Proposed Changes to Calculating the Value of your Imported Goods

For Canadian import businesses, staying up-to-date with regulations is crucial to maintaining a smooth and compliant importing process.  Canada’s government has proposed changes which could significantly impact the way businesses calculate the import duty on their shipments. In this blog post, we will delve into these proposed changes, with a focus on the “sold for export” provision, and discuss why they might pose challenges for importers.

Understanding the Proposed Changes

The proposed changes to the value for duty regulations can be found in the official Gazette of Canada, published on May 27, 2023. These changes aim to provide a more accurate and transparent method of determining the value of imported goods for customs purposes. One of the key areas of adjustment revolves around the concept of “sold for export.” 

“Sold for export” refers to the price at which goods are sold or agreed to be sold for export to Canada. This price is a critical factor in calculating the value for duty Value for duty is the basis for determining the applicable import duty and taxes on the imported goods.

Implications for Canadian Import Businesses

While the proposed changes may have positive intentions, they also introduce potential challenges for Canadian import businesses. Here are some reasons why these changes could be problematic:

1. Complexity of Determining Sale Price: Under the new regulations, determining the sale price for goods “sold for export” could become more complex. Importers might need to navigate through intricate pricing structures, including discounts, rebates, and other adjustments, which could lead to confusion and errors in value calculation. 
2. Increased Administrative Burden: The additional complexities could lead to an increased administrative burden for import businesses. They might need to invest more time and resources into accurately documenting and verifying the sale price of goods, diverting attention from other critical aspects of their operations.
3. Risk of Discrepancies: With more factors to consider in calculating the import duty, the risk of discrepancies between the declared value and the actual value of the imported goods could rise. This, in turn, could trigger audits, delays, or even penalties from customs authorities.
4. Competitive Disadvantage: The proposed changes could also impact the competitiveness of Canadian import businesses. If the new
   regulations lead to higher declared values for imported goods, businesses may face increased costs, affecting their ability to offer competitive prices in the market.

Changes to the “Sold for Export” Provision

A major change proposed is that the sold price at time of import is to be the value of which taxes are based. Lets look at an example of goods imported to be sold on Amazon, CBSA is proposing that the price the goods are being sold at -not the price you’ve purchased from your vendor- is the price at which import duty will be calculated. Only when the goods are not pre-sold at time of import would the purchase price would be used.

Let’s take a closer look at the changes coming to the “sold for export” provision and their potential implications:

1. Inclusion of Certain Expenditures: The proposed changes suggest that certain expenditures, such as royalties, license fees, and proceeds of subsequent resale, may be included in the sale price if they are directly or indirectly related to the imported goods. This inclusion could complicate value calculations, as businesses would need to identify and quantify these expenditures accurately.
2. Related Party Transactions: The changes also address transactions between related parties. If the relationship between the buyer and
   seller influences the sale price, adjustments may need to be made to ensure a fair market value is used. However, determining the influence of such relationships can be challenging, potentially leading to disputes over the appropriate value determination.
3. Assists and Indirect Payments: Another significant change is the treatment of “assists” and indirect payments. The proposed regulations suggest that the value of certain assists, services, or contributions provided by the buyer for use in the production of the imported
   goods should be added to the sale price. This change could complicate the value calculation process further, as importers would need to accurately assess the value of these contributions.

How to Prepare

As Canadian import businesses prepare for potential changes to the value for duty regulations, it is essential to stay informed and proactive. While the proposed adjustments to the “sold for export” provision aim to enhance the accuracy of value calculations, they also introduce complexities that could prove problematic for importers. Navigating these changes will require careful attention to detail, effective documentation, and possibly adjustments to internal processes.

To mitigate the challenges posed by the proposed changes, import businesses should consider the following steps:

• Education and Training: Ensure that relevant personnel are educated about the upcoming
  changes and understand how they could impact value calculations.
• Review and Update Processes: Evaluate and update internal processes for calculating and
  documenting the value of imported goods to accommodate the new
• Collaborate with Experts: Engage with customs and trade experts who can provide guidance on
  interpreting the new regulations and assist in accurate value
• Technology Integration: Explore the use of technology solutions that can automate value
  calculation processes, reducing the risk of errors and streamlining
  administrative tasks.

By taking these proactive measures, Canadian import businesses can position themselves to navigate the proposed changes to the value for duty regulations effectively, ensuring compliance and minimizing disruptions in their import operations. 

For more information on valuation of goods, or for any other questions relating to importing into Canada, please contact us.