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IT’S THE 1990’S ALL OVER AGAIN! CUSTOMS VALUATION RULES REIGN
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The new tariff environment in 2025 and 2026 has put a premium on getting the “big three” declarations correct when it comes to customs importations. These are: tariff classification, origin, and value for duty.
In this Customs 101 Series Report, we review the basics of customs valuation where goods are being bought from, and imported between, related parties.
Transaction Value & Related Party Rules
Someone we respect once estimated that 90% to 95% of all commercial customs importations are declared under Transaction Value. We still think that is the case.
Where Transaction Value importations involve related parties (i.e., a related seller and buyer), special valuation rules come into play when attempting to use Transaction Value. In particular, the importer of record will need to demonstrate that the transaction meets one of the two tests set out in s. 48(1)(d) of the Customs Act:
- Circumstances Surrounding the Sale; or
- Test Values.
Under the Circumstances Surround the Sale test, the CBSA will be looking for substantiating evidence akin to a complete paper trail that demonstrates the relationship between the parties did not influence the price paid or payable for the goods.
For Test Values, in order to use one of the values in s. 48(3) of the Customs Act, the goods to which the test value relates must be exported at substantially the same times as the goods appraised, and must be the value for duty of the goods to which it relates.
Transfer Pricing
In order to support an “uninfluenced” price under the Transaction Value Method on the basis of transfer pricing, the CBSA will generally require a transfer price agreement (or study, etc.) which contains all of the relevant information about the circumstances surrounding the sale of the imported goods.
Accordingly, related businesses relying on historical transfer pricing arrangements must have sufficient documentation to back up the price paid or payable for their import transactions. In particular, the CBSA will be paying keen attention to any downward price adjustments and will likely request additional substantiating documentation.
Consequences of Misapplication
Where customs values are found to be “influenced”, Transaction Value will not be permitted, and other subsidiary methodologies, such as Computed Value or Deductive Value, may be required. As well, differences in value may need to be corrected under section 32.2 of the Customs Act, and additional duties and administrative monetary penalties may be expected.
Takeaways
While the Transaction Value method is generally the “default” method for declaring value for duty for most commercial customs importations, the situation becomes extremely tricky when parties to the transaction are related. Special rules apply that are complex, making advice from Experienced Customs & Trade Counsel crucial to ensuring customs valuations are above board and legally compliant.
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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