If you’ve kept an ear to the ground for all things Canadian trade, you may have seen reports that significant revisions to the regulations on duty valuation are on the horizon.

The Canadian federal government’s budget for 2021 includes quite a range of measures that will have an impact on foreign commerce and customs control in Canada. Among these were revisions to the customs valuation legislation aimed at:

“helping enhance duty and tax collection by ensuring that products are valued in a fair and uniform way by all importers as a method to level the playing field between local and international companies.”

The 2021 budget features amendments to regulate the meaning of certain legislative words. The Canada Border Services Agency (CBSA) is using this authority to engage with stakeholders about these proposed changes to Canada’s customs valuation rules.

Today, we’ll be reviewing the possible impact on Canadian importers — based on a report by Sabrina Bandali and Darrel Pearson at Bennett Jones LLP, North American law firm with a specialty in international trade.

Recommended Reading:

New GST/HST Requirements for Non-Resident Vendors

CBSA’s Updated Priority List For Import Audits

What would happen when these 2021 regulation amendments were implemented?

Bennett Jones identifies 2 key areas of importance. The Consultation Notice will:

1- Define the scope of “sold for export to Canada” to identify the key transaction to apply taxes.
2- Further define the definition of “purchaser in Canada” and “resident” and “permanent establishment”.

customs valuation lawIf implemented, the proposed modifications will tangibly modify the criteria used to identify the applicable sale transaction for commercial goods entering Canada, and therefore the foundation for calculating customs taxes (and GST). This means changes to your bottom line as an importer.

These changes would have an effect on how multinational companies do business, conduct international commercial transactions, manage supply chains for imported products, and acquire services and intellectual property.

Concerns with the CBSA’s general approach for regulation changes…

The CBA Section is worried that the CBSA may use the Consultation Notice to justify a waiver of the standard pre-publication and consultation obligations for regulatory changes with regards to international commerce. While pre-publication is often needed for regulatory initiatives, the Treasury Board (or the appropriate regulation-establishing body) may allow for an exception where there is no legislative necessity for pre-publication.

The Consultation Notice is devoid of specifics at the moment — and many instances throughout the text create more worries than they solve.

The proposed modifications will have far-reaching effects and are very certain to result in significant, and possibly unexpected, consequences. At this time, it appears that it would overturn a Supreme Court of Canada judgment on export sales and numerous Federal Court of Appeal decisions on customs valuation frameworks.

Additionally, it may be in violation of Canada’s commitments under CUSMA, CETA, the CPTPP, and the World Trade Organization’s Customs Valuation Agreement. The devil, as they say, is in the details.

Without access to the full proposed regulatory text, it’s impossible to comment adequately on the proposal’s implications fully, other than to state that it appears to signal a significant shift in the treatment of imported goods, affecting Canadian workers, consumers, and businesses – as well as several Canadian government departments.

The bottom line

This proposal would guarantee that the transaction value method used to calculate the tax on imported products is based on the sale that results in the items being exported to Canada (i.e., the last transaction in the commercial chain, irrespective of the chronological order of the sales). The word “sale” would be defined broadly in the proposal, to encompass any agreement that results in the products being shipped to Canada.

Working with a customs broker ensures that you are consistently informed of changes, amendments, trends, and other updates to Canada’s regulatory framework. In addition, a broker’s role in your import transaction as a facilitator ensures that you remain compliant and reduce the possibility of unexpected fees, fines, and delays. To start the conversation with a customs broker, click here.