CBSA Issues Revised Customs Guidance On Related Party Transactions And Value For Duty: New Opportunities And Obligations

October 2, 2015

On September 17, 2015, the Canadian Border Services Agency ("CBSA") released a revised D-Memorandum D13-4-5, "Transaction Value Method for Related Persons" (the "Memorandum"), addressing the impact of income tax transfer pricing on the value for duty to be declared on goods imported into Canada. This new guidance will have a significant impact on businesses involved in cross-border trade with parent companies, subsidiaries and other related entities as there are several important changes and clarifications to customs reporting, duty and accounting requirements regarding income tax transfer price adjustments, advance pricing arrangements ("APAs"), and transfer price agreements ("TPAs")...

...The recent changes to the Memorandum present new opportunities for businesses importing products into Canada. Customs obligations arising from setting and adjusting transfer pricing and the payment of fees for management and administration as well as marketing and other services provided by related parties have a reputation for being rigourously enforced by the CBSA. Unwary businesses are frequently penalized for failing to account for transfer price adjustments and for improperly relying on their transfer pricing when making a declaration of value for duty.

The previous lack of certainty concerning the circumstances in which an importer was required to report adjustments to the price paid or payable for imported goods exposed businesses to the risk of significant reassessments of duties and GST and administrative monetary penalties and other fines. The Memorandum attempts to introduce more certainty regarding customs reporting and accounting requirements and confirms the existence of opportunities for businesses to claim refunds on transfer pricing adjustments as initially identified in Customs Notice 15-001.

This new guidance on the relationship between customs law and income tax transfer pricing also underscores the importance of ensuring that there are clear internal lines of communication among your organization's staff in the areas of trade compliance, finance, and accounting in order to address the significant risk exposure arising from the impact of transfer pricing and related party issues on your import obligations.

This article was written by John W. Boscariol, Robert Glasgow and Justin Shoemaker of McCarthy Tétrault LLP and is available in its entirety at Mondaq.com.


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