Canada: What Does The CBSA Review During A Customs Valuation Verification?

Last Updated: July 3 2017
Article by Cyndee Todgham Cherniak

Canadian importers (especially non-resident importers and those related to a foreign entity) may, someday, be contacted by the Canada Border Services Agency ("CBSA") to conduct a customs valuation verification.  Current CBSA valuation verification priorities include apparel (Chapters 61 and 62) and food preparations and pastrycook's products (Chapter 19).  In January 2017,  the CBSA announced that footwear, fresh-cut flowers and yachts for pleasure use were 2017 valuation verification priorities.

A CBSA valuation verification usually starts with a letter from the CBSA.  In this letter, the CBSA requests general information, specific information relating to identified transactions and for completion of a valuation questionnaire.

General Information Usually Requested

The general information often requested includes, but is not limited to:

  • Corporate income tax return of the importer (T2) and all related attachments;
  • Audited or unaudited financial statements;
  • Corporate organization chart that identifies the corporate structure, ownership, affiliates and divisions;
  • A list of all vendors;
  • A detailed trial balance, including opening and closing balances; and
  • Breakdown of the cost of goods sold reported on the financial statements into the individual accounts.

It is important to understand exactly what information the CBSA is looking for and where it is often located.  These documents contain valuable information about the transactions.  The CBSA will be looking at the general ledger accounts for inter-company payments, management fees, subsequent proceeds, royalties, assists, commissions, etc.  The CBSA will be looking for additional payments made in respect of the imported goods that have not been reported to the CBSA in the form of B2 Adjustment Requests.  The CBSA will be looking for information/facts as to whether a relationship affects the price paid or payable for goods such that the transaction value method becomes inapplicable.

Specific Information

The CBSA often provides a list of specific import transactions (identifying randomly selected transaction numbers) and requests that the importer provide the following with respect to those transactions:

  • Canada Customs Coding Form (B3);
  • B3 Recap Sheets;
  • Customs Commercial Invoice;
  • Invoice(s) from exporter(s);
  • Bills of Lading;
  • Packing Lists;
  • Freight invoices, waybills; air waybills, manifests, etc;
  • Purchase Order(s);
  • Import Permits (if applicable);
  • Proof of payment to vendor; and
  • Print screens from accounting records of the purchase and payment accounting entries.

This information is requested by the CBSA so that they can identify the parties involved and who paid for what.  These documents contain important information.

CBSA Valuation Questionnaire

The CBSA sends a Valuation Questionnaire to be completed by the importer under verification.  The Valuation Questionnaire asks the following questions:

  1. Were the imported goods sold for export to Canada?
  2. Who was the purchaser in Canada?
  3. If you were the purchaser in Canada, [how do you satisfy the definition of purchaser in Canada]?
  4. Describe the procurement process (ordering, receiving and payment) Please explain how the purchase and payment of the goods was recorded in the accounting records?
  5. Was an advance payment made in respect of the imported goods?
  6. Was a rebate or any other decrease in price effected in respect of the imported goods?
  7. Was the purchaser in Canada related to its foreign vendor?
  8. Was the price of the imported goods subject to an adjustment?
  9. Did the related foreign vendor charge a management fee?
  10. Were commissions or brokerage fees incurred by the purchaser in Canada in respect of the imported goods?
  11. Were those fees paid or payable by the purchaser in Canada to his agent for the service of representing it abroad?
  12. Were packing costs incurred by the purchaser in respect of the imported goods?
  13. Were materials, components, parts and other goods incorporated in imported goods supplied free of charge or at a reduced cost by the purchaser in Canada for use in connection with the production and sale for export of the imported goods?
  14. Were tools, dies, moulds and other goods utilized in the production of imported goods supplied free of charge or at a reduced cost by the purchaser in Canada for use in connection with the production and sale for export of the imported goods?
  15. Were materials consumed in the production of the imported goods supplied free of charge or at a reduced cost by the purchaser in Canada for use in connection with the production and sale for export of the imported goods?
  16. Were engineering, development work, artwork, design work, plans and sketches undertaken elsewhere than in Canada and necessary for the production of imported goods, supplied free of charge or at a reduced cost by the purchaser in Canada for use in connection with the production and sale for export of the imported goods?
  17. Were royalties or licence fees incurred by the purchaser in Canada in respect of the imported goods?
  18. Have any proceeds from the subsequent resale, disposal, or use of the imported goods by the purchaser in Canada accrued to the vendor?
  19. Were transportation and associated costs, related to the transportation of the goods to the place within the country of export from which the goods are directly shipped to Canada incurred by the purchaser in Canada in respect of the imported goods?
  20. Was a deduction from the price paid or payable of the imported goods made for the transportation and associated costs, related to the transportation of the goods from the place within the country of export from which the goods were directly shipped to Canada?
  21. Was a deduction from the price paid or payable of the imported goods made for any reasonable cost, charge, or expense that was incurred for the corporation, erection, assembly or maintenance of the goods, after the goods were imported?
  22. Was a deduction from the price paid or payable of the imported goods made for any reasonable cost, charge, or expense that was incurred for technical assistance provided in respect of the goods, after the goods are imported?
  23. Was a deduction from price paid or payable of the imported goods made for any duties and taxes paid or payable by reason of the importation of the goods or sale of the goods in Canada?

These questions mirror Canada's legislation and require an understanding of Canadian law and the CBSA D-Memorandum in order to answer them correctly. Care must be taken when answering the CBSA questions as an incorrect answer can lead the CBSA to conclude that goods are undervalued and wish to conduct a full on-site verification.  The verification may end in a requirement to self-adjust and file B2 Adjustments for one or more years.  This could lead to a significant detailed adjustment statement and administrative monetary penalties ("AMPs").  It is better to help the CBSA get the right answer rather than having to file a valuation appeal.

Penalties For Failure To Provide Requested Information

It is important to know that the CBSA may issue AMPs penalties if the information is not provided within the time period specified by the CBSA in the request letter.  As a result, it is important to seek assistance as early as possible. The most commonly identified AMPS penalty by the CBSA is C157 "failed to make records and documents in respect of goods available to the CBSA".

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.

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