates on this issue.


Pexels photo

%d bloggers like this: