MILLAR KREKLEWETZ LLP is a boutique Canadian law firm with lawyers who have significant expertise in matters involving Valuation for Duty.
The following is a short introduction to the principles of Valuation for Duty.
Goods imported to Canada must be reported at the border, properly classified under Canada 's Customs Tariff, identified in terms of their proper origin, properly valued, and clearly and legibly marked in accordance with Canada 's marking rules. Each of these steps is must be properly carried out, or penalties and other sanctions could follow.
This webpage focuses on the requirement for imported goods to be properly valued. For more information on the other requirements, please return to the Practice Area Index to select an appropriate topic.
It is necessary to determine the proper value for duty (or VFD) of the imported goods because this is the value to which the appropriate duty rate applies (the duty rate is identified following determination of tariff classification and origin of the imported goods). Duties are generally applied on an ad valorem basis, expressed as a percentage and applied to the value of the imported goods. The product of these two factors determines the duties actually payable. Accordingly, properly valuing imported goods is at the heart of Canadas customs regime.
Canada's rules for valuing imported goods are found in the Customs Act, and parallel the rules in place in most other member-nations of the WTO.
Transaction Value Primary Method
The primary method of determining value for duty is the so-called Transaction Value method, which applies where goods have been sold for export to Canada to a purchaser in Canada , and a number of other conditions are met. If applicable, the focus of the Transaction Value method is the price paid or payable for the imported goods, with certain statutory additions, and certain statutory deductions.
Transaction Value Conditions
While meant to be the primary method of valuation, most importers and exporters will already realize that there are some strict conditions regarding the application of Transaction Value.
The legislative wording, for example, requires at a minimum that the goods be sold for export to Canada to a purchaser in Canada. This gives rise to some complications in determining what transactions constitute valid sales for export. For example, in parent-subsidiary relationships, an issue will also arise as to whether the parent and subsidiary are in true vendor-purchaser relationships.
The purchaser in Canada requirement has its own complications and the Purchaser in Canada Regulations, and relevant Canada Customs memoranda should be consulted.
Where Transaction Value is not available, other methods must be considered, in accordance with a hierarchical order, including the Transaction Value of Identical Goods, Transaction Value of Similar Goods, and Deductive Value, etc.
Transfer Pricing Disconnect
It is important to note that there is a disconnect between the transfer price of a good for income tax purposes generally equal to the price paid or payable for the good for Customs purposes and the VFD of the goods for customs purposes, and on which duties and GST are payable.
Importers must therefore be cognizant of the fact that while international transfer pricing rules require related parties to establish supportable transfer pricing procedures for Taxation purposes, the valuation amount that is used for Customs purposes may be markedly different.
Application of Administrative Monetary Penalties
In addition to various other civil and criminal sanctions, Canada s Administrative Monetary Penalty System penalties (AMPs) apply to valuation declarations, and specifically require that incorrect valuation declarations be corrected.
Millar Kreklewetz LLP is well-placed to provide both guidance and counsel on valuation for duty matters, and persons facing AMPs, other sanctions, or wishing to understand their valuations for duty obligations are encouraged to contact us for more infomation on the issues inherent in their files.