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Transfer Pricing Adjustments: Refund Opportunities & Compliance Obligations

Posted March 25, 2015

The recent change in policy by the Canada Border Services Agency (CBSA) concerning the treatment of downward price adjustments in value for duty calculations likely prompted many importers involved in transfer pricing agreements with foreign suppliers to closely examine their accounts over the past four years looking for potential refund opportunities.

Although seeking to claw back money overpaid to the government might initially be regarded as a complete “no brainer” in every respect, international trade lawyer Darrel Pearson reminds importers that applying for such refunds is not necessarily as simple or straightforward as it may first seem; moreover, venturing into the duty recovery process can also be somewhat of a double-edged sword.

Aside from fulfilling the stringent criteria the CBSA has set out to establish the validity of claims being made under this provision (e.g., where payments to the vendor or other multinational group members for services and/or license rights, demonstrating that the amounts paid were not influenced by the relationship and were paid for actual services required and rendered, and/or actual intellectual property rights obtained), Pearson suggests that companies chasing refunds down this particular avenue should also be fully prepared to withstand the scrutiny of a trade verification by the CBSA. After all, it has to be kept in mind that while importers can certainly benefit from downward transfer price adjustments, by the same token, they are also obligated to amend entries to account for upward adjustments where duties have been underpaid.

“The opportunity presented by the new CBSA policy is therefore two-fold: it offers refund possibilities, and it underscores the requirements of customs compliance required in the event that the importer is audited,” Pearson says. “In deciding to move forward with transfer pricing duty refund applications, importers must carefully consider their entitlement in law, their ability to meet the evidentiary burden, and their past compliance record.”

Click here to read the complete article at the Bennett Jones Thought Network.