In Gowling WLG’s Budget 2021 Update, we noted that Budget 2021 proposed amendments to the Customs Act relating to the basis on which an importer determines the value for duty of imported goods.
The Canada Border Services Agency ("CBSA") recently announced consultations on the issue that shed more light on how the CBSA intends to amend the Customs Act. The measures under consideration are twofold:
- Define the scope of "sold for export to Canada" to specify the relevant transaction for export which forms the basis of the transaction value of the goods.
- Clarify the definition of "purchaser in Canada", as well as the associated definitions of "resident" and "permanent establishment", and ensure that the relevant sale for export forms the basis of the transaction value of the goods.
While the CBSA's consultation notice contains several examples that illustrate how the proposed amendments would impact real life transactions, "Example #7" may have particular implications for companies in the ecommerce space.
CBSA's Example 7 is characterized as involving:
a scenario where the consumer in Canada places an order online and pays for goods through the website of company S, who is located in a foreign country. The website through which the order is placed is set up to represent company S's related company R, a Canadian entity, to sell goods in Canada. The order placed through the website automatically generates two invoices at the same time: one from company S to its related company, company R, and another from company R to the consumer. Company S fills the order and ships the goods directly to the consumer. Company R pays company S for the goods and also pays company S a fee for online services.
In this case, the goods are the subject of two possible sales:
sale 1: from company S to company R
sale 2: from company S, through company R, to the consumer
Both sales occur prior to importation. The order from the consumer sets off the chain of events that cause the goods to be exported to Canada. Company R does not order or purchase the goods on its own account. Therefore, in the scenario under consideration, it does not qualify as a purchaser in Canada. The sale from company S, through company R, to the consumer is to a purchaser in Canada, as the consumer is a resident who ordered and purchased the goods on their own account, and it is the sale that caused the goods to be exported to Canada. Therefore, it is the sale from company S, through company R, to the consumer that is considered the relevant sale for export to Canada to a purchaser in Canada and it is the price to the Canadian consumer that is to be used as the basis to determine the transaction value of the imported goods.
The consultations state that CBSA will consider that, in this scenario, the value for duty must be based on the sale price to the end consumer because the consumer is the party that caused the goods to be imported into Canada. For companies that currently use the sale price to the Canadian company as the basis for value for duty, this change may dramatically impact duty liability.
If accepted the proposed amendments would mark a sea change from the current rules. The CBSA is seeking feedback from importers, Canadian retailers, customs brokers, and any other interested stakeholders on this issue. The consultations are open until July 4, 2021 .