Question

Please discuss Memo D13, Valuation. Please discuss the differences between sections 48-53 of the Customs Act

Answer 1

ANS.

1.   Under the Customs Act (the Act), the primary basis of determining the value for duty of imported goods is the transaction value method. This method and the five alternate methods of determination are identified in sections 48 to 53 of the Act. The sequential order of these methods must be followed in order to determine value for duty. The first of these methods, which can be applied to the circumstances of the transaction involving imported goods, must be used. In only one instance can the sequence in which the methods appear in the legislation be altered: the order of application of sections 51 and 52 of the Act can be reversed at the request of the importer. Section 47 of the Act contains the provisions relating to the sequential application of the various methods of valuation.

2.   The primary basis of determination and the five alternate methods are as follows:

Section 48 – The transaction value method
Section 49 – The transaction value method of identical goods
Section 50 – The transaction value method of similar goods
Section 51 – The deductive method of valuation
Section 52 – The computed method of valuation
Section 53 – The residual method of valuation

3.   Certain D Memoranda explain in detail the application of each method of valuation. A brief outline of the key elements of the various methods is given below.

Transaction Value Method (Section 48 of the Customs Act)

4.   This is the primary method of valuation. Value for duty is based upon the price paid or payable for the goods being appraised. Certain adjustments, both additions and deductions, can be made to this price to arrive at the transaction value of the goods. If the transaction value meets certain criteria for acceptability set out in subsection 48(1) of the Act, it will be the value for duty. The transaction value method can only be applied in cases where the goods being appraised must be the subject of a sale for export to Canada to a purchaser in Canada (refer to Appendix A of this memorandum and Memorandum D13-4-1, Transaction Value Method of Valuation).

Transaction Value Method of Identical Goods (Section 49 of the Customs Act)

5.   If the transaction value method cannot be applied, consideration must then be given to the method of valuation set out in section 49 of the Act. In section 49 of the Act, value for duty is based upon the transaction value (that is, a value determined in accordance with section 48 of the Act) of goods that are identical to the goods being appraised. The transaction value method of identical goods can be adjusted if there are differences in trade level, quantities, or transportation costs between the identical goods and the goods being appraised. The value for duty of the goods being appraised would be the transaction value of the identical goods adjusted to account for the differences mentioned above (refer to Appendix B of this memorandum and Memorandum D13-5-1, Application of Sections 49 and 50 of the Customs Act).

Transaction Value Method of Similar Goods (Section 50 of the Customs Act)

6.   When the transaction value method of identical goods cannot be applied, the method of valuation set out in section 50 of the Act must then be considered. The transaction value method of similar goods is essentially the same as that contained in section 49 of the Act except that the basis of value for duty is the transaction value of goods that are similar to the goods being appraised. This transaction value, which can be adjusted in the same way as shown in section 49 of the Act, would be the value for duty of the goods being appraised (refer to Appendix B of this memorandum and Memorandum D13-5-1).

Deductive Method of Valuation (Section 51 of the Customs Act)

7.   If the transaction value method of similar goods is not applicable to the importation in question, section 51 of the Act must then be applied unless the importer has requested that the order of sections 51 and 52 of the Act be reversed. The value for duty is determined under the deductive method of valuation by looking to sales in Canada of the goods being appraised or of identical or similar imported goods. A price per unit is established on the basis of these sales, from which amounts are deducted to account for either profit earned and general expenses incurred on sales in Canada or commissions generally earned on a unit basis, as well as certain transportation costs, and Canadian duties and taxes. The price per unit, once adjusted, would be used in calculating the value for duty of the goods being appraised (refer to Appendix C of this memorandum, Memorandum D13-7-1, Deductive Value Method - Determination of the Price Per Unit, and Memorandum D13-7-3, Deductive Value Method - Deductions From the Price Per Unit).

Computed Method of Valuation (Section 52 of the Customs Act)

8.   Under the computed method of valuation, determination of value for duty begins with the cost of production of the goods being appraised. To this, amounts are added to account for profit earned and general expenses incurred on sales for export to Canada. The total amount would form the basis for calculating the value for duty of the goods being appraised (refer to Appendix D to this memorandum and Memorandum D13-8-1, Computed Value Method).

Residual Method of Valuation (Section 53 of the Customs Act)

9.   If all the previous methods of valuation have been examined and been found to be inapplicable to the circumstances surrounding the transaction involving the goods being appraised, the residual method of valuation is to be applied. Under section 53 of the Act, a value for duty is derived from a flexible application of one of the previous methods of valuation set out in sections 48 to 52 of the Act (refer to Memorandum D13-9-1, Residual Basis of Appraisal Method).