Between May 27 and July 26, 2023, the Canada Border Services Agency (CBSA) ran a consultation on proposals to have duty values determined based on the last sale to a buyer in Canada. The CBSA has now released a report on feedback and conclusions from this consultation.
The CBSA recently responded to feedback on its proposed regulatory changes impacting how value for duty (VFD) is determined for goods imported into Canada. The VFD forms the basis upon which customs duties and sales taxes are levied on imported goods. We provided our comments on the initial consultation of the proposed regulatory changes customs value on June 13, 2023 (A practical insight on proposed amendments to customs valuation.
The CBSA is proposing use of the “last sale”, meaning the arrangement to transfer goods for the purpose of being exported to Canada to form the basis for the VFD. The last sale will be defined as the arrangement to transfer goods for the purpose of being exported to Canada. The CBSA provided various examples of the “last sale” in the proposed regulatory change consultation notice. In one of the examples, a Canadian company which purchases inventory from a foreign supplier with no prior agreements to sell the inventory in Canada. The goods are then sold to Canadian customers from the inventory already in Canada. The CBSA states that the last sale would be the sale from the foreign supplier to the Canadian company as this sale caused the inventory to be exported to Canada.
These amendments are intended to address importers in some cases being able to use an earlier sale in the supply chain to determine the VFD. These earlier sales tend to have a lower price resulting in lost duty revenue and creating unfair advantages for non-resident importers and Canadian importers without a “significant” presence in Canada and/or attachment to a transaction.
The CBSA noted concerns about the proposed regulatory language causing a deviation from the intended purpose noted above and in particular that domestic sales could be used to determine VFD causing issues such as uncertainty for importers, and increased costs for businesses.
For instance, the example noted above may not reflect the reality for many businesses that may supply imported goods in Canada with a mix of both goods on hand and goods that may be delivered later or goods drop-shipped from a foreign vendor directly to the Canadian customer. In these types of transactions, the consultation document appeared to create some uncertainty whether the Canadian importer purchase price or sale price to the Canadian customer would be used the basis for the VFD.
In response to these concerns, the CBSA indicated it does not expect Canadian resident importers who are declaring their purchase price from a foreign supplier to see any changes as a result as these amendments. Conversely, non-resident importers who declare a purchase price from a foreign supplier will incur a higher duty cost consistent with the current CBSA administrative practice.
A domestic Canadian sale price may be difficult to establish at the time of import due to many factors including, but not limited to dynamic changes to pricing, volume rebates and other post-import price reductions leading to confusion on what VFD to apply on import. Importers should continue to monitor the proposed changes to the VFD regime in Canada closely to manage their import costs including any potential additional duty costs that may occur as a result of the proposed changes. In addition, ensuring accurate VFD declared and establishing the rationale behind the VFD is important to avoid both potential penalties and punitive interest where an incorrect VFD was declared.
