As we wrote about previously, on May 27, 2023 the Canada Border Services Agency (the “CBSA”) proposed amendments to close what they termed “loopholes” allowing certain importers to use a lower value for duty (“VFD”) than what CBSA thought was appropriate.
The draft changes to Canada’s Valuation for Duty Regulations (the “Regulations”) generated significant feedback from interested parties, but over one year later importers are left wondering about the status of the proposed amendments.
Background – Valuation for Duty
Under the Customs Act, the VFD of imported goods is primarily determined by the transaction value method. Under this method the VFD is generally based on the price paid or payable for the goods when sold for export to Canada to a purchaser in Canada. Applying this rule requires one to identify which transaction is the “sale for export to Canada” and who qualifies as a “purchaser in Canada”.
The ”Loophole” According to CBSA
According to the CBSA, there is a “loophole” that permits two foreign entities to use the transaction value method where neither party qualifies as a “purchaser in Canada”. This puts Canadian importers at a competitive disadvantage while simultaneously resulting in lost customs duties as a result of the lower VFD.
Proposed Amendments
To address the “loophole”, CBSA proposed amendments to the Regulations to introduce a definition of “sold for export to Canada”, and revise the definition of “purchaser in Canada”. The proposed amendments were basically an effort to ensure that in multiple-transaction situations it is the last sale in the chain that is used to determine the transaction value, as follows:
- Sold for Export to Canada: Sales of goods are deemed “sold for export to Canada” if they are subject to an agreement or arrangement (regardless of its form) for transfer in exchange for payment with the purpose of exporting to Canada. This applies regardless of when the ownership transfers. If there are multiple agreements or arrangements, the one concerning the last transfer of goods in the supply chain is considered applicable.
- Purchaser in Canada: This term refers to the individual or entity who buys the goods under the aforementioned agreement or arrangement, irrespective of whether they are the importer or when they make payments.
Feedback & Expected Next Steps
On May 8, 2024 the CBSA released a “What we Heard” report summarizing the feedback received, and indicating that CBSA was working with the Department of Justice on revising the proposed amendments – although the extent of revisions is unclear.
In terms of the expected timing of the proposed amendments, we understand that the CBSA’s current administrative priority is the October 21, 2024 CARM Release 3, and that these proposed amendments to the Regulations will likely not be released until sometime in 2025.
Given the potentially significant impact on VFD, importers should ensure they stay informed about these developments, and consult with legal counsel to evaluate and address any required changes in their VFD approach.