By way of its publication of the first Customs Notice of the year, CN 15-001, “Treatment of Downward Price Adjustments in Value for Duty Calculations”, the Canada Border Services Agency (CBSA) has brought about a fairly substantive revision to a time-honored tenet of its valuation policies. Until now, a downward pricing adjustment that should have benefited an importer in Canada would not have been an allowable VFD (value for duty) reduction, giving way to a refund if that adjustment occurred after the importation of the goods in question. Indeed, resting on a rather literal interpretation of section 48(5)(c) of the Customs Act, the CBSA “disregard[ed] any rebate of, or other decrease in, the price paid or payable for the goods that [was] effected after the goods” were imported. Of course, the flip side of this, when after importation the price paid or payable (PPP) was increased had always, under Canada’s Customs Act, been an adjustment that was required to be made.
This change in policy, which contributes to an alignment of certain Canadian valuation practices with those in the United States, was brought about by a decision of the Canadian International Trade Tribunal. It was a change in policy that was lost by the CBSA and not appealed. As a result, the policy enunciated in CN 15-001 is narrowly tailored to circumstances such as those in the Hudson’s Bay Company decision (CITT, AP-2012-067), in which the treatment of rebates made after importation is predicated upon the existence of an agreement that effects the reduction in PPP, which was in effect at the time of the importation. In other words, the existence of an agreement operating to reduce the overall purchase price of an imported article can be relied on to allow a port-importation price adjustment refund claim. It’s worthy of noting that even before the advent of CN 15-001, certain situations in which the commercial invoice price was known at the time of entry to be higher than the actual price that was payable allowed for the declaration of the lower price when the entry was declared if the importer was certain that the actual price payable was lower than the invoice price. From this perspective, the publication of the Treatment of Downward Price Adjustments in Value for Duty Calculations is interesting without perhaps amounting to a shift in valuation paradigm by the Agency.
What does potentially give rise to considerable impact however is where the CBSA addresses the policy as it could apply to transfer pricing situations. The CBSA notes that intercompany sales where a transfer pricing agreement is in place would be valued according to the uninfluenced intercompany transfer price. The CBSA adds that for “the PPP to remain uninfluenced, a correction to the value for duty must be submitted to the CBSA when the net total of upward and downward transfer price adjustments occurring in a fiscal period is identified.” This element is an interesting development as it potentially affects the moment in time when the importer has “reason to believe” to effect the correction. Ordinarily, under Canada’s Customs Act, an importer must make any and all corrections to entries (for VFD, origin, classification, etc.) within 90 days of having reason to believe that the information originally filed with the CBSA at the time of the entry (transaction date) is incorrect. Before CN 15-001, in situations where intercompany transfer prices were accounted for on an interim basis quarterly, the importer would have 90 days from the quarterly accounting date to report a price increase (leading to additional duties and taxes being owed), but would not report any price decrease since refunds were not allowed. CN 15-001 suggests that the time to report the adjustment, the “specific moment that the importer has reason to believe that corrections to declarations of value for duty are necessary” is when the “net total of upward or downward transfer price adjustments occurring in a fiscal period is identified.” This can, and arguably always is, at year end when the fiscal period of the company is definitely accounted for. As a result, a single year-end ”reconciliation” adjustment would now be appropriate where before only price increase adjustments based on interim accounting would have taken place. From this perspective, the overall impact of the policy announced by the CBSA could be, for certain importers, considerable. Importers in Canada, and particularly Non Resident Importers from the United States that transact importations themselves in Canada, would be well advised to review whether this policy change could be beneficial to their operations.