Paul J. Diamond, Canada, Import Compliance Mgr., Global Governance
On March 31, 2015, Canada Border Services Agency (CBSA) published their updated policy addressing the post importation increase in the value of imported goods. The obligation to account for the increase in the value of imported goods can be found in Section 32 of the Customs Act; however, there is no mention in this legislation that allows for the exclusion of post-importation payments, namely management fees or administration fees. Customs D memo D13-4-13 has been published for the purpose of establishing departmental policy on the treatment of post importation payments and the proof required to exclude these payments from the value of imported goods.
It is CBSA policy to allow the fees charged by foreign related parties for the purpose of management and/or administration of the business in Canada to be excluded from the value of imported goods. However, there are three conditions these payments must meet in order to be treated as a payment that is not directly related to imported goods. The payments must be rendered for the operation of the business in Canada and should be reasonable and justifiable in the amounts paid for those services.
Any unsupported payments made to related foreign suppliers will be added to the price paid or payable by CBSA. Accordingly, under section 152(3) of the Customs Act the burden of proof rests upon the importer to document and substantiate all payments made to their foreign suppliers. The type of payment made to the related foreign supplier along with the ability to support that payment. For instance, payments that are made to a related foreign supplier that are attributable to the supplier’s overhead costs are to be added to the value of the goods imported from that supplier.
Research and Development payments are also to be included in the price paid or payable however, if the importer can substantiate that the payment or a portion of that payment is attributable to goods not imported into Canada, than the subject amount is not to be added to the price paid or payable. The standard for this was established in the Skechers USA Canada decision. The Federal Court of Appeal ruled that the entire R & D (research & development) payment made to Skechers USA was to be added to the Price Paid or Payable rather than a portion of the R & D payment that was directly attributable to the imported goods. The Court supported the Canadian International Trade Tribunal reasoning that there was a sufficient link to the imported goods and the total R & D amount paid to Skechers USA under the Cost-Share Agreement between the parent company and its subsidiary.
Marketing and promotional fees are not generally required to be added to the Price Paid or Payable, however if it is already included, it cannot be deducted. If this fee is paid post importation, then the fee must be apportioned by the supplier in an equitable and identifiable manner to support its exclusion from Price Paid or Payable, otherwise it is CBSA policy to add it to Price Paid or Payable. If this type of fee is paid in a lump sum and is not related to a specific product, then CBSA policy would have this added to Price Paid or Payable. In general, CBSA policy on this issue is contingent on the ability to apportion and support the payment in question thereby, rewarding good bookkeeping and pricing agreements.
In light of this updated valuation policy outlining an importer’s responsibility along with the downward adjustment policy announced earlier in the year, it can be assumed that there will be an increased scrutiny by CBSA on valuation issues and payments between related parties. A review of these types of payments and the agreements that cover them would be prudent steps to take.
References
Canada Border Services Agency D-memorandum D13-4-13 (Published March 31, 2015)
Canada Border Services Agency Customs Notice 15-001 (Published January 19, 2015)
Skechers USA Canada Inc. v. The President of the Canada Border Services Agency (Published March 2, 2015)
Customs Act, Section 152(3)