The following is excerpted from 5 September 2013 article by the Financial Post.
A tariff on guitars bundled with the video game Rocksmith is striking the wrong chord with Ubisoft Canada Inc.
The software developer, which has studios in Montreal, Toronto, and other cities worldwide, is appealing a decision by the Canada Border Services Agency (CBSA) to classify guitars bundled with copies of its instructional video game Rocksmith as musical instruments…
While the guitars - Les Paul Junior models, manufactured by Epiphone - are indeed real musical instruments, Ubisoft's argument is that because the guitars are bundled and sold with video game software, they are eligible for alternate classification under "tariff item No. 9948."
The said tariff allows "articles for use in video games used with a television receiver, and other electronic games" to be sold duty free. Imported musical instruments and accessories, however, are typically subject to a 6% fee under tariff item No. 9207.90.90.
"The definition of what is and isn't a computer part, and what does and doesn't enhance the use of a computer, has gotten very nebulous over the last thirty years," said economist Mike Moffatt and assistant professor at the Richard Ivey School of Business.
For example, suggested Mr. Moffatt, would a Nike running shoe bundled with a fitness tracking app or accessory be classified under an electronics tariff too? It's a slippery slope - and the government, he says, hasn't been consistent with how such tariffs are applied.
The appeal, which will be held on November 1, questions "Whether the goods in issue are properly classified under tariff item No. 9207.90.90 as other musical instruments, the sound of which is produced, or must be amplified, electrically."
Rocksmith teaches users guitar or bass by having them play along with an "in-depth library" of popular music - but using real instruments that can be plugged into an Xbox 360, PlayStation 3 or Windows PC…
… Ubisoft will likely argue that intent is key.
In other words, because the primary intent of the Epiphone guitar is to be played with Rocksmith, that justifies Ubisoft's request to have the guitar bundle classified under a tariff where no duty fees apply.
At the time of publication, a CBSA spokesperson had yet to answer a list of submitted questions.
On the one hand, the Canadian government's rationale isn't hard to understand. In theory, says Mr. Moffat, "people could import really expensive guitars with a CD with some software on it, and claim that this $3,000 guitar is essentially computer equipment, and do an end run around the rules."…
This article is available in its entirety at: http://business.financialpost.com/2013/09/05/tariff-on-rocksmith-video-game-guitar-strikes-wrong-chord-with-ubisoft-canada/?__lsa=2cbf-78b1 (subscription may be required)