The Canada Border Services Agency (CBSA) has proposed amendments to the method of assessing value for duty of imported goods. This would essentially change the Valuation for Duty Regulations. Depending on the importer’s business model, this could significantly impact duty and Goods and Services Tax (GST) payout.
All imported goods must be declared with a value for duty (VFD) for which customs duty is assessed on the VFD. The Transaction Value Method is the most widely used method for determining the value for duty (VFD) of goods. The three basic criteria for applying the Transaction Value Method are:
- The imported goods were sold for export to Canada;
- The purchaser in the sale for export is the purchaser in Canada;
- The price paid or payable for the goods can be determined.
It should be noted that there are some exceptions to purchaser in Canada around Non-Resident Importers (NRI)
Sale for export to Canada
The proposed amendment broadens the term “sale for export to Canada” to a wider interpretation whereby any agreement, purchase commitment, intent to sell, or other arrangement which is cause for the export of goods to Canada to be considered as the price of “last sale” with VFD assessed on the last sale. It further states that the sale need not be concluded prior to import to Canada, and any intent to purchase or arrangement to purchase can be considered as a sale. The timing of the transfer of ownership title, whether it happened before or after the importation, has no bearing on the last sale.
Purchaser in Canada
The proposed amendments also bring to fore the definition of “purchaser in Canada” as it repeals the concepts of “resident” and “permanent establishment” and defines the “purchaser” as the person or establishment who purchases goods that are the cause of the import. The “purchaser in Canada” need not be the importer, and it is irrelevant when they make the payment for the goods.
The immediate impact will be on the NRI, who, in the past, has considered the intermediate sale price between two foreign entities (foreign-based manufacturer and an NRI) to be the VFD rather than the sale to a Canadian buyer located in Canada. An NRI does not have physical operations in Canada and thus far was able to declare a lower VFD, resulting in lower duty payout. Supply chains built around utilizing this loophole will be first in line to feel the impact of this amendment. With these proposed amendments, CBSA is looking to create a level playing field for the Canadian resident businesses who, today, have to pay higher duty when importing goods.
The wider interpretation of the term “sale” would also enable CBSA to zero in on Canadian resident businesses that do not comply with “last sale price” concept while declaring VFD, through trade compliance verification audits. The initial repercussion would be a higher VFD resulting in higher duty and GST upon import into Canada.
These costs will inevitably be passed down to the Canadian consumer. Businesses, both resident and NRI, could also face significant administrative and compliance costs, requiring them to demonstrate whether there was a prior “sale” agreement which was the cause of import, or the import was purely for inventory/speculation.
We recommend that Importers and other interested parties voice their comments. You have until June 26th to make comments to the Government on this proposed amendments by using this link https://www.gazette.gc.ca/rp-pr/p1/2023/2023-05-27/html/reg1-eng.html
Tradewin has a wide range of tools to assist companies who need assistance in this changing regulatory environment in Canada. We can analyze the various scenarios and advise the cost impact that the proposed amendments could have on businesses and guide them to be compliant with these amendments. Reach out to us with any questions.