Cherry Stix Commentary

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Canadian Society of Customs Brokers Sep 01, 2010

The CSCB would like to thank our associate member, Michael Kaylor of Lapointe Rosenstein Marchand Melan•on, for providing the following commentary on the recent Cherry Stix Decision. Mr. Kaylor will be speaking on this subject, and others, at the CSCB annual conference, being held September 19 - 21.

Implications of the Cherry Stix Decision

Now that the statutory time limit for an appeal of the Canadian International Trade Tribunal (the "Tribunal") to the Federal Court of Appeal ("FCA") has expired, it is time to consider the "practical" implications of the decision.

Essentially, the decision stands for the principle that the transaction value method (i.e. invoice price) cannot be used where a non-resident importer has entered into an agreement to sell to a purchaser in Canada and where the sale of the goods from the non-resident importer to the purchaser in Canada occurs after the goods have been imported into Canada. Assuming that the transaction value of identical or similar goods methods are also inapplicable, the non-resident importer has a choice between the use of the deductive value method and the computed value method.

Assume again that it is not possible to secure the co-operation of the manufacturer of the goods and that the cost of production information is therefore unavailable, it is the deductive value method which remains. Section 51 of the Customs Act provides that the deductive value method begins with the unit selling price at which the greatest number of units of the goods are sold to the first purchaser in Canada. From that amount is deducted an amount for profits earned in connection with sales of the goods in Canada, as well as general selling and administrative expenses ("GS&A") also incurred in connection with sales of the goods in Canada. The deductions allowed are limited to profits earned in Canada and expenses incurred in Canada. This way, the price per unit of the goods is reduced to a reasonable approximation of their value at the time of importation.

It should be relatively simple for the non-resident importer to compute the amount of profits earned in connection with the sale of goods to the purchaser in Canada on a per unit sale price basis. The calculation of the individual GS&A expenses may be somewhat more complex; some of the expenses may lend themselves to a computation on percentage of sales basis (i.e. Canadian sales versus total sales of the non-resident) while others may require calculation based on the amount of time spent in connection with the sales in Canada.

Whatever the modalities of calculation, the net result of the Cherry Stix decision is a savings of customs duty through the use of the deductive value method as opposed to the sale price to the first purchaser in Canada (less those deductions which were already allowed under the Customs Act).