CBSA proposes sweeping customs valuation amendments for Canada imports
The Canada Border Services Agency (CBSA) announced a series of proposed amendments to the Valuation for Duty Regulations. These customs valuation amendments could significantly reshape how the value for duty (VFD) of imported goods will be determined in Canada.
The proposed changes focus on redefining key terms and concepts critical to calculating the value of imports. Perceived inequalities between resident and non-resident importers drive these proposed amendments, despite the potential for negative consequences for Canadian importers.
Key changes to customs valuation amendments for imported goods
One of the most substantial changes proposed by the CBSA involves the definition of "sold for export to Canada". Changing this definition will create a significant shift for valuation and the origin of goods for Canadian imports. Prior to the proposed amendment, the concept of “sold for export to Canada” was central to a Supreme Court of Canada ruling that involved cross-border trade between Mattel Canada and Mattel U.S.
In this case, despite the goods originating from a foreign manufacturer, Mattel believed that the U.S. should be considered the origin of the import. Essentially, Mattel U.S. passed the title to the goods to Mattel Canada, so the company argued that the valuation and duties should reflect the U.S. as the origin of the imports.
The CBSA now proposes shifting to a "last sale" approach, where the import value would be based on the final agreement that paid for the goods being imported into Canada, regardless of whether the sale occurred before or after importation.
Additionally, the CBSA plans to amend the definition of "purchaser in Canada." A proposed new definition would remove residency and a permanent establishment requirements, focusing instead on the business that purchases the goods under the relevant agreement, regardless of their status as the importer. This is another change that would fundamentally alter how the value for duty (VFD) is calculated, particularly for non-resident importers (NRIs) who have historically used their purchase prices as the basis for VFD.
Why is the CBSA proposing these changes to valuation?
The CBSA argues that these amendments are necessary to close a regulatory loophole that some NRIs have exploited to declare lower VFD, leading to lower import duties compared to resident importers. By shifting to a "last sale" valuation method and redefining the "purchaser in Canada," the CBSA aims to level the playing field between resident and non-resident importers and ensure the correct amount of revenue from import duties is collected.
The proposed changes have sparked significant debate within the importing community. During the consultation period, the CBSA received feedback from companies, industry groups, individuals, and anonymous stakeholders. Many supported the CBSA's intentions, but substantial concerns were expressed about the potential for unintended consequences. Changing regulations could have a significant effect on business productivity.
The primary concern raised by stakeholders is that the proposal may inadvertently lead to domestic sales being used to determine the VFD. This could result in unintended consequences, such as:
- Increased uncertainty and business costs for importers
- Potential misalignment with the Customs Valuation Agreement
- The need to disclose confidential information for pricing
- Higher inflation for imports to Canada due to higher VFD
Feedback from some stakeholders focused on the need for the CBSA to clarify the language of any amendment to ensure that the objectives are accomplished without negatively impacting resident Canadian importers.
How the CBSA proposal could impact importers
The impact of these proposed amendments could be particularly significant for Canadian importers. If the amendments are implemented as currently drafted, businesses that import goods for resale in Canada may face higher liabilities for import duties and Goods and Services Tax (GST).
This could happen because the VFD would shift from the purchase price from foreign suppliers to the selling price to Canadian customers and traders. For e-commerce retailers and multi-channel businesses, the proposed amendments could result in a considerable increase in the cost of importing goods.
A potential increase in VFD for imports could create a ripple effect throughout the supply chain. Higher duties could be passed on as an additional cost for consumers, further, contributing to inflationary pressures. Canadian importers would likely need to adjust their pricing strategies or renegotiate supplier agreements to mitigate the financial impact of valuation changes.
CBSA responds to feedback and outlines next steps
In response to the feedback, the CBSA stated that the policy objective is not based on domestic sales between a Canadian resident importer and a Canadian customer. Instead, the focus remains on the last sale in the supply chain that triggers the importation of goods into Canada. The CBSA acknowledged the importance of clear and precise regulatory language and confirmed that amendments to the proposal are being considered to address stakeholder concerns.
Following the implementation of the amendments, the CBSA plans to issue policy updates to provide further clarification. These updates will be made publicly available on the CBSA's website, ensuring that the importing community has the necessary guidance to navigate the new regulations.
Importers adjust to thrive in times of change
The proposed amendments to the Valuation for Duty Regulations represent a significant regulatory shift in how the CBSA determines the value for duty of imported goods. While the CBSA's intentions are to create a fairer and more consistent approach to VFD, the potential for unintended consequences has raised concerns among stakeholders. Canadian importers, in particular, could face increased costs and operational challenges as a result of these changes.
Adjusting to changing import regulations and logistics trends is an essential part of a thriving trade business. Cole’s cohesive, collaborative logistics team provides advantages that separate, stand-alone companies simply can’t provide. Connect with one of our customs and logistics leaders now.
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