Canada: Finally! CBSA To Allow Duty Refund Claims On Downward Transfer Or Sale Price Adjustments

Last Updated: March 12 2015
Article by Geoffrey C. Kubrick, Jamie M. Wilks and Monica Podgorny

The CBSA's Policy Change Provides New Opportunity to Claim Duty Refunds

To ensure arm's length purchase prices are paid by an importer to a foreign affiliate for Canadian income tax purposes, post-importation transfer price adjustments are common. Where transfer prices for dutiable goods are adjusted downward after the importation of the goods, the CBSA will now allow importers to claim duty refunds in certain circumstances. To reverse its three-decade old policy, the CBSA on January 19, 2015 issued Customs Notice 15-0001 (the "Customs Notice").1 Beyond transfer pricing, this policy change may also affect post-import downward price adjustments between arm's length parties.

Evolution of the Policy Change

The CBSA has been of the view that post-importation downward price adjustments should be ignored for the purpose of determining the value for duty ("VFD") under the Transaction Value Method (the "TVM") pursuant to paragraph 48(5)(c) of the Customs Act (the "Act"). While importers could not benefit from downward transfer or sale price adjustments under the old policy, the CBSA required importers to amend import filings to pay any additional duties arising from upward transfer or sale price adjustments after import. The change in policy announced in the Customs Notice corrects this inherently inequitable treatment.

In Jockey Canada Co. v President of the CBSA,2 the CBSA informed the Canadian International Trade Tribunal (the "CITT") that its standard practice was to allow amendments to lower the VFD as the result of downward year-end transfer pricing adjustments. (For more information about this decision and its implications on VFD calculations, please refer to McMillan's January 2014 Bulletin: Surprise! The Impact of Transfer Price Adjustments on Canadian Customs Valuation and Compliance). This 2013 decision led importers to believe that they may pursue duty refund claims made on the basis of downward transfer price adjustments.

The final motivation for the policy change was the CITT's decision in Hudson's Bay Company v. President of the Canada Border Services Agency.3 Relying on the precedents in Quadra Chemicals Ltd. v. Deputy M.N.R.4 and Nordic Laboratories v. Deputy M.N.R.,5 the CITT ruled that:

  1. a price reduction made after importation, but
  2. which arose from a sale agreement in effect at the time of importation and which did not depend on satisfying a condition after importation,
  3. should be considered "effected" before importation and allowed as an adjustment for the purpose of calculating the "price paid or payable" (the "PPP") under the TVM.

In summary, paragraph 48(5)(c) of the Act was held to be inapplicable.

In explaining its finding, the CITT in Hudson's Bay Company referred to Jockey Canada, which specifically addressed year-end transfer pricing adjustments. In the CITT's view, Jockey Canada stands broadly for the principle that corrections can (or should) be made to the PPP after importation, where there is an agreement in place between the parties prior to importation that establishes the adjusted price at the time of importation.

After the CBSA formalized its policy change in January 2015, it began to process duty refund claims arising from downward transfer pricing adjustments (including those held in abeyance pending the CBSA's policy announcement on point).

The Customs Notice advises that the CBSA will amend the D13 Valuation memoranda to reflect the policy change in the Customs Notice. Among those to be changed could be D13-3-6 "Income Transfer Pricing and Customs Valuation" published on October 18, 2006.

When may an importer claim a duty refund?

Where prices are adjusted downward after the importation of dutiable goods, the importer may make corresponding downward adjustments to the PPP and claim refunds to recover duties previously paid on the adjusted amounts pursuant to section 74 of the Act, provided that the following conditions are satisfied:

  1. the vendor and purchaser (whether or not related to each other) must have entered into an agreement prior to importation, providing for the post-import decrease to the PPP;
  2. the downward adjustments should be in accordance with the agreement; and
  3. the duty refund claim must be filed in accordance with the requirements of section 74 of the Act (among which, the claim must be filed within four years after accounting for the imported goods subject to the downward adjustments, although the Customs Notice refers to duty refund claims being available "for importations occurring within four years of the date of this notice").

Where duty refund claims would be available under section 74 of the Act for the overpayment of duties resulting from too high VFD declarations, there would be no requirement to correct pursuant to subsection 32.2(5) of the Act. The importer may claim the duty refunds within the 4-year claim period.

When must an importer correct entries?

Where the imported goods were duty-free and there are subsequent downward price adjustments, the importer could have to correct the PPP within 90 days of the importer having acquired "reason to believe" that the VFD declarations were incorrect. Section 32.2 of the Act imposes a positive obligation on the importer to correct revenue neutral VFD errors. Failure to do so could result in the imposition of Administrative Monetary Penalties (AMPs).

The obligation to correct would depend on the first two conditions listed above for duty refund claims being satisfied; otherwise, the downward adjustments would be considered to be effected after importation and should be ignored pursuant to paragraph 48(5)(c) of the Act (as discussed above in relation to duty refund claims). The obligation to correct generally expires four years after accounting for the imports pursuant to subsection 32.2(4) of the Act.

Where post-importation adjustments are made pursuant to a transfer price agreement in place at the time of import, the CBSA provides guidance as to what would constitute "reason to believe". At the specific moment "when the net total of upward and downward transfer pricing adjustments occurring in a fiscal period is identified", the CBSA is of the view "the importer has reason to believe that corrections to declarations of value for duty are necessary." Importers will need to know about adjustments made by related parties in order to meet these obligations.

Other Considerations

In light of the retroactive application of the Customs Notice, consideration should be given to the accounting and income tax treatment of the duty refunds received by an importer. If the importer is a Canadian taxpayer, then the duty refunds received could be required to be included in the importer's income in the year of receipt, or could have the effect of requiring adjustments to previous years' income tax returns filed. Beyond that, the accounting and income tax treatment of the downward pricing adjustments need to be considered from both the foreign vendor's and purchaser's perspectives.

Going Forward

Importers should consider whether they have received downward price adjustments that could lead to duty refund opportunities. The Customs Notice applies retroactively to permit duty refund claims arising from importations within four years of the release of the Customs Notice on January 19, 2015. In addition, importers should monitor duty refund opportunities going forward. Where applicable, duty refund claims should be filed with the CBSA in a timely manner.

Importers should monitor in a timely manner whether they have obligations to make revenue neutral corrections to reduce the VFD. Where these obligations arise, the importers should make their corrections within 90 days of acquiring "reason to believe" that they have over-valued their duty-free imported goods. Failure to make downward transfer or sale price adjustments to duty-free imported goods may give rise to AMPs.

1 Canada Border Services Agency, "Customs Notice 15-001: Treatment of Downward Price Adjustments in Value for Duty Calculations" (19 January 2015).

2 Jockey Canada (2013), AP-2011-008 (CITT).

3 Hudson's Bay Company (2014), AP-2012-067 (CITT). For more about this case, you can refer to the article by Jamie Wilks of McMillan LLP entitled "Value for Duty – What Should Be Included in the 'Price Paid or Payable' under the Transaction Value Method?" published by Federated Press in Sales and Use Tax, Volume XII, No. 4, 2014.

4 Quadra Chemicals Ltd. (2004), AP-93-260 (CITT).

5 Nordic Laboratories [1996] F.C.J. No. 1067.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2015

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Geoffrey C. Kubrick
Jamie M. Wilks
Monica Podgorny
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions