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CUSTOMS 101: NO PROOF, NO FREIGHT DEDUCTION?

CITT TIGHTENS EVIDENTIARY REQUIREMENTS FOR FREIGHT DEDUCTIONS

Transaction value has traditionally been used to value imported goods to Canada in approximately 95% of cases.  An important deduction available to importers when using transaction value is for transportation costs incurred from the place of direct shipment to Canada.

In Korhani of Canada Inc. v. CBSA (AP-2022-030), the Canadian International Trade Tribunal (“CITT”) serves notice that it supports the CBSA’s position that transportation cost deductions must be supported by objective documentation evidencing the actual transportation costs, such as payment records or shipping invoices.

Korhani of Canada Inc. v. CBSA

In Korhani, the appellant imported area rugs into Canada and claimed deductions for international transportation costs when determining value for duty.

To support the deductions, the appellant submitted vendor-issued commercial invoices and vendor-signed statements describing historic shipping rates, specific dollar values that vendors advised they had paid for international shipping, and average transportation costs during the relevant periods.

The CBSA denied the deductions on the basis that the appellant’s evidence was insufficient and did not substantiate the actual transportation costs incurred by the vendors in shipping the goods to Canada.

CITT Decision

The CITT upheld the CBSA’s position and reiterated that importers are required to demonstrate the “actual costs” ultimately paid to the freight company when claiming transportation cost deductions, rather than rely on transportation costs negotiated between the importer and the vendor.

The CITT highlighted that transportation cost deductions must be supported by objective evidence and justified by sufficient information.  Commercial invoices issued by vendors to importers, or documents showing estimated costs, are insufficient in most cases because they do not reliably or accurately reflect the actual cost of transportation. 

By contrast, bank records, bills of lading, or shipping invoices exchanged between vendors and shipping companies are usually considered objective and sufficient.

The CITT further stressed that evidence must allow the CBSA to verify transportation costs on a transaction-by-transaction basis, rather than through averages, estimates, or generalized statements. Where documentation cannot clearly link a specific freight charge to a specific importation, the deduction may be denied.

Takeaways

Transportation costs from the place of direct shipment to Canada can legitimately be deducted when using transaction value for valuing goods imported to Canada.  

However, this deduction comes with some strings. One big one is that actual transportation costs must be used and supporting documentation must be kept.

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