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AUTOMOTIVE REPORT: TARIFF HEADING 9966

CBSA'S VERIFICATION AUDITS TARGET RESTORATION INDUSTRY

A good part of our Tax and Trade practice involves advising Clients in the Automotive Industry on matters involving the application of Canadian taxation and customs duties to motor vehicles and parts.

Recently, we have seen an increase in audits and assessment of automotive restoration businesses, which seem to be currently targeted by the Canada Border Services Agency (“CBSA”).

One focal point seems to be the application of Tariff Concessionary Item 9966.00.00 (“Concessionary Code 9966”), which allows for the duty-free importation of certain vintage vehicles and repair parts.

What are CBSA Verification Audits & What Can Happen?

Under section 42.1 of the Customs Act, the CBSA conducts periodic compliance verification audits which generally conclude with a Detailed Adjustment Statement (“DAS”).

Although the DAS amount can be minimal, this document has significant legal implications.  A DAS may trigger mandatory self-correction obligations on declarations of origin, tariff classification or value for duty reaching back up to four years.

Furthermore, “corrections” are generally due within 90 days of the DAS and may require immediate payment of duties owing.  Moreover, failing to correct a tariff classification when an importer has “reason to believe” it is incorrect can result in Administrative Monetary Penalties (“AMPs”) on top of duties and taxes.

Even a minor issue today can lead to large retroactive duties tomorrow!

The Current Issues with Concessionary Code 9966

In the auto repair and restoration industry, Concessionary Code 9966 is widely used to allow for the duty-free importation of vintage automobile parts, which might otherwise have been dutiable.

Generally, Concessionary Code 9966 is understood to apply to:

• -     Certain motor vehicles manufactured more than 25 years before the date of importation; and

• -     Articles used solely or principally with those vehicles.

While this may seem straightforward enough, current CBSA verifications appear to be taking the view that many importers are misapplying this tariff item – resulting in the denial of this concessionary item, and the issuance of a duty assessment.

In some cases, the CBSA’s interpretation has resulted in importers being wrongly assessed for upwards of $500,000!

Unfortunately, our own view remains that CBSA is presently misinterpreting Concessionary Code 9966, and reading it far too narrowly.

Takeaways

The CBSA looks to have launched a verification enforcement initiative in the automotive restoration industry and for importers using Concessionary Code 9966. Those that have received a DAS should act especially fast as deadlines for appeals are generally 90 days after receiving notice. Now may be the time to seek professional advice!

For help with tariff classification or a verification audit, click here.

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