Customs Verifications (Audits): Planning To Succeed[1] – Part II

October 10, 2019 | Daniel Kiselbach, Satinder Bains

The process of handling a customs verification can be an extraordinarily difficult undertaking for the uninitiated. Part I of this bulletin outlined how to prepare for a verification, what the government is looking for, the primary considerations for company counsel, and common issues that arise.  Part II below discusses what happens if one fails a verification.

Consequences Of Failing

The consequences of failing a verification can be significant. They may include: a duty assessment; an adverse decision which may affect future importations; the obligation to correct incorrect declarations; the assessment of additional Goods and Services Tax (GST) and Harmonized Sales Tax (HST); the imposition of administrative monetary penalties (AMPS); and the seizure and forfeiture of goods.  Corrections may be required for an adjustment period specified in the verification report, and the importer may be required to correct incorrect declarations going back four years.  Corrections must be made within ninety days after the Canada Border Service Agency (CBSA) verification officer issues a final verification report.

The CBSA will process corrections, assess any underpaid duty and taxes and issue a Detailed Adjustment Statement (DAS). In order to appeal a verification decision and assessment, the importer must pay the underpaid duties and file a request for the further redetermination of the goods within ninety days after the DAS has been issued to the importer.  The “pay to play” requirement has caused difficulties with respect to some importers who wish to appeal an adverse customs decision.  An importer must either pay the duty or offer security in a form acceptable to the Minister (usually a customs bond).

Preventive Measures

As a preventive measure, many businesses undertake self-reviews in preparation for a verification. A self-review may help importers assess their level of customs compliance.  Armed with the results of a self-review, managers can then determine whether or not a business is operating in accordance with benchmarks and industry standards, and has taken appropriate steps to minimize duty and tax liabilities.  Discovered instances of non-compliance respecting customs declarations may be disclosed in appropriate circumstances to the CBSA, pursuant to its voluntary disclosure policy. Other governmental departments, such as Global Affairs Canada, have their own voluntary disclosure policies.

Summary

This article has provided a brief outline respecting customs verifications in Canada. A business that is able to establish that it has proper controls and procedures in place, that can respond to a verification letter and request for information quickly, and which has a good understanding of any regulatory requirements will be better equipped to handle a verification.  With the right advice, businesses can take steps to successfully complete the verification process, and be ready to welcome a verification.

Non-resident Importers: Tips and Traps[2] – Part I

Overview

In this era of rapidly expanding e-commerce, many businesses are exploring the possibility of importing goods as non-residents. Non-resident importers may avoid costs and compliance issues associated with having a physical presence outside of a principal place of business.  However, there are potential challenges to being a non-resident importer. Planning is the key to avoiding unexpected duty, interest and penalty assessments.  This article will discuss the types of issues that non-resident importers should consider in order to avoid pitfalls and to optimize their businesses.

Customs Duty

In order to understand the issues faced by non-resident importers, it may be useful to refer to some basic principles.  First, customs duties are levied on the value of imported goods.  The List of Tariff Provisions set out in a schedule to Canada’s Customs Tariff sets the rates of duty that may be levied in accordance with the tariff classification of goods. As such, importers can reduce the amount of duties that are levied on imported goods to the extent that they may lower the value for duty of the goods in accordance with legislative provisions.

Second, the primary method for the appraisal of the value of goods is the transaction value method which is set out in section 48 of Canada’s Customs Act. In order to use the transaction value method, the importer must show that there was a “sale for export” to a “purchaser in Canada” and the price paid or payable can be determined. Non-resident importers benefit if they can fit within this provision and use the lower supply price (rather than the higher customer price) as the basis for the value for duty.

Third, a non-resident importer may be a “purchaser in Canada”.  This term includes a person who is not a resident, but who has a “permanent establishment” in Canada.  The Valuation For Duty Regulations state that a permanent establishment means a “fixed place of business” through which the person “carries on business”. CBSA policy requires that the person carry on the business at the fixed place of business through the actions of one or more employees or dependent contractors. The term “purchaser in Canada” also includes a person who imports goods for sale in Canada if, before the purchase of the goods, the person has not entered into an agreement to sell the goods to a resident (that is, inventory imported on speculation of sale).[3]


[1] Daniel Kiselbach and Satinder Bains, Miller Thomson LLP.

[2] Daniel Kiselbach and Satinder Bains, Miller Thomson LLP.

[3] See Valuation For Duty Regulations, section 2.1; the Customs Act, subsection 45(1) and CBSA D Memorandum D13-4-2 titled Customs Valuation: Goods Sold For Export To Canada.

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