Canadian Importers May Seek Import Duty Refunds

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By Bennett Jones LLP, Mondaq Apr 26, 2016

Since the introduction of the Transaction Value System of customs valuation by Canada on January 1, 1985, the Canada Border Services Agency (CBSA) has maintained a stated policy of denying refund claims of related party importers who seek to amend declared values for duty to account for adjustments that decrease transfer prices after importation. The CBSA's interpretive proposition that value for duty reduction is precluded is based on its statutory exclusion as "rebates or decreases in the price paid or payable effected after goods are imported". In contrast, if transfer prices are adjusted such that they are increased after importation, Canadian importers face the compliance obligation to amend entries and pay additional duties and taxes as applicable. Bending under the pressure of adverse findings by the Canadian International Trade Tribunal (CITT) and the Federal Court, the CBSA has corrected this imbalance by effecting a major change in policy. Subject to meeting evidentiary requirements, Canadian importers may now seek refunds of customs duties in cases where transfer prices are adjusted downward after importation if the adjusted prices paid or payable were the subject of an agreement in writing at or prior to importation.

It is commonplace for related parties to engage in international commercial agreements pursuant to which purchases of imported goods are "transfer priced". Prudent multinational enterprises establish transfer pricing policies, and support and sustain them on the basis of transfer pricing studies by reputable economists. Historically, transfer pricing studies tended to focus on transfer pricing for income tax purposes. Little attention has been placed on customs valuation by transfer pricing studies.

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