Transaction Value in Canada
November 11, 2005

On October 6, 2005, the Canadian International Trade Tribunal (CITT) issued a ruling regarding the circumstances in which a non-resident importer may use the acquisition cost for imported goods as the transaction value for duty calculation purposes. In particular, Cherry Stix Ltd. v. President of the Canada Borders Services Agency addresses the specific circumstances surrounding sale and sourcing agreements with large resident retailers and provides several principles in determining the bounds of discussing sales opportunities without compromising a non-resident importer’s opportunity to declare its acquisition cost for the imported goods. Non-resident importers to Canada currently declaring acquisition costs for duty purposes should review the circumstances of their sale and purchasing agreements to determine whether such practices are appropriate in light of the recent CITT’s ruling.


In reaching its decision, the CITT interpreted Subsection 48(1) of the Canadian Customs Act. According to Subsection 48(1) of the Customs Act, the value for duty purposes is the transaction value of the goods if the price paid or payable for the goods can be determined and the goods are sold for export to Canada to a "purchaser in Canada." In determining the meaning of the term "purchaser in Canada" the CITT applied the meaning of the term assigned by Subheading 2.1(c)(ii) of the Valuation for Duty Regulations, which states:

. . ."purchaser in Canada" means . . .(c) a person who neither is a resident nor has a permanent establishment in Canada, and who imports the good, for which the value for duty is being determined, . . .(ii) for sale by the person in Canada, if, before the purchase of the goods, the person has not entered into an agreement to sell the goods to a resident.

In Cherry Stix Ltd., the CITT considered the sequence of events leading to an agreement between Cherry Stix Ltd., a non-resident importer, and Wal-Mart for the purchase of women’s and children’s garments produced for and sold to Cherry Stix by third-party overseas suppliers. Under the Customs Act, Cherry Stix would be a purchaser in Canada under the Regulations and therefore be able to declare the acquisition cost of the imported goods if, before the "purchase" of the goods, it had not entered into "an agreement to sell the gods" to Wal-Mart. However, if Cherry Stix as a non-resident importer does not qualify as a "purchaser in Canada", the appropriate value of the imported goods will be determined by the inflated price paid or payable to Cherry Stix by Wal-Mart.

The CITT did not limit its consideration to the final purchase order but looked at the overall circumstances surrounding the sale to Wal-Mart to determine whether, at the time that Cherry Stix purchased the goods from its overseas supplier, there was already "an agreement to sell the goods" between Cherry Stix and Wal-Mart. Cherry Stix argued that by operation of several clauses in a vendor agreement put in evidence, there could not have been a sale or an agreement to sell the goods until it shipped the goods to Wal-Mart, which shipment occurred after it purchased the goods. However, based upon a review of the total circumstances, the CITT ruled that the agreement to sell was formed at the time that Cherry Stix’s sales associates and Wal-Mart’s buyers discussed with specificity the quantity and design of the imported goods as well as a price paid upon delivery. The CITT stated that the purpose of the final purchase order was simply to confirm the agreement to sell the goods that had already been concluded by word of mouth between the sales associates and the buyers.

In so finding, the CITT found the following circumstances as evidence of the pre-existing agreement: (1) specifications of the imported goods by the retailer, (2) pre-determined delivery date, (3) tentative quantities and prices, (4) evidence of a "work order" that set off the chain of events that resulted in purchasing the goods from the overseas suppliers, (5) Cherry Stix’s instructions to its overseas suppliers with specifications mirroring those between Cherry Stix and Wal-mart, (6) the attachment of Wal-Mart trademark labels, unique identification number, and price tags to the goods by the overseas suppliers, (7) the fact that the goods were suitable only for sale to Wal-Mart, and (8) that the goods were shipped to a Wal-Mart consolidator to check for compliance with the master purchase order and the retailer’s manual for its vendors.

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