Related persons and customs valuation in Canada

When the purchaser and vendor are related, the CBSA considers whether that relationship influenced the price.

When you import goods from a parent company, subsidiary, or another business under common ownership or control, you and your supplier may be considered related persons under the Customs Act.

And when it comes to customs valuation, this can affect how the Canada Border Services Agency (CBSA) reviews your declared value for duty.

While being related to your supplier does not automatically prevent you from using the transaction value method, you may need to show that the relationship did not influence the price.

In this article, we explain who is considered related, when related persons can use the transaction value method, how to demonstrate that the relationship did not influence the price, and what happens if the CBSA does not accept the declared price.

Who are related persons for customs purposes?

Under the Customs Act, a purchaser and vendor of imported goods are considered related persons when:

• They are individuals connected by blood, marriage, common-law partnership, or adoption
• One is an officer or director of the other
• Each is an officer or director of the same two corporations, associations, partnerships, or other organizations
• They are partners
• One is the employer of the other
• They directly or indirectly control, or are controlled by, the same person
• One directly or indirectly controls the other
• Another person directly or indirectly owns, holds, or controls at least 5% of the outstanding voting stock or shares of both
• One directly or indirectly owns, holds, or controls at least 5% of the outstanding voting stock or shares of the other

A parent company and its subsidiary, two companies under common control, or two organizations with overlapping officers or directors may therefore be considered related.

Can related persons use the transaction value method?

The transaction value method is the primary method used to determine value for duty. For customs valuation purposes, related persons may use it if:

• The relationship did not influence the price paid or payable, or
• The price closely approximates an acceptable test value

A test value may be based on the transaction value of identical or similar goods sold to unrelated purchasers, or the deductive or computed value of identical or similar goods.

If neither condition can be established, the transaction value method may not be available, and value for duty must be determined using one of the other methods.

How can you demonstrate that the relationship did not influence the price?

As the importer of record, it is your responsibility to demonstrate that the relationship did not influence the price paid or payable.

Depending on the circumstances, you may need to demonstrate one or more of the following:

• How the price was established
• Whether the price follows normal industry pricing practices
• Whether the price is sufficient to recover all costs plus a representative profit over a representative period
• Whether the declared price closely approximates an acceptable test value

You should keep sufficient records to support your declared value for duty if requested by the CBSA.

You should also determine whether any required additions, such as assists, royalties, licence fees, or subsequent proceeds, must be included in the value for duty. These may still apply even when the transaction value method is accepted.

What happens if the CBSA doesn’t accept the price?

If the CBSA has grounds to believe that the relationship influenced the price, it must notify you in writing of those grounds and give you an opportunity to respond with additional supporting information.

If you cannot demonstrate that the relationship did not influence the price, the CBSA may determine that the transaction value method cannot be used. The value for duty must then be determined using the remaining valuation methods in the order required by the Customs Act.

An incorrect value for duty may result in corrections, additional duties and taxes, interest, and, where applicable, administrative monetary penalties (AMPS).

How Cole International can help

Cole International provides trade consulting and customs brokerage services to help Canadian importers navigate related-party transactions, support their customs valuation, and meet CBSA requirements.

Reach out to one of our trade professionals to discuss how related-party pricing may affect the value for duty of your imports.