Valuation, Additions and Exclusions
For today’s Bob’s Briefs we are going to be talking about valuation and additions and exclusions to the price paid or payable for imported merchandise into Canada or the United Atates.
We have seen an increase of audits in both Canada and the U.S. related to these issues.
In Canada the main focus seems to be on apparel and footwear given the high rates of duties – for the most part 18% – associated to these products.
This industry is also a focus. in the U.S. The average duty rate for textiles is 16% and 40% of the duties collected by CBP were generated in this area.
For Customs purposes the value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation plus. amounts equal to:
- The packing costs incurred by the buyer
- Any selling commissions incurred by the buyer.
The value apportioned as appropriate for any assist. An assist would be any items such as materials, components, tooling and similar items that the buyer of imported merchandise provides free of charge or at a reduced cost for use in the production or sale of merchandise for export to Canada or the U.S.. It must be noted that the cost of transportation to move the assist to the seller must also be taken into consideration when determining the value to be added to the transaction.
Engineering, development, artwork, design work, and plans and sketches that are undertaken outside of Canada for Canada purposes and outside of the U.S. for U.S. purposes and are necessary for production of the imported merchandise. It must be noted that these charges will not be treated as an assist if the service or work is performed by a person domiciled within the U.S. or Canada or performed while a person is acting as an employee or agent of the buyer of the imported merchandise.
Examples of charges that do not need to be included in the value include buying commissions:
- these are charges for the benefit of the buyer
- as well as and if identified separately from the price actually paid
Any reasonable cost or charge that is incurred for construction, erection, assembly or maintenance of, or the technical assistance provided with respect to the merchandise after its importation.
Another focus. as of late with CBSA is dealing with royalties and license fees. One involves a royalty contract with Disney and the right to distribute or resell product. In order for a royalty or license fee to be added to the value for duty purposes three factors must be considered:
It must be a royalty or license fee – in the instant case with one of our clients it is considered a royalty as the products being produced are of Disney characters and they must pay them based on the number of units sold.
It must be in respect of the goods – again no issue.
And – it must be a condition of sale. In other words Disney can terminate the agreement if you do not pay. Our contention with CBSA with this agreement is that the supplier will still sell the product regardless if they do not pay the royalty. Lawyers currently reviewing the wording to ensure there is no wording in the contract indicating the agreement is void should they not pay.
CBSA valuation d memos are provided in the D13A and U.S. valuation law provided in section 152 of the code of federal regulations.
Need to assistance with audits, valuation, additions, and exclusions?
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Call Us: 1-800-667-0771 or Email: Consulting@ghy.com.