The Canada Border Services Agency (CBSA) has seized a number of shipments of gold jewelry imported into Canada from the United Arab Emirates (UAE). In many cases, the CBSA has taken the position that the jewelry was undervalued. In most cases, the importer declared the price paid or payable on the invoice for labour. The importer had sent gold bars to the UAE from Canada to be manufactured into gold chains, necklaces and bracelets. The CBSA releases the jewelry to the importer after payment of a level 2 penalty on the difference between the declared value and an appraised value for the gold jewelry. The levels of penalties are significant on large shipments of gold jewelry.
In these cases, the importer has 90 days to request a decision from the Minister on whether a contravention occurred – in other words, on whether the jewelry was undervalued.
However, the CBSA has not considered whether the appropriate approach would be to treat the gold bars as an "assist". Pursuant to subsection 48(1) of the Customs Act, the value for duty is the transaction value, which is usually the invoice price between unrelated parties. Subparagraph 48(5)(a)(iii) of the Customs Act requires that the value of "assists" be added to the value for duty. Customs "assists" are goods or services provided by a buyer that result in tangible value to the production of the final product by the manufacturer. For example, raw materials (gold bars) are considered assists if the buyer/importer sends them to the foreign manufacturer to be processed or used in the product (e.g. gold chain) that will ultimately be imported into Canada.
Subparagraph 48(5)(a)(iii) of the Customs Act uses more formal language as to what amounts should be added:
"the value of any of the following goods and services, determined in the manner prescribed, that are supplied, directly or indirectly, by the purchaser of the goods free of charge or at a reduced cost for use in connection with the production and sale for export of the imported goods, apportioned to the imported goods in a reasonable manner and in accordance with generally accepted accounting principles:
(A) materials, components, parts and other goods incorporated in the imported goods,
(B) tools, dies, moulds and other goods utilized in the production of the imported goods,
(C) any materials consumed in the production of the imported goods, and
(D) engineering, development work, art work, design work, plans and sketches undertaken elsewhere than in Canada and necessary for the production of the imported goods."
Section 4 of the Valuation for Duty Regulations describes in detail the manner in which the value of each of the various types of assists is to be determined
The issue for Canadian importers is how to report/declare assists. The CBSA has published D-Memorandum D13-3-12 "Treatment of Assists in the Determination of Value for Duty" (August 16, 2013). In the D-Memorandum (which is not particularly helpful), the CBSA states that "subparagraph 48(5)(a)(iii) requires that the value of an assist be apportioned to the imported goods in a reasonable manner and in accordance with generally accepted accounting principles." What this means is that when gold bars are sent overseas to be transformed into gold jewelry, the value for duty will have to be apportioned on a piece-by-piece basis and in accordance with GAAP.
If the gold jewelry has an artistic component, it may be that the artwork will also have added. If the importer is not related to the foreign manufacturer/exporter, then art work or design work undertaken in Canada under clause 48(5)(a)(iii)(D) of the Customs Act would not be regarded as a dutiable assist. However, they if the computed value method of determining value for duty is applicable, the art work or design work could be regarded as an assist and would be included in the calculation of value for duty made under section 52 of the Customs Act.
What is very important is that under the law (Section 4.1 of the Value for Duty Regulations), the CBSA process when dealing with assists is not to seize the goods and issue a penalty for undervaluation. Section 4.1 provides that:
"Before making a determination under subsection 48(7) of the Act, an officer shall
(a) notify the person who accounted for the goods under section 32 of the Act of the grounds for the officer's belief that the information submitted in support of the transaction value of the goods is inaccurate;
(b) request in writing that the person submit to the officer, within 30 days after the request, additional information in support of the transaction value of the goods;
(c) review any additional information received in response to the request referred to in paragraph (b);
(d) where no additional information is received or following the review of the additional information, if the officer continues to believe on reasonable grounds that the information submitted is inaccurate, at least 30 days before making the determination, give written notice to the person of the grounds for the officer's belief that the information submitted is inaccurate."
In addition, section 4.2 of the Value For Duty Regulations provides that "Where an officer makes a determination under subsection 48(7) of the Act, the officer shall give written notice of the determination and the reasons for making it to the person referred to in paragraph 4.1(a)." Subsection 48(7) of the Customs Act provides that "where an officer who is appraising the value for duty of goods believes on reasonable grounds that the information submitted in support of the transaction value of the goods as determined under subsection (4) is inaccurate, the officer shall determine, in accordance with the prescribed procedure, that the value for duty of the goods shall not be appraised under this section."
D-Memorandum 13-3-12 does not provide further guidance as to how exactly the adjustment is to be made. Is the adjustment required at the time of importation? Could the adjustment be made within 90 days after the importation during the "reason to believe" period? If the value of each piece cannot be determined by the importer until after the importation and a weighing or appraisal process, presumably the adjustment may be made after importation within 90 days after importation.
Since the CBSA has not provided a detailed policy on reporting of assists, there should be leniency. It should not be that the CBSA seizes jewelry when the importer explains that they sent gold bars to be further manufactured outside Canada. It would be fair for the CBSA to ask the importer to provide for reliable evidence of the export of the gold bars. For example, if the importer can provide a completed (and stamped by the CBSA) B13A "Export Declaration" form, the CBSA should be willing to consider the post entry adjustments for assists. If the importer/exporter can provide courier paperwork relating to the export of the gold bars from Canada, that evidence would also support the application of rules relating to assists.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.