The CBSA has made a long-sought-for change in its policy to allow duty refunds in the event of qualifying downward transfer price adjustments by importers. The change comes on the heels of victory by Bennett Jones in a test case on behalf of a lead applicant/importer that sought refunds based on downward price adjustments for automotive parts inventory.
Despite the major – and welcome – scope of the policy shift, importers must be aware that duty refunds are not automatic and the CBSA can be expected to test the importer’s documentation to verify eligibility for the refund. Furthermore, refunds of duty are generally included in income of an importer for income tax purposes and must be timely reported. Going forward, it will be important for importers to revisit their contemporaneous documentation, including transfer pricing studies, to ensure a uniform approach to income tax and customs transfer pricing that meets the standards of both, not all of which are aligned. Multinationals should also consider the latest CRA guidance as well as international proposals for detailed reporting. Importers are advised to seek legal counsel to ensure their refund applications are properly documented and their contemporaneous documentation is robust.
For a more complete discussion of this topic, read the update Canadian Importers may now Seek Import Duty Refunds.