In a Customs Notice published on June 28, 2013 (the Notice), the Canada Border Services Agency (the CBSA) has quietly tried to put an end to the controversy over the so-called "iPod tax" that caught the eye of the national media following last March's federal budget. For the reasons discussed below, the Notice will be of particular interest to businesses involved in the importation or sale of electronic and high-technology goods.


As we reported in a previous edition of the Stikeman Elliott Tax Law Update, the 2013 federal budget proposes to eliminate access by high-income, export-competitive countries to Canada's General Preferential Tariff (GPT) program. The proposed changes to the GPT regime will most likely trigger an increase in customs duties levied on goods imported from 72 countries starting on January 1, 2015. The countries affected by the reform notably include the BRIC countries - Brazil, Russia, India and China.

Shortly after the budget's release, Mike Moffatt, an assistant professor at Western University's Ivey Business School, argued in the Globe and Mail that, because China now manufactures a large proportion of the world's electronic goods, the Conservative government's reform of the GPT was the equivalent of an "iPod tax" (a reference to the very popular MP3 player). The uproar caused by Dr. Moffatt's observations prompted the CBSA to release a statement to the media to the effect that MP3 players (including iPods) would continue to benefit from special tariff-exempt classification under tariff item 9948.00.00 of the Customs Tariff. In other words, the CBSA took the position that, contrary to Dr. Moffatt's concerns, iPods manufactured in China and imported into Canada would not ordinarily be affected by the changes to be made to the GPT regime in 2015, since they could generally continue to take advantage of an alternative favourable tariff classification.

Despite the CBSA's response to the concerns raised by Dr. Moffatt, many practitioners and others involved in the industry remained skeptical about the practical applicability of tariff item 9948.00.00 to consumer goods such as MP3 players. Tariff item 9948.00.00 is targeted specifically at goods that are "for use in" computers and other high-technology products, making its application effectively dependent on the end use of the imported goods. The CBSA's Memorandum D10-14-51 (Tariff Classification Policy - Tariff Item 9948.00.00), published in 2007, specifies that "importers are expected to provide end-use certificates confirming that the goods were solely used for the purpose for which they were imported." If this rule were to be enforced systematically by the CBSA with respect to iPods and other MP3 players, whose end users are typically ordinary Canadian consumers, the usefulness, in practice, of tariff item 9948.00.00 with respect to such devices would obviously be substantially reduced.

With respect to this point, we understand that the CBSA has recently assessed importers for failing to collect such certificates. Documents obtained by the Canadian Importers 9948 Fair Treatment Coalition under the Access to Information Act even revealed that the CBSA had issued advance rulings for tariff item 9948.00.00 to importers stating that "there will be no end use certificates required." Sony of Canada Ltd. filed an application for judicial review to the Federal Court of Canada on December 20, 2012 to set aside an assessment based on Sony's failure to provide end-use certificates to the CBSA in respect of imported televisions (the CBSA had previously issued an advance ruling to Sony confirming that the televisions would qualify under the provisions of tariff item 9948.00.00). This application was withdrawn and appeals are presumably now being filed under the Customs Act (the Court has been reluctant to interfere with CBSA decisions where statutory appeals have not been exhausted). What is clear is that the CBSA's requirement with respect to end-use certificates is currently being vigorously contested by importers.

The Notice

The Notice changes the record-keeping requirements relating to tariff item 9948.00.00 in a way that is intended to make its application more flexible.

To achieve this flexibility, the Notice specifies that importers will not have to obtain end-use certificates from users as to the actual use of the goods. Instead, they will henceforth be allowed to fulfill the administrative requirements of the CBSA simply by attesting to the contemplated use of the goods. Importers will be obligated to retain records of the relevant written attestations that are sufficient to confirm the precise intended use to be made of the goods.

However, it remains uncertain precisely how the CBSA will handle the attestations in practice. Will the customs authorities accept attestations from importer-wholesalers or only from importer-retailers who deal directly with the end consumers? What degree of knowledge or evidentiary support will be required of the importer in connection with its attestation as to the contemplated use of the goods? These and other questions remain unanswered.

Finally, it should be underscored that all other requirements relating to classification under tariff item 9948.00.00 remain unchanged. Of particular significance for the electronics industry is the requirement that goods must still meet the "for use in" requirement. Because of this, electronic products (other than MP3 players) that are manufactured in countries affected by the GPT reform may not necessarily fulfill the criteria for classification under tariff item 9948.00.00. For those products, the dreaded increase in customs duties is likely inevitable.

Despite the publication of the Notice, importers will have to exercise some degree of caution if they presently make use of tariff item 9948.00.00 or contemplate using it in the future. In short, when GPT reform comes into effect in 2015, tariff item 9948.00.00 will be helpful in some circumstances but is unlikely to be the panacea that some had hoped for. Nevertheless, certain importers of electronic equipment may have refund opportunities that should be protected depending upon the outcome of appeals and litigation.

Philippe Kattan