The Most Commonly Overlooked Area of a Customs Audit – Valuation

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By Patti O'Malley, ABC Customs Brokers Jan 28, 2016

In-depth compliance verifications by Canada Border Services Agency (CBSA) in recent years require that both importers and exporters establish adequate internal controls as well as maintain well-documented compliance procedures.

The majority of Canada Border Services Agency (CBSA) audits cover one or more of three topics:  tariff classification, valuation, and verification of origin. There are two post-release verification processes:

1. Some audits are Random verifications where an importer is randomly chosen to undergo an audit. Random verifications are designed to measure compliance rates and revenue loss and the results may be used for many purposes, including risk assessment, revenue assessment, and promoting voluntary compliance.
2. The other audit practice employed by CBSA is through Verification priorities where they target specific industries or products. In both situations, CBSA is examines importers for compliance and observing all rules and regulations.

Out of the major areas audited, the one most commonly overlooked by importers is the subject of valuation.

What is Valuation?

As it relates to imported goods, valuation means determining the correct value to declare to Customs. This is also known asthe value for duty. There are 6 methods of determining Value for Duty.

The most common valuation method used is transaction value, however the final value for duty could be influenced by:

• The relation between the parties involved (i.e. a related buyer and seller)
• Conditions where the goods were not purchased by the Canadian recipient (i.e. consignment)
• Allowable deductions to the price paid
• Additions or other costs which must be added to the price before customs duty and taxes are calculated
• Used goods
• Goods sold while in Canada on a temporary basis

Valuation Topics Overlooked in Customs Declarations

While this subject is extensive, let’s review a couple of the key valuation topics that may have been easily overlooked when making customs declarations.

1.  Assists

An “assist” is defined as goods or services provided free or at a reduced charge by the purchaser for use in the production of imported goods.

• Materials, components, parts and other goods incorporated in imported goods.
• Tools, dies, moulds, and other goods utilized in the production of imported goods.
• Any materials consumed in the production of imported goods.
• Engineering, development work, art work, design work, plans and sketches undertaken elsewhere than in Canada and necessary for the production of imported goods.

For example, if a Canadian purchaser contracted a U.S. company to bottle juice where the Canadian company provided the packaging materials, the additional costs of the packaging would need to be included in the declared value of the juice.

2. Parties involved in a transaction

Many transactions involve two parties – a buyer and a seller, which usually makes it is easy to determine the value for duty. However sometimes there are numerous parties: manufacturers, exporters, distributors, buying and selling agents, vendors, consignees and purchasers. The involvement of many parties could make it difficult to identify the correct value for duty and additional care should be exercised.

In many cases, the results of assigning correct values can be “revenue neutral” with CBSA; in other words, the goods may be duty free which means that the importer will not incur additional expenses. Like all importations however, the onus is still on the importer to make accurate customs declarations or potentially expose themselves to fines and penalties under the Administrative Monetary Penalty System (AMPS).

Why should an importer or exporter be concerned?

1. Primarily due to the fact that Valuation is an area that is reviewed and regulated by CBSA. Importers generally spend the least amount of time worrying about valuation, but it is still an area where you are expected to be compliant.

For a detailed version of the current targeted priorities, visit this CBSA webpage Trade Compliance Verifications.

2. Secondly, there are over 40 memorandums in the CBSA D Series that deal with valuation. It can be an intricate area to navigate if your foreign purchases involve situations which could change the declared value to Canada Customs.

Will your business undergo a customs audit?

Whether your business is importing or exporting goods, you should be aware that at some point you are likely to be selected for an audit.

Customs Audit Assistance Services

If you have reason to believe that you have valuation situations which have the potential to raise flags during an audit, please give us a call to discuss this further. We have the expertise to guide your company through the audit process.

Preparing for a Customs Audit

Businesses that do not plan for a potential customs audit do so at their own risk. To learn more and gain insight on the customs audit process and what CBSA is assessing, consider attending an upcoming  Canadian Trade Compliance Seminar. For an in-depth session that will guide you through the maze of regulations that determine transaction value attend our upcoming Customs Valuation Seminar. If you are importing and exporting goods into the United States, you will find our U.S. Trade Compliance Seminar of interest.