Tax & Trade Blog
Customs Penalties Clarified
The Canada Border Services Agency ("CBSA") recently issued Customs Notice N-13-011 ... well maybe not so recently ... in May ... but it sometimes takes that long to keep up to date with these pressing announcements :).
The changes relate to CBSA”) administration of customs Administrative Monetary Penalties(“AMPs”) which may apply to the most basic of errors by Canada’s commercial importers, and can in some instances be as high as $500,000. These penalties are often imposed in connection with CBSA customs verifications -- short terms of "audit" and are aimed at securing compliance with customs legislation.
Customs Notice N-13-011 really operates to notify importers of changes have been made to the manner in which CBSA will administer contraventions C080 through C083 and C350 through C353 -- which are the two sets of infractions taht deal with the "big three" issue areas in customs: errors in origin, tariff classification and valuation related to goods imported to Canada. They also relate to an importer's obligations under section 32.2 of the Customs Act to make mandatory corrections to this information within 90 days of having reason to believe that information may have been reported to CBSA in error (including payment of any additional required duty, taxes and interest). (These obligations also extend to the "owner" of the imported goods).
The changes announced in Customs Notice N-13-011 will have the positive overall effect of capping penalties at a maximum amount for an error that is repeated on import documents with a corresponding requirement to make correction within 90 days of the trade compliance verification final report.
In instances where the contravention relates to "reason to believe" criterion (a) in the CBSA’s Master Penalty Document (MPD) – available on the CBSA Web site at http://www.cbsa-asfc.gc.ca/trade-commerce/amps/reference-eng.html – a first level penalty of $150.00 will be assessed on a per issue basis (i.e., by type of error), to a maximum of $5,000. This effectively means that where the “reason to believe” relates to legislative provisions such as specific origin, tariff classification, or value for duty provisions that are prima facie (i.e., at first sight), evident (i.e., obvious, apparent), and transparent (i.e., clear, self-explanatory), the expected penalties for failing to make the required corrections (or pay the required additional duties, taxes, and interest) will be $150 for each issue up to a maximum of $5,000 regardless of how often the error is repeated over multiple accounting documents provided all occurrence of the error are corrected within 90 days of the date of the trade compliance verification final report – and is welcomed news.
In instances where the contravention relates to "reason to believe" criteria (b) through (g), a first level penalty of $150.00 will be assessed on a per occurrence basis (i.e., in each instance where an error was made), to a maximum of $25,000. This effectively means that where the “reason to believe” relates to any of the following situations, the expected penalties for failing to make the required corrections (or pay the required additional duties, taxes, and interest) within the 90 day window will also be $150 for each occurrence over the reassessment period up to a maximum of $25,000:
The meaning of the terms "per issue" and "per occurrence" is specifically defined within the revised MPD as follows:
- "per issue" applies to each good for which origin was incorrectly claimed and for which a correction was not made, or to each uncorrected tariff classification error, or to each element of the value for duty provisions that is incorrect and for which a correction was not made, regardless of how often the error is repeated on import documents;
- the term “per occurrence” at the first, second, and third levels applies to each uncorrected origin, tariff classification or valuation error per B3 accounting document and not per B3 line.
Together, these definitions will effectively impose, one penalty of $150 to a maximum of $5,000 if an importer failed to, for example, make an adjustment for assists as required under paragraph 48(5)(a)(iii) of the Customs Act, provided that the error is corrected within 90 days of receiving the trade compliance verification final report. If the error is not corrected within that 90-day period, $150 penalty will apply for each occurrence of each error throughout the reassessment period, to a maximum of $25,000.
Also note that Customs Notice N-13-011 clarifies that “any penalties issued in respect of the same trade program (i.e., C080/C350, C081/C351, C082/C352, or C083/C353) will not exceed the maximum penalty amount for each specific level, including all penalties that are issued as a result of an audit, examination, verification or subsequent monitoring activity”. This effectively means that the maximum penalty amount for the first level is $5,000 (per issue) or $25,000 (per occurrence) depending on the applicable reason to believe criterion. The maximum penalty amount for the second level remains unchanged at $200,000. The maximum penalty amount for the third level also remains unchanged at $400,000.
Note that while announced on May 24, 2013, the changes come into effect the day prior.
With all of these penalties, a good rule of thumb for importers involved in Customs verifications, would be to obtain some specialized assistance to attempt to avoid these sorts of penalties ! Certainly, before any answers are provided to CBSA's "System Questionnaire" or "Valuation Questionnaire", someone in the importer's organization should be seeking customs assistance.
In this area, the old adage applies: an ounce of prevention is worth a pound of cure!!