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US "First Sale"? Not in Canada! (& Other Issues Back in Vogue)

Posted by on in Customs & Trade Blog
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The primary customs valuation method across the Western world is “transaction value”, which is a way of valuing goods coming across international borders. Transaction value is used by both the US Customs and Border Protection Agency (CBP) and the Canada Border Services Agency (CBSA) to value imported goods entering their respective territories.


Transaction value assumes an uninfluenced sales price for the goods, between two independent and willing parties (“price paid or payable”). That price paid or payable then becomes the value base for customs duties, excise duties, and value-added taxes like those imposed by Canada under Division III of Part IX of the Excise Tax Act – known to most Canadians as the GST/HST.  (See here for a primer on the Sale for Export concept, and Transaction Value;  it’s an oldie but a goodie!)

But in complicated sales transactions, where there are multiple sales leading up to the sale for export to Canada, the question becomes: which sale is the one that qualifies?

Which Sale Qualifies is Different in Canada than the US

US Importers will generally be familiar with the “first sale” concept, which concludes – on the basis of cases like Nissho Iwai Corp. v. Paragon Grand Carriers Corp. (1987), 11 F.T.R. 134 (T.D.) – that the “first sale” in the chain often qualifies, thus presenting a useful “low value” for imported goods arriving in the US.

The same is not generally true in Canada – which causes no end of problems for unwary US clients.

CBSA, unlike CPB, usually tries to have the “last sale” be the relevant sale to Canada – which has been met with varying degrees of success.  With 1997 amendments to Canada’s Customs Act, CBSA formalized its previous administrative policies by entrenching a “purchaser in Canada” concept, which is a requirement absent across most (if not all) of its WTO trading partners.  This is because all WTO Members (Canada included) are supposed to use valuation methods consistent with the GATT Valuation Code.

Recent Developments & Old Questions Present New Problems

More recently, CBSA has attempted to further regulate this area, as announced in the 2021 Canadian federal budget. These changes are – again – aimed at securing the “last sale” for customs valuation purposes.   At the same time, recent Digital Services Tax changes on the GST/HST side of things (see our recent review of the draft legislation here) are now drawing a number of US exporters into the GST system. This comes with corresponding obligations to pay Division III tax on their goods when acting as importers of record (IOR / IORs) and/or non-resident importers (NRI / NRIs) in Canada.

Because of this perfect storm, valuation issues are now at the forefront for these US exporters and importers to Canada, and some customs issues of old (e.g., “first sale” concepts, “royalties” payments, and “transshipment issues”) are now back in vogue. (See a comparative discussion of Canadian, US and European Approaches here: another oldie but goodie!)

Since Canada has a “mandatory correction” obligation for customs errors, sitting on the side-line and hoping not to get caught up with these issues is a recipe for trouble. Tight profit margins are easily eaten up by customs assessments going back four years, clawing back (and sometimes erasing) those profits!


There is no time like the present to review customs procedures and valuation methods, and make any changes necessary to comply with Canada’s new rules – including making sure that any issues are addressed with the help of counsel before molehills become mountains!

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