Trying to mitigate or avoid import duties and taxes, some importers misrepresent or underprice the correct value of their import shipments. Others risk criminal smuggling charges by not declaring the imported items at all.
Novice importers often assume that the price paid on their commercial invoice will be the value that customs officials will use to calculate the amount of duty and tax payable. That is not necessarily so.
This article explains valuation methods for properly calculating the transaction value of an import shipment from customs' perspective.
Transaction Value Method
The most popular valuation method, transaction value uses the amount paid or payable as adjusted for export to Canada.
Per Section 48 of Canada's Customs Act, the transaction value represents the aggregate of all payments that the purchaser in Canada makes or will make to the benefit of the foreign vendor, whether that benefit is direct or indirect.
Transaction Value of Identical Goods Method
Sometimes the transaction value method will not work. This can be the case when a new product is imported into Canada, and customs officials do not know the tariff treatment to apply to the new item.
When the 16-bit Nintendo game console was first imported into Canada from Japan during the 1980s, Canadian Customs did not know how to classify the new Nintendo product and was going to charge 12% duty.
A senior customs broker brought in a similar Atari system to compare with the Nintendo. While the color and design of the Nintendo differed from the Atari, the Nintendo product was shown to be functionally identical to the Atari system. Customs officers agreed that, as an identical good, the Nintendo imports should be charged the same tariff duty rate of 3.9% that had been assessed on prior Atari shipments.
Section 49 of Canada's Customs Act details the identical goods method.
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