The Canada Border Services Agency (CBSA) is giving interested stakeholders the opportunity to participate in a consultation period, which runs from June 4th until July 4th, 2021, which could potentially inform future regulatory amendments to the Valuation for Duty Regulations (the Regulations).
On April 19, 2021, Deputy Minister and Finance Minister Chrystia Freeland tabled the Liberal Government’s 2021 budget (Budget 2021). One of the proposed changes on Budget 2021 was amendments to the Customs Act (the Act). Budget 2021 proposed changes to the Act to improve duty and tax collection, by ensuring that goods are valued in a fair and consistent manner by all importers as a means to level the playing field between domestic and foreign businesses. As a result, Bill C-30, Budget Implementation Act, 2021, No. 1, introduced on April 30, 2021, includes a legislative amendment to subsection 45(1) of the Act. Currently, subsection 45(1) of the Act does not contain a definition of the phrase “sold for export to Canada”. The proposed legislative amendment allows this definition to be assigned by the Regulations to further assist in the calculation of the value for duty.
A “value for duty” must be declared for all goods imported to Canada in accordance with the Act, regardless of the circumstances of their importation. The value for duty is the base figure on which duty is calculated. There are six methods of customs valuation identified in the Act, the primary being the transaction value method:
- Transaction value method (Section 48 of the Act)
- Transaction value of identical goods method (Section 49 of the Act)
- Transaction value of similar goods method (Section 50 of the Act)
- Deductive value method (Section 51 of the Act)
- Computed Value method (Section 52 of the Act)
- Residual basis of appraisal method (Section 53 of the Act)
While technical, further precision on the definition of goods “sold for export to Canada” has the potential to have significant impact on customs valuation and the price deemed paid or payable for customs purposes. Further, ensuring practical and business consistency with any future definitions of “purchaser in Canada”, “resident,” and “permanent establishment” will be crucial for businesses engaged in cross border trade.
With this proposed legislative amendment, the CBSA is looking for input on the following measures:
- Defining the scope of “sold for export to Canada” to specify the relevant transaction for export which forms the basis of the transaction value of the goods.
This proposal would ensure that the value for duty of imported goods determined under the transaction value method is based on the sale that causes the goods to be exported to Canada. In other words, the last transaction in the commercial chain, irrespective of the chronological order of the sales. Under this proposal, the term “sale” would be constructed in a broad sense, which would include any type of arrangements that causes the goods to be exported to Canada.
- Clarifying the definition of “purchaser in Canada”, as well as the associated definitions of “resident” and “permanent establishment”, and ensure the relevant sale for export forms the basis of the transaction value of the goods.
This proposal intends to remove any ambiguity on how to qualify as a “permanent establishment”. To qualify, the person would need to:
- Be the purchaser of the goods imported to Canada;
- Have a fixed place of business in Canada, through which the goods are purchased; and
- Have the authority to enter into the arrangement/sale (the permanent establishment could not, under this proposal, be a conduit in the sale).
A non-resident importer, who does not have a permanent establishment would only qualify as a purchaser in Canada if the goods were imported:
- For their own use; or
- On speculation of future sales (meaning the sale of the goods to a person in Canada was not arranged in any way before the goods arrived in Canada).
Your Dentons International Trade Team will be closely monitoring the public consultation, the results of which may have a significant impact on importers. If you are an importer, a Canadian retailer, or any other person potentially affected by the proposed changes, you may wish to submit feedback during the public consultation. If you require assistance with this, or on anything else connected to customs compliance, we are happy to help. Please contact Paul Lalonde, Anca Sattler, Sean Stephenson or Daniela Acevedo for more information.