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CBSA Conducting Consultations on Revised Value for Duty Regulations

When the Federal government released Budget 2021, A Recovery Plan for Jobs, Growth, and Resilience (the “Budget”), the Budget promoted national social and economic recovery following the COVID-19 pandemic, and highlights, among other things, fair and equitable taxation systems that will contribute to the growth of the middle class.[1] This included several amendments targeted at Canada’s customs and trade remedies regime.

One critical change made by the Budget was an amendment to the Customs Act that will impact duty valuation. This change amended sub-section 45(1) of the Customs Act to allow the definition of “sold for export to Canada”, and its constituent parts, to be set by regulation. As this term is critical for valuation of goods imported into Canada (both when determining the appropriate mechanism to use when valuing goods, and in determining the appropriate values to use in the calculation), this change is significant.

The CBSA is now seeking comment from importers regarding proposed amendments to the Value for Duty Regulations. Specifically, these amendments seek to clarify the definition of “sold for export to Canada” and “purchaser in Canada” for the purposes of assessing duties.[2] Stakeholders such as importers, Canadian retailers, and trade brokers were invited to participate in a public consultation process which closed in early July.

Duty Valuation

Under the Customs Act, importers are required to self-assess any duty liability.  There are several steps to this assessment: classifying goods, determining the origin of the goods, and then determining the appropriate value for those goods.  At times the determination of value is relatively simple: a manufacturer of a specific good sells directly to an arm’s length purchaser in Canada and immediately ships the purchased goods from its factory to the Canadian customer, and the sales price can form the basis of the customs value.

However, that is not always the case.  Often, there can be multiple sales between various entities (related or not) that could each be the potential sale for export to Canada.  There are situations where the precise sequence of events can cause complications in determining who the customer in Canada is.

It is vitally important to identify which sale qualifies as the sale for export to Canada to determine the appropriate value for the goods. Importers have historically wanted to ensure that a sale as early as possible in the supply chain is considered the sale for export, as that will minimize the value for duty (while sales further down the chain attract high and higher valuations). Of course, if this is flipped then the opposite is true: valuations further down the supply chain (especially using the final end-user sale) will generate the highest value for duty and thus the highest duty payable.

Fortunately for importers and consumers, the case law regarding sale for export has generally allowed for using specific structures to push the “sale for export” further up the supply chain.  Unfortunately for consumers and importers, the new regulations would essentially close off these structures and could significantly increase duty liability unless companies take specific (and likely expensive) steps to counter act the changes.

Goods Sold for Export to Canada

The Customs Act did not define the term “sold for export to Canada”. This lack of clarity has historically provided a good deal of latitude when it comes to establishing the relevant sale for duty valuation. Existing Canada Border Services Agency (“CBSA”) guidelines attempt to define “sold for export to Canada” in the following ways:

-A sale for export to Canada is one in which the goods have been “imported into Canada as a direct result of the sale agreement between the purchaser and the vendor.”[3]

-A sale for export to Canada is the sale in which the purchaser in Canada is directly involved.[4]

-In a series of sales, the sale for export to Canada is the sale that “sets off the chain” of sales – that is, “the transaction in which the person in Canada is directly involved.”[5]

Proposed Amendments: Redefining “Sold for Export to Canada”

The proposed regulatory changes would attempt to fully define “sold for export to Canada”. The federal government claims that this clarity will help to ensure the fair and consistent valuation of goods, which will “level the playing field between domestic and foreign businesses and generate an estimated $150 million in additional annual duty revenues.”[6]

The CBSA has provided additional detail regarding the changes it envisages for the regulation.  The new definition will ensure that the transaction and duty value of goods are assessed “based on the sale that causes the goods to be exported to Canada, i.e. the last transaction in the commercial chain, irrespective of the chronological order of the sales.”[7]

This change, in isolation, would have some impact on a number of structures that otherwise would attempt to push the purchase to an earlier transaction in the supply chain. However, it is when these changes are coupled with the changes to the definition of “purchaser in Canada” that the impacts are truly felt.

Purchaser in Canada

The Customs Act and the Valuation for Duty Regulations currently define a purchaser in Canada as a resident individual or business, a permanent establishment, or a person importing goods for personal use or future sale in Canada.[8]

Broadly speaking, an individual resident is someone who ordinarily resides in Canada. A business resident is an entity that carries out business domestically, and which is located and controlled in Canada.[9] As things stand, it is not necessary for the day-to-day operations of the establishment to be managed or controlled in Canada; however, it is necessary that business be carried out in some form through the establishment. This definition encompasses the related parties of foreign parents who establish subsidiaries in Canada.[10]

Proposed Amendments: Redefining Resident and Permanent Establishment

The proposed regulatory amendments clarify the definition of "purchaser in Canada", thereby limiting the scope of the relevant sale for export. Accordingly, this will limit the types of sales that can be used to assess the transaction value of goods.[11]

Under the proposed amendments, an entity seeking to qualify as a permanent establishment must:


  • Be the purchaser of the goods imported to Canada;
  • Have a fixed place of business in Canada, through which the goods are purchased; and
  • Have the authority to enter into the arrangement/sale.[12]


Importantly, under the amendments, all of these factors would need to be present for an entity to qualify as a permanent establishment and thus as a purchaser for sale. According to the authority requirement, moreover, the permanent establishment could not be a mere conduit.[13]

In other words, it would not be sufficient for operations to be carried out through the fixed place of business – instead, the fixed place of business would need to be the legal entity with the authority to enter into an agreement or sale, and the entity would need to purchase the goods in question on its own account.

This will impact foreign companies with Canadian subsidiaries that are not distinct legal entities, since sales to those subsidiaries will no longer count as the relevant sale for export to Canada. As such, duty valuation will no longer be assessed in accordance with the price paid or payable for the goods at the time of the “sale” to the subsidiary, but rather at the time of sale to a true purchaser in Canada. This will also impact any foreign entities that have a Canadian subsidiary that is a separate legal entity but acts merely as a shipping/distribution agent and does not actually have authority to enter into sales or conduct business of its own.

For example, a company in Canada has a website, hosted in Canada, on which customers can place orders. When an order is placed the website automatically generates both a customer invoice and places an order with the parent company for shipment of the goods directly to the customer.  In this case, even though the website in Canada is executing the transaction that would be causing the export, because it fails the last of the criteria for a “purchaser in Canada”, the sale for export would be the sale between the website and the end customer.

Conclusions & Next Steps

In short, the proposed changes will narrow the scope for determining the relevant sale when assessing transaction and duty value. Subsidiaries without authority to enter into sales will no longer be considered purchasers in Canada, and the last sale in a commercial chain, which causes a good to be sold for export to Canada, will be the relevant sale.

In preparing for potential changes, companies who currently pay duties based on the price paid or payable for sales through an entity without authority to engage in an agreement should expect changes and should prepare accordingly.

It will also be important for multinational companies with various related party manufacturers to review their sales processes and transfer pricing policies to ensure that they meet the criteria set out above.  The difference between the usual transfer price, and the price to the customer, is usually significant. This may also require the expansion of Canadian operations to ensure that they meet all three requirements of the definition of “purchaser in Canada”.

Finally, one issue the CBSA may not have fully engaged with is the impact this has vis-à-vis anti-dumping and countervailing duties established under SIMA. Especially where the normal values and export prices are based on sales to related party purchasers using transfer price metrics, there may be conflict between the new valuation rules and the mechanisms under SIMA for valuing imports to determine compliance with normal values and reliability assessments.


[1] Canada, Government of Canada, Budget 2021, A Recovery Plan for Jobs, Growth, and Resilience (Federal Budget)

(April 9, 2021) [Budget].

[2] Canada, Canada Border Services Agency, Potential regulatory amendments to the Valuation for Duty Regulations

(Consultation Notice) (June 4, 2021) [Consultation Notice].

[3] Canada, Canada Border Services Agency, How to establish the value for duty of imported goods (Customs

valuation handbook) (January 3, 2020).

[4] Ibid. Canada, Canada Border Services Agency, Memorandum D13-1-3 (Ottawa: July 4, 2014) [D13-1-3].

[5] Canada, Canada Border Services Agency, Memorandum D13-4-2 (Ottawa: November 21, 2013) [D13-4-2].

[6] Budget, supra note 1, Part 1 Chapter 10.

[7] Consultation Notice, supra note 2.

[8] Valuation for Duty Regulations, SOR/86-792, s 2-2.1. Memorandum D13-1-3.

[9] D13-1-3, supra note 6.

[10] Ibid.

[11] The CBSA notes that the definition of “resident” will be clarified, although not additional details are provided.

[12] Consultation Notice, supra note 2.

[13] Ibid.



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