The Criteria for Applying the Transaction Value Method (TVM) on your Imported Goods

Trade Talk Blog • January 5, 2022

he Valuation of goods imported into Canada has become a hot topic in the trade industry, as we continue to witness more customs verifications. When it comes to the Valuation of your imported goods, the Canada Border Services Agency (CBSA) primarily uses the Transaction Value Method (TVM). But understanding and qualifying for TVM can be confusing and difficult to understand.

In this article, I will be sharing information you need to understand the Transaction Value Method, the criteria required to use this Valuation method, and the adjustments that need to be added to or deducted from the price of your goods.

What is Valuation?

When you import goods into Canada, CBSA must determine the value for duty on your goods. The methods are detailed in Sections 48 to 53 of the Customs Act. You will need to report the price of your goods to CBSA, and it is not always straightforward to calculate. Let us consider the following scenario:

• You ordered, received, and paid for your imported goods. Is the amount you paid what you should be reporting to CBSA.

• Unfortunately, no, not always. Many elements go into the price you must report, which can be higher or lower than what you paid.

The transaction value method is the primary basis of appraisal used by CBSA to determine Valuation. But to qualify for TVM, you will need to fulfil a set of criteria, which we will cover in the next section.

What are the criteria for using the Transaction Value Method for Valuation?

Section 48 of the Customs Act stipulates the requirements that must be met to value imported goods according to the provisions of the transaction value method. Subsection 48(1) of the Act reads in part:

Subject to subsections (6) and (7), the value for duty of goods is the transaction value of the goods if the goods are sold for export to Canada to a purchaser in Canada and the price paid or payable for the goods can be determined.

Three criteria must be met before you can use the Transaction Value Method for Valuation:

1. There must be a purchaser in Canada (PIC)
2. There must be a sale for export to Canada
3. The Price Paid or Payable (PPP) can be determined

Now let us discuss these three criteria in further detail.

1. What is Price Paid or Payable (PPP)?

With the transaction value method, the value for duty is based on the Price Paid or Payable (PPP) for the goods when the goods are sold for export to a purchaser in Canada. The Price Paid or Payable (PPP) is the total of payments made, or to be made, directly or indirectly to the vendor of the goods or for the benefit of the vendor of the goods. This definition of PPP ensures that all payments are included. Even the payments that may not appear on a commercial or vendor invoice.

As outlined in CBSA’s Memorandum D13-4-3, the elements of PPPare as follows:

• Storage fees
• Credit for past transactions
• Warranty payments
• Settlement of vendor debt
• Price escalation clause
• Export duty and taxes
• Discounts
• GST

The CBSA issued Memorandum D13-4-7 to define the adjustments to the PPP as follows:

Additions to the PPP

If not already included, the following must be added to the PPP:

• Commissions and brokerage: all brokerage and commission fees, except for buying commissions (does not refer to customs brokerage fees)
• Packing costs and charges: all costs incurred by the purchaser in Canada for packing, including cartons, cases, containers, and coverings
• Assists: the value of goods and services provided free or at a reduced charge by the purchaser in Canada for use in the production of the imported goods (example: tools, dyes, or moulds)
• Royalties and licence fees: amounts paid for a royalty or licence fee in respect of the imported goods
• Subsequent proceeds: the value of any proceeds from the subsequent resale, disposal, or use of the goods which accrue to the vendor (any amounts paid, or to be paid, to the vendor after importation)
• Costs of transportation: transportation and associated costs prior to and at the place from which the goods are shipped directly to Canada

Deductions from the PPP:

If already included, the following can be deducted from the PPP:

• Costs of transportation: transportation and associated costs prior to and at the place from which the goods are shipped directly to Canada (including customs brokerage fees)
• Post-import costs: costs, charges, or expenses incurred or arising after importation of the goods, including assembly, maintenance, technical assistance, construction, and erection
• Import duties and taxes: duties and taxes imposed by law as per CBSA mandates, including the Customs Act, Customs Tariff, Excise Tax Act, Excise Act, and the Special Import Measures Act

2. Who is considered a Purchaser in Canada (PIC)?

Not every purchaser qualifies as a Purchaser in Canada (PIC). As defined by the Valuation for Duty Regulations, a PIC must be:

• A resident individual or business
• A permanent establishment in Canada, or
• A person who is neither a resident nor has a permanent establishment in Canada but imports the goods for their own use or based on speculation of future sales.

A resident individual is a person who ordinarily (regularly, normally, or customarily) lives their day-to-day life in Canada. A business resident is an individual within an incorporated or unincorporated establishment that carries business with management and control in Canada.

A PIC outside Canada is not a resident and does not have a permanent establishment in Canada, but who purchases and imports goods for their own use or enjoyment, or a business without a permanent establishment that purchases goods in a sale for export to Canada with the intent of reselling them.

3. What does Sold for Export to Canada mean?

Two conditions must be met for goods to be considered Sold for Export to Canada. First, the goods are considered sold when the vendor has transferred or has agreed to transfer ownership of the goods to a Purchaser in Canada (PIC) for a monetary value. And second, the goods must be purchased for export to Canada. A sale for export to Canada occurs when either:

• A purchaser in Canada agrees to purchase goods before they are imported; or
• A purchaser outside of Canada has not entered into an agreement to sell to a purchaser in Canada agrees to purchase goods from a vendor before their importation and then arranges for the goods to be sent to Canada.

Conclusion

In summary, the primary method of Valuation is the Transaction Value Method (TVM), and to qualify for using it, three criteria need to be met:

1. There must be a purchaser in Canada
2. There must be a sale for export to Canada
3. The price paid or payable can be determined

Whether you need help determining if your imported goods meet the criteria for Valuation with TVM, or you are uncertain about the value you should be reporting to CBSA, contact our Global Trade Services (GTS) team for support.