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CBSA proposes amendments to customs valuation rules having potentially significant impact on importers

On Friday, May 26, the Canada Border Services Agency (“CBSA”) issued notice in the Canada Gazette that it had commenced consultations (the “Consultations”) on proposed amendments that would have the effect of instituting a “last sale” rule for customs valuation. This substantial shift in valuation rules is to be made via certain amendments to the Valuation for Duty Regulations under the Customs Act (“Amendments”). The Amendments have been proposed to address the perceived “loophole” that Canada claims allows non-resident importers (“NRIs”) to claim its acquisition price  of the good for customs valuation purposes, as opposed to the “last sale” price, which is the (higher) price to the Canadian purchaser in a series of sales. While the focus in the Consultations was on NRIs, the Amendments would equally impact resident importers.

If adopted, the Amendments would cause an importer (resident or non-resident) to use the “last sale” price to the customer in Canada as the basis for customs valuation, which will result in an increase of customs duties and taxes payable when such goods are imported into Canada. As will be further described below, however, the Amendments could have a much broader impact on the Canadian importing community, and the impacts will be felt by NRIs and resident importers alike. We anticipate some businesses may even reconsider whether their presence in Canada makes sense from a commercial perspective should the Amendments be implemented as currently drafted.

Overview of the Proposed Amendments

The Consultations describe the issue as follows:

The Customs Act and the corresponding Valuation for Duty Regulations (the Regulations) that govern the methods of determining the value for duty (VFD) of imported goods in Canada do not currently align with international consensus established at the World Customs Organization regarding the interpretation of the term “sale”, and the “last sale rule”. Specifically, the term sale is to be interpreted in its widest sense, and the last sale to the buyer in the country of import, and not an earlier sale between two foreign entities, is to be used as the basis for determining the VFD. Canada’s narrow interpretation of the term sale, which focuses on when the transfer of title occurred, as well as a loophole in the definition of “purchaser in Canada” that was highlighted by recent decisions from the Canadian International Trade Tribunal (CITT), permit the use of a sale between two foreign entities as the basis for calculation of the VFD.

This misalignment creates an unfair advantage for NRIs as they can use the earlier sale between two foreign entities in the trade chain. For example, the sale between the foreign-based manufacturer and the NRI, which occurs so that the NRI can fulfill the order to the buyer located in Canada, is used in order to pay less duty on goods that are imported to Canada.

In the scenarios to which the CBSA is referring, the NRI is usually relying on what is known as the “transaction value”, the primary and first in the hierarchy of six customs valuations methods contemplated in the Customs Act. Three conditions must be satisfied in order to claim the transaction value:

  • The imported goods are sold for export;
  • The purchase in the sale for export is the purchaser in Canada; and
  • The price paid or payable for the goods can be determined.

“Purchaser of Canada” is defined in the Valuation for Duty Regulations as:

  • a resident;
  • a person who in Canada who is not a resident but who has a permanent establishment in Canada; or
  • a person who is neither a resident nor has a permanent establishment in Canada, and who imports the goods, for which the value for duty is being determined,
    • for consumption, use or enjoyment by the person in Canada, but not for sale, or
    • the sale by the person in Canada, if, before the purchase of the goods, the person has not entered into an agreement to sell the goods to a resident.

The Consultations set out the proposed text for the Amendments, which would implement definitions for the two fundamental concepts: “sold for export to Canada” and “purchaser in Canada”.

The concept of “sold for export to Canada” is not currently defined in the Customs Act, but the Supreme Court has described it as the sale by which title to the good passes to the importer.[1] Contrary to the Supreme Court’s interpretation, the proposed Amendments do not account for title transfer timing as a means to determine which sale would constitute the “sale for export”. Instead, “sale for export” would mean “[…] in respect of goods, to be subject to an agreement, understanding or any other type of arrangement — regardless of its form — to be transferred, in exchange for payment, for the purpose of being exported to Canada, regardless of whether the transfer of ownership of the goods is completed before or after the goods are imported.”

In addition, the proposed Amendments would repeal the current statutory definition of “purchaser in Canada” noted above. The concept would instead be defined as, “in respect of goods that are the subject of an agreement, understanding or any other type of arrangement […], the person who, under that agreement, understanding or arrangement, purchases or will purchase the goods, regardless of whether the person is the importer of the goods or when the person makes payments in respect of the goods.” Thus, for customs valuation purposes, two of the key current considerations, i.e. where title transfers and the resident/permanent establishment of the purchaser, would no longer be operational in the determination of value for duty.

The Amendments also propose language requiring that, if there are two transfers that could constitute a sale for export to Canada, the appropriate one to use for valuation purposes is the later transfer of the two. Importers would be required to claim the “last price” in a series of sales to Canada, which will usually be a higher price than the importer’s acquisition cost. Taxes and customs duties are based on the value for duty claimed at the time of importation. Accordingly, the higher the value for duty, the more revenue is generated by Canada.

Apart from what could be consequential economic impacts on resident importers and NRIs, including global entities which cause goods to enter into the Canadian economy through Canadian subsidiaries, when applied as proposed, the Amendments could arguably have the effect of causing the importer to claim what would otherwise be a domestic sales price as the value for duty. If administered in this manner, as noted below, Canada would be largely out-of-step with major trading partners, and potentially with general principles of international customs law.

Potential Misalignment with Trading Partners and WTO Obligations

When these Amendments were first proposed in 2021, there was some criticism (including by the Canadian Bar Association) that the Amendments would result in a misalignment between Canada and vital trading partners like the United States. The Consultations themselves raise this possible issue, noting that the United States had attempted to regulate a ‘last sale rule’ only to withdraw it, in part due to opposition from the U.S. trading community. Accordingly, if the CBSA moves forward with the Amendments, customs valuation rules in Canada and the United States will be starkly different for certain importers and related entities. This lack of uniformity in valuation methodology could lead to significant compliance issues for businesses engaging in trade across the U.S.-Canada border in both directions.

There have also been questions regarding the degree to which the Amendments comply with Canada’s obligations under various World Trade Organization (“WTO”) agreements. Article 1 of WTO’s Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (commonly referred to as the “Customs Valuation Agreement”) explicitly states that “[t]he customs value of imported goods shall be the transaction value, that is the price actually paid or payable for the goods when sold for export to the country of importation, adjusted [as applicable]”. Presumably, an intercompany price between a foreign entity and a Canadian subsidiary, for example, would be allowable under this construct. As a matter of fact, the WCO Technical Committee on Customs Valuation has opined on “series of sales” events, and has clarified that the price paid or payable for customs purposes is the last sale occurring prior to the introduction of the goods into the country of importation.

Furthermore, in closing the alleged “loophole”, it could be argued that Canada is privileging importers whose business is based on warehousing goods which are imported prior to a third party purchase. NRIs would not necessarily take this business strategy, and instead, will often import goods when they are subject to an order from a third party Canadian purchaser. This could be considered contrary to the general principle of national treatment, a fundamental principle of international trade law that is enshrined in most trade agreements to which Canada is a party, including those under the WTO.

Canada has clearly indicated that the Amendments are designed to “level the playing field” between NRIs and resident importers, raising the question of whether the desired impact on NRI importations runs contrary to the principle of national treatment and Canada’s WTO obligations.

Practical Implications for Importers

As currently drafted and described in the Regulatory Impact Statement, the Amendments will not only capture the sales and NRI importations that the CBSA purports to be isolating. As noted above, there are a number of scenarios where Canadian resident entities and well-established subsidiaries, wholesalers, distributors, and retailers will be exposed to what could be significantly higher duties and taxes based on the “last sale” customs value construct.

This will also have particularly acute implications for e-commerce businesses that import goods for resale, including those that operate as sales platforms, merchant communities, or marketplaces. Importers may be forced to revisit their import and broader supply chain strategies if the Amendments are implemented as proposed.

Participation in the Consultations

The Consultations were initially set to close on June 26, 2023, but have since been extended to July 26, 2023. Given the fundamental nature of the changes and the far-reaching implications for importers and their valuation practices, the Amendments should be reviewed closely to assess the impact on importers’ dutiable values. McCarthy Tétrault’s International Trade and Investment Law team has deep expertise in advising on all manner of customs valuation matters. We encourage you to reach out to discuss how the Amendments could impact your supply chain and business strategies. Our tax colleagues have also released a brief overview on the Amendments based on their expertise in commodity and cross-border taxation, which can be accessed here. We will continue to keep our clients apprised of key developments in this Consultation process, and in Canada’s customs laws more broadly.


[1] Canada (Deputy Minister of National Revenue) v. Mattel Canada Inc., [2001] 2 S.C.R. 100, 2001 SCC 36.



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