Industry News

Canada Proposes New Rule for Determining Value for Duty

May 30, 2023
By: David G. Forgue

Importers into the United States are often familiar with the First Sale rule. Under the rule, if there are multiple bona fide sales of merchandise destined for the United States, it is sometimes possible to use an earlier sale for the declared value. This lowers the reported value to Customs. A friend in Canada has alerted us that Canada is looking to formally do away with this practice, especially as it relates to non-resident importers into Canada. You have until June 26, 2023 to tell Canada Border Services Agency (“CBSA”) what you think of this proposed change.

The issue that CBSA has identified is the specific circumstance in which a foreign vendor sells to a non-resident importer, who sells an article to a Canadian. The non-resident importer is often simply a reseller, procuring goods from a manufacturer and shipping them to a consumer. However, because they are conducting the first transaction outside of Canada, they are able to declare as the value for duty (“VFD”) the price they pay the manufacturer, rather than the price they receive from a Canadian consumer. This effectively lowers the VFD. Theoretically this also means that a reseller inside of Canada (as opposed to a non-resident importer) would be forced to declare the higher VFD. This, in turn, means they would face a higher duty bill than non-resident importers.

To combat this perceived disadvantage for Canadian companies CBSA proposes to modify the current practice so that when choosing among multiple transactions that otherwise are legally able to act as the basis for VFD, CBSA will choose the highest invoice. This will generally mean using the last sale that caused an article to be imported into Canada. Thus, if a company purchases an imports articles into Canada, further domestic sales within Canada will not be the basis for VFD.

While this change may be predictable in light of changes wrought by ecommerce and the ability to deliver consumer quantities of articles directly from manufacturers, they do have the effect of raising the price for imported articles for Canadian consumers. This is true because all of the expenses and profits built into the reseller business model become part of the VFD, and tariffs are calculated as a percentage of the VFD. Nevertheless, the proposal would remove an impediment to establishing distribution centers in Canada for ecommerce goods, which may be a net benefit for the country.

If you have questions about Customs value (in the United States) or would like a referral to talk to a Canadian customs and trade attorney about VFD in Canada do not hesitate to contact any attorney at Barnes, Richardson & Colburn, LLP.