The Canada Border Services Agency this week published Customs Notice 15-001 concerning self-adjustments and refunds with respect to the treatment of certain price reductions made after importation. As a result of a Canadian International Trade Tribunal (CITT) decision in Appeal No. AP-2012-067, Hudson’s Bay Company v. President of the Canada Border Services Agency (discussed last year on our blog here), Canadian importers can now seek refunds of customs duties in cases where transfer prices are adjusted downward after importation if the adjusted prices paid or payable were the subject of an agreement in writing at or prior to importation.
Concurrent with publication of the new Customs Notice, the law firm Bennett Jones LLP issued a bulletin explaining in detail the obligations that importers must fulfill to claim refunds of overpaid duties in this instance. The bulletin also outlined some of the compliance implications this new policy might possibly have.
The change in CBSA policy will give rise to a reduction in government revenue normally collected by application of the Customs Act.As a matter of practice, it should be expected that the CBSA will conduct many more customs valuation trade verifications and that they will have a particular focus on transfer pricing aspects of customs valuation. Under Canadian customs law and administration, customs valuation verification of pricing, as well as any adjustments to the price paid or payable that are applicable in establishing the transaction value, are subject to greater scrutiny if these payments are made to related suppliers or other members of a multinational enterprise group comprised in whole or in part by the supplier and the purchaser.
As the government of Canada seeks to recapture or balance the loss of revenue resulting from the new CBSA policy, it is anticipated that the CBSA will conduct more verifications of values declared by related party importers when importers claim refunds of overpaid duties based on transfer pricing adjustments and otherwise.
Importantly, the bulletin stresses that the new policy will also impact the income tax compliance and reporting requirements for certain importers. In this regard, the authors urge importers to “revisit their transfer pricing documentation to implement a uniform approach to tax and customs transfer pricing. “