he Government of Canada released the Auditor General of Canada’s report in 2017, covering its review on customs duties management. The report discussed the increased focus on Reason to Believe, which we will examine in this article.
From an importer’s perspective, what is Reason to Believe?
Reason to Believe is the phrase used to define an importer’s obligation to correct information on a declaration for release after confirming it with the Canada Border Services Agency (CBSA) and the time frame it needs to be corrected.
We can summarize the Reason to Believe concept as any information that gives an importer a reason to believe their import declaration is incorrect.
Reason to Believe is mentioned in Section 32.2 of the Customs Act, which places the responsibility on the importer to make a correction to an accounting declaration of tariff classification, origin, or value for duty when the importer has reason to believe that the declaration was incorrect. It is also defined in Memorandum D11-6-6.
Failing to correct the information or failing to correct the information within the allowed time limits may subject Canadian importers to penalties from CBSA.
What are some examples of Reason to Believe situations?
There are many situations where a Reason to Believe might arise. Let us go through two scenarios:
An importer receives notice from their supplier that the goods they import no longer qualify for preferential status under a Free Trade Agreement (FTA) and haven’t qualified since the beginning of the year. In this case, the notice from the supplier becomes the Reason to Believe, and the importer then has 90 days to correct the information on their previous declarations.
A contract between two companies includes agreements with regards to royalty payments paid to the seller, as well as payments to the seller for design work done on behalf of the importer. A valuation audit review by CBSA discovers the royalty and design work payments have not been included in the transaction price of the shipment. The contract is then considered Reason to Believe that the payments should have been included. As the importer had Reason to Believe at the time of the imports, they must go back to the beginning of the contract, or four years, whichever occurs first, and correct all affected declarations.
Where can I find Reason to Believe information?
As an importer, you can find information that gives Reason to Believe in many different areas. Some of these include:
- Legislative provisions that are clear and evident. Examples are:
- Tariff classification of printing ink. Heading 32.15 covers printing ink, and while 3215.10 is for black printing ink, 3215.19 is for all other colors. If an importer brings in green ink, they have reason to believe it is classified under 3215.19.
- Tariff classification of live animals. Heading 03.07.51 includes live octopus. Suppose a shipment is classified in chapter 1 as a live animal. In that case, the importer has reason to believe the classification is wrong as fish and crustaceans, molluscs, and other aquatic invertebrates are excluded from chapter 1.
- Formal assessments by CBSA relating to imported goods
- Decisions by the Canadian International Trade Tribunal (CITT)
- Advance Rulings
- Information received from exporters, suppliers, or other trade partners
- A final report from an internal review or audit that the importer initiates
- The knowledge that the goods no longer qualify for FTA preferential rates or goods with conditional end-uses that no longer qualify for the specified end-use
What should I do when I have Reason to Believe?
Once an importer has Reason to Believe, they are required to self-correct their declarations within 90 days of receiving the information that gave them the reason to believe. If this was a change in value based on a re-issued vendor invoice, then the date the invoice was received is the start of the 90 days.
Section 32.2 of the Customs Act only covers declarations where the correction or adjustment will result in either a NIL amount or a payment due to CBSA (duties & taxes).
When might Reason to Believe not apply?
If a change or amendment to a declaration results in a refund to the importer, then the concept of Reason to Believe does not apply. That does not mean that importers should not correct their entries with customs, but it does mean that they do not have to correct entries within 90 days, and that they will not be subject to penalties for correcting entries after 90 days. Refunds are detailed in Section 74 of the Customs Act.
Sometimes CBSA will allow penalties to be waived or minimized on entries corrected after the 90 days have passed. This can happen if CBSA does not initiate a review or audit and the importer self-corrects their entries. A request to voluntarily disclose an error to CBSA and make the corrections can sometimes result in no penalties.