Transaction Value
Transaction Value - Identical Goods
Deductive Value
Computed Value
Residual Basis
Transfer Pricing
The accuracy in the method of determining the Value for Duty on imported goods remains one of the priorities of the CCRA. The value used to clear goods through Customs and the process used to establish that value can greatly affect domestic industry.
In order to indicate to Customs which method of valuation is used, a two-digit code is placed against each line on your import entry.
The code is broken down as follows, showing the relevant section of the Customs Act in parentheses:
First Digit:
1 The vendor and purchaser are not related firms as defined in (Subsection 45(3))
2 The vendor and purchaser are related firms as defined in
(Subsection 45(3))
Second Digit: 3 Transaction Value - Price paid or payable without adjustments (section 48)
4 Transaction Value - Price paid or payable with adjustments (section 48)
5 Transaction value of identical goods (section 49)
6 Transaction value of similar goods (section 50)
7 Deductive value of imported goods (section 51)
8 Computed value (section 52)
9 Residual method of valuation (section 53)
It is imperative that the importer realizes that any adjustments to the value subsequent to customs clearance must be declared and an amending entry must be submitted to CCRA whether or not there is any difference in the payment of duty and/or GST or other taxes.
Transaction Value
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In order to determine whether an importation can be valued under this method, the following questions about the transaction between the vendor and the purchaser should be addressed.
1. Were the goods sold for export to Canada and can the price be established?
2. If there is a relationship between the purchaser and the vendor, can it be demonstrated that the price paid or payable for the goods was not influenced by that relationship?
3. Are there any limitations on the sale such as restrictions, conditions or unknown subsequent proceeds?
If the answer to questions 1 and 2 is "yes" and there are no limitations as outlined in question 3, the transaction value method must be used. If there is no "sale" between the purchaser and vendor, an alternate method of determining the value for duty, as listed above (numbers 5 through 9) must be applied.
Transaction Value of Identical or Similar Goods( Back to Top)
If the value for duty cannot be determined under the transaction value method, then the goods must be valued under a subsequent method. If identical goods were imported at or about the same time as the goods being appraised, then these other goods must be used as the basis for determining the value for duty.
If there were no identical goods imported, but similar goods were imported at or about the same time, then these goods must be used as the basis for determining the value for duty.
Three requirements must be met for the value for duty to be based on the transaction value of identical or similar goods:
a) the transaction value of the identical or similar goods must be the value for duty of the goods to which it relates,
b) the identical or similar goods must be exported at the same or substantially the same time as the goods being appraised, and
c) the identical or similar goods must be sold to a purchaser in Canada at the same or substantially the same trade level and sold in the same or substantially the same quantities as the goods being appraised.
When a transaction value of identical or similar goods which does not require adjustment cannot be found, but there are two or more transaction values of identical or similar goods which do require adjustment for differences in trade level and/or quantities then the lowest of these adjusted transaction values would be used as the basis of the value for duty.
Deductive Value( Back to Top)
If none of the previous methods are applicable, the deductive method may be used to determine the value for duty. The importer has the option, however, of reversing the order of application of the deductive and computed methods.
Under this method, it is first necessary to establish the predominant price per unit at which the goods, or identical or similar goods, were sold in Canada, either in the condition as imported or after further processing. From the price per unit, deductions are made for either commissions earned on sales in Canada, or an amount for profit and general expenses on sales in Canada and certain other elements, where applicable.
These elements include:s
· transportation costs within Canada
· transportation costs from the place of direct shipment to Canada
· duties and taxes
· costs of assembly, packaging or further processing after importation
Computed Value( Back to Top)
If the imported goods cannot be valued under the transaction value method or under the transaction value method of identical or similar goods, the deductive value method or the computed value method must be used.
In order to determine a value for duty under the computed value method, it will be necessary to obtain information from the country of production of the goods, normally from the producer. A computed value consists of the aggregate of the following elements:
· materials employed in production
· production and processing costs
· packing costs
· value of assists
· costs to the producer of engineering and/or development work undertaken in Canada
· profit and general expenses
Residual Basis of Appraisal( Back to Top)
There may be some importations that cannot be valued under the previous methods of valuation because of certain circumstances in the transaction between the importer and exporter.
In such cases, the valuation provisions of the Customs Act provide that a value be determined by using a "flexible application" of one of the previous methods based on information available in Canada.
Transfer Pricing( Back to Top)
Transfer pricing refers to the value declared on no-charge transactions or transfers between related parties. For example, when an inter-company transfer takes place, it is imperative that valuation is based on arms-length transactions. Any business that conducts non-resident-related party transactions of $1 million or more is required to have a transfer pricing policy and "contemporaneous documentation" as specifically set out in the Income Tax Act.
The minimum requirements for the policy must include:
· a detailed description of the property or service supplied to the non-resident-related party
· terms and conditions of transactions
· all participants involved in the transaction
· an activity and risk analysis
· the data and methods used to calculate the transfer price
· all assumptions, strategies and policies that affected the transfer price
In order to establish a viable transfer pricing policy, it is recommended that the services of a transfer pricing specialist are used.
If further information is required, a transfer pricing analysis can be obtained by contacting our head office.