The basics of customs valuation

The term “customs valuation” has a mysterious ring to it, as if it were based on some esoteric, perhaps dark principles. In fact, it is usually fairly straightforward. The valuation of 90% of imports is based on “transaction value”, the price payable on the commercial invoice issued by the exporter.

The trick is to recognize (a) the 10% of situations where transaction value may not be used and (b) where statutory adjustments to the invoice price are required. The situations where transaction value may not be used include where:

  • There is no sale for export (e.g., the goods are leased or have been owned by the importer for some time);
  • The vendor and purchaser are related and the relationship influences the price;
  • There are restrictions on the disposition or use of the goods by the purchaser (other than those imposed by law or geographical area of resale) which substantially affect the value;
  • The sale or price is subject to some consideration or condition with respect to the goods for which a value cannot be determined; or
  • The price cannot be determined.

The rules applicable in these special situations are discussed in Memorandum D13-3-1 published by the CBSA.

Some of the adjustments to the price payable are deductions, while others are additions. Both are often missed. Each adjustment is set out in subsection 48(5) of the Customs Act and described in summary in the CBSA’s Memorandum D13-4-7. There are also separate D Memoranda, referred to below, which discuss each in detail.

The following items are deducted from the price payable if they are included in it; i.e., they are incurred by the seller:

  • Transportation charges, expenses and insurance from the place within the country of export from which the goods are shipped directly to Canada (D13-3-3);
  • Costs for construction, erection and assembly after importation into Canada (D13-3-11);
  • Duties and taxes payable by reason of the importation or sale in Canada of the goods; and
  • Export packing required by the transportation company (D13-3-3).

The following items are added to the price payable if they are not included in it; i.e., they are incurred separately by the purchaser:

  • Transportation charges, expenses and insurance to the place within the country of export from which the goods are shipped directly to Canada (D13-3-5);
  • Amounts for commissions and brokerage, other than fees payable by the purchaser to his agent for the service of representing the purchaser abroad in respect of the sale (D13-4-12);
  • Export packing to market and protect the goods, not required by the transportation company (D13-3-3).
  • Royalties and license fees in respect of the goods that the purchaser must pay as a condition of the sale of the goods for export to Canada (D13-4-9);
  • Subsequent proceeds payable to the purchaser (D13-4-13); and
  • Goods or services supplied by the purchaser for use in the production of the goods, commonly known as “assists” (D13-3-12).

The adjustments to the price payable are summarized in fields 23 to 25 of Form CI1, Canada Customs Invoice. If one or more of these adjustments applies, the importer will usually enter the amounts there.

Canada’s customs valuation rules follow the Customs Valuation Agreement adopted by all members of the World Trade Organization in 1994. The World Customs Organization publishes a useful Brief Guide to the Customs Valuation Agreement, which provides an alternative commentary to the CBSA Memoranda referred to above.

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