On May 27, 2023, the Canada Border Services Agency (“CBSA”) released long-anticipated draft amendments to the Value for Duty Regulations under the Customs Act.
The proposed changes may have major implications for how most goods are imported to Canada are valued and change how the terms “sold for export to Canada” and “purchaser in Canada” are defined – two bedrock definitions under the “Transaction Value” method.
These changes will likely have significant financial consequences for many importers, and for non-resident importers (“NRIs”) specifically!
The Consultation Period on these draft regulations closes June 26, 2023.
Background
The Transaction Value method (“TVM”) is the default method for determining value for duty for goods coming into Canada (as it is for most countries). It is also estimated to be used in over 90% of Canadian imports!
In order to use TVM, one has to have a “sale for export to Canada” and a “purchaser in Canada”. This often involves identifying the relevant transaction from a number of possible intermediary transactions (especially where there are multiple possible “purchasers” in Canada, e.g., wholesale distributor, retailer, end consumer).
Under section 48 of the Customs Act, the answer typically depends on answering (1) which transaction is the one that leads to an export to Canada; and (2) identifying who qualifies as the purchaser in Canada.
In several recent decisions of the Canadian International Trade Tribunal (“CITT”), the CBSA’s interpretation of the terms “sold for export to Canada” and “purchaser in Canada” was rejected (see, e.g., the 2021 Delta Galil decision and the 2022 decisions in Scentsy and GBG Spyder).
In 2021, unhappy with these interpretations, the Canadian government moved to amend the Customs Act to allow CBSA greater leeway to define these terms, and the CBSA has since undertaken informal consultations on its proposed definitions, leading to the current proposed draft regulations.
What the Proposed Changes Do
The regulatory amendments attempt to clarify that a “sale for export to Canada” includes “an agreement, understanding or any other type of arrangement – regardless of its form”, and will – quite significantly – be the last transfer of goods before the goods are exported Canada, “regardless of whether the transfer of ownership of the goods is completed before or after the goods are imported”.
The draft changes also appear to completely eliminate how “purchaser in Canada” was previously defined in the regulations, focusing the definition on the person purchasing (or who will purchase) the goods.
What Does this Mean for Me?
If you are an importer to Canada, and responsible for paying duties and taxes on goods accounted for to CBSA, you will need to review your valuation practices against these changes to determine what financial impact they may have on your business. This is a complicated analysis requiring customs legal assistance!
Do you require assistance in this area? If so, please click here.