Customs decision affects valuation/transfer pricing methods and liability for duties and VAT

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Customs decision affects valuation/transfer pricing methods and liability for duties and VAT

Greg Kanargelidis of Blake, Cassels & Graydon explains why a decision of the Canadian International Trade Tribunal about the method of valuing imports for customs tariff purposes will make the valuation of imported goods more complex.

The decision of the Canadian International Trade Tribunal (CITT) in Cherry Stix Ltd v President of the Canada Border Services Agency, Appeal No AP-2008-028 (Cherry Stix II) represents a significant departure from the CBSA's administrative practices.

The CITT decided that where title to imported goods transfers in Canada to the "purchaser in Canada", the transaction value method is not applicable in the determination of the customs value of the goods on which duties must be paid.

All goods imported into Canada are subject to customs tariffs which are usually imposed as a percentage of the "value for duty" of the goods. Canada's value-added tax, the Goods and Services Tax, applies on the "duty paid value" of imported goods.

The value for duty is established in accordance with specified methods of valuation that must be considered sequentially until a method is found that applies.

The method used most often is the transaction value method under which the value for duty of imported goods is based on the "price paid or payable" in a "sale for export to Canada" to a "purchaser in Canada".

In Cherry Stix II, the issue was whether the value for duty of certain imported women's T-shirts should be based on the transaction value method (TVM), or, the sale price charged by Cherry Stix to Wal-Mart Canada (as maintained by the CBSA), or whether a different method of valuation applies to the transactions at issue.

The CITT concluded after a review of all of the facts that since the completion of the sale and therefore the transfer of title to the goods in issue occurred after the goods had been imported intoCanada, there was no "sale for export" as between Cherry Stix and Wal-Mart Canada, so that the TVM was not applicable in this case.

The decision in Cherry Stix II is a significant departure from the CBSA's administrative practice and interpretation of the TVM provisions of the Customs Act.

The decision is bound to complicate the determination of the proper customs valuation of imported goods. This is because of the relatively more complex methodology applicable in the case of the alternative methods of valuation that are prescribed by the Customs Act: the transaction value of identical goods; the transaction value of similar goods; the deductive value; and the computed value.

Greg Kanargelidis (greg.kanargelidis@blakes.com), is a partner in the Toronto office of Blake, Cassels & Graydon

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