Archive for the ‘Customs Brokers’ Category


 

6 Methods of Determining Customs Valuation

Six Methods of Determining Customs Valuation

 

 

 

 

 

 

 

 

 

 

 

Are you uncertain of how to properly declare the value of your goods when importing into Canada? You are not alone, many importers are. This lack of clarity is partly due to the many rules and factors when determining value for duty. With an expectation to be compliant,  customs valuation is one of the three main targets for a Canada Border Services Agency (CBSA) audit. Unfortunately, we see many importers spending the least amount of attention to this area. Valuation can be an intricate area to navigate if your foreign purchases involve situations which could change the declared value to CBSA.

So, let’s take a look at the 6 Methods of Determining Customs Valuation by first understanding what valuations are.

What is Valuation?

Valuation is the determination of the correct value of goods. CBSA requires all goods imported and declared into Canada have a value for duty which is the base figure on which you must calculate the duty and taxes you may owe the CBSA on your imported goods.

With items like samples, replacements, warranty items, short-shipped goods, you are still required to declare a fair market value although in the end payment of duties and taxes may be unnecessary.

How is Customs Value Determined?

The Customs Act identifies six methods of customs valuation.

The World Trade Organization’s Valuation Agreement is the basis of the requirements of each of these methods. These rules ensure the value of the imported goods are in accordance with commercial reality, and they prohibit the use of arbitrary or fictitious customs values.

 

 

 

 

 

 

What is Transaction Value?

Importers should use this method when determining the value for duty on the price paid or payable for imported goods with consideration to certain adjustments. This method is the most commonly used. When selling goods for export to Canada to a purchaser in Canada, the Transaction valuation applies. We have outlined the difference between the price paid and payable below:

Price Paid is the total of all payments made directly or indirectly by the purchaser to the vendor.  Price Payable, however, is the total of all payments that are owed and made directly or indirectly by the purchaser to the vendor.

You must use the transaction value method whenever possible to determine the customs value of imported goods.

What is Transaction Value of Identical Goods?

When you cannot use transaction value, you must use an established value for duty of identical goods. Identical goods are considered the same in all respects as the goods being appraised. They have one exception however and that is for minor differences in appearance. These difference cannot affect the value of the goods. For goods to qualify, production would have to be in the same country as the identical goods.

What is Transaction Value of Similar Goods?

When you cannot use transaction and identical goods, you must use an established value for duty of similar goods. For goods to qualify, the value of goods must be:

  • Closely resembling the similar goods
  • Capable of performing the same function
  • Commercially interchangeable
  • Produced in the same country and by the same manufacturer as the similar goods

What is Deductive Method of Valuation?

If none of the above methods apply, the deductive value method is the next method to consider. The basis of this method is on the Canadian importers most common selling price (per unit) of the goods sold to Canadian customers.

What is Computed Method of Valuation?

The computed value is the cost of production, profit and general expenses of the imported goods. These must be realized by producers in the exporting country when selling the same type of goods to Canadian importers.

What is Residual Method of Valuation?

The residual method does not identify specific requirements for determining a value for duty. Instead, the value is based on one of the other methods (considered in sequence). It also requires the least amount of adjustment. The value must be fair market, and reflect commercial reality.

In the end, the final value for duty can also be influenced by:

  • The relation between the parties involved.( i.e. a related buyer and seller)
  • Condition where the goods were provided to the Canadian consignee at no charge (i.e. consignment)
  • Allowable additions or deductions to the value of the goods
  • Used goods
  • Goods not sold in Canada (i.e., for rent or lease)

Now that you understand the 6 different methods of determine value for duty, the next step is to learn how to calculate your value for goods and why it’s important to get it right. Receive in-class training from one of Sr. Trade Advisors. To be notified of the next Customs Valuation seminar, you can subscribe to our mailing list below. 

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If you have reason to believe that you have valuation situations which have the potential to raise flags during an audit leave a comment below and I will be happy to reply.

 

The Cost of Customs Compliance Part 3 | The Benefits of Being Proactive

You have read about the perceived cost of compliance and the ramifications of not being compliant for the last two weeks in our Your Broker Knows blog. This week it is time for some happy news! What are the returns of investing in compliant trading activities?

To answer this questions, we are interviewing some of our team members who have many stories to tell!

Q: Do you have an example of a company who endured a Customs audit without receiving penalties as a result of their trading activities?

A: A few years back we worked on behalf of a client who was importing a large capital project into Canada. We cleared the project as one unit under a provisional entry. This is permitted when each part of the import would not work without the other.

The components were arriving from multiple suppliers located in various countries, at multiple ports of entry by boat, airplane, and truck, over the course of three years.

For theses types of entries, Customs requires the importer, to keep exceptionally detailed and accurate entry records for each shipment in the entry. As we were the customs broker, we kept these records for the client. Once entirely imported, the shipment records were submitted to Customs for audit. This value of this project was over $265,000,000.00 CDN. You can imagine how many pieces this import was made up of! The client passed the audit with flying colors! There were no delays, penalty payments, or entry corrections necessary. It was a complete success.

Q: What compliant activities did this company conduct which resulted in such a successful result?

A: Accurate and detailed records and procedures! It’s surprising how many importers can overlook this aspect of compliance, yet it’s one of the biggest problem areas. In this example, it was the entry records. But non-existent operating procedure can lead to compliance issues.

One of our clients received a sizable penalty when the person normally in charge of filling out the customs documentation for each shipment went on vacation. The vacation relief was not trained in this area and had no procedure to follow. The only guide they had to follow was past entry documentation. They copied the information for a past entries invoice, replacing the piece count and value, for the shipment they were scheduled to import. It later turned out that the shipment they copied was for a different commodity. They had inadvertently used the wrong commodity description and tariff classification. This resulted in an inaccurate duty payment. The fine assessed to them was steep. So…records are super important! And pro tip….file them by transaction number as that is how Customs will ask for them.

Q: Customs motto of ‘know before you go’ are words we repeat to our clients often. What does it mean to you?

 A: Oh sheesh, yes we do say that a lot! Know before you go is the equivalent of looking before you leap (in my college’s words). Who takes the jump before looking at where they will land?!?

 We give a lot of credit to new importers who check import eligibility through preliminary research before they make a purchase. Their research is not just online; they reach out to other importers to understand the reality of importing. They call a customs broker or freight forwarder to get a checklist of what they should do before attempting to import. They try to understand all parts of their supply chain – who is responsible for what. There is also value in working with vendors who have experience. Far too many times we clear urgent shipments from new importers who are denied entry for not having done this research.  

 A client of my colleagues was importing produce from overseas and did not do this research. It turned out that the shipment required a phytosanitary certificate, which they did not have and could not get. Customs destroyed the 6 palettes of produce. It’s costly! That client lost money on the purchase and shipping of that produce. A little research and a lot of conversation can avoid this.

Q: In all your years in this industry, what is the best story you’ve heard with regards to a client being compliant? 

A: There is one back when I first started in this industry that I will always remember. I was getting trained in a seminar when this example came up. I had just learned that Canada Border Services Agency would accept voluntary disclosure of an incorrect entry, provided that they do not find the inaccuracy first.

If a new client had provided us a product database which had even one incorrect tariff, it could result in years of incorrect imports. Customs can look back 7 years, which could result in a lot of incorrect entries.

Now, there is not too much an importer can do as far as lost revenues because, in this example, they would have sold the imported product under the assumption that the import costs were far lower than what they should have been if the correct tariff was assigned and used for declaration. However, there would be an opportunity to disclose this error and make the corrections to Customs.

Clients who find errors should always report and correct them to avoid a penalty that could be a detriment to their business.

Q: If you could give an importer one compliance tip, what would it be any why?

A: Oh my…seriously…just one?! I’m going to give a few.

Do your research, educate your staff, choose vendors wisely, complete paperwork accurately, audit your broker, and maintain your records.

 

Did you like this Q & A format? Let us know if we should do more of these interviews in the comment section below!

 

Trade Talk – HELP! “I’ve been chosen for a (CBSA) Trade Compliance Verification Audit!”

Canada Border Services Agency (CBSA) Verification list 2017 is out – Are you an importer of these items?

As an Importer of goods into Canada, you may one day be faced with a terrifying reality of being chosen for a Canada Border Services Agency (CBSA) Trade Compliance Audit. You may wonder what your next step should be.

Step 1: Breathe, it may not be as bad as you think. Contact your customs broker and discuss the situation. They will guide you through this process. You are not alone.

Step 2: Understand how an audit works.

The CBSA uses Post Release Verification Audits as a tool to measure trade compliance with the various CBSA programs.  Typically a trade compliance audit will focus on one of three major programs, Tariff, Origin or Valuation.  In all cases, there are two processes by which your company may be chosen for an audit.  

  1. Random Verifications – These verifications are typically focused on the type of goods being imported, the country of origin of the goods, the relationship between the purchaser and the seller, etc.   
  2. Targeted Verification Priorities – Targeted verifications are determined through a risk-based assessment.  A list of verification targets is typically issued by CBSA in January and July of each calendar year.  Each list will carry new items to be verified for compliance with tariff, origin and valuation, and, there will be some items that carry over from previous calendar years.

The January 2017 Trade Compliance Verification Priorities can be found at the following link:

http://www.cbsa-asfc.gc.ca/import/verification/menu-eng.html

 

CBSA Verification Audit

 

 

Step 3: Educate your team.

Trade Compliance Education:

Pacific Customs Brokers aims to keep importers and exporters informed on changing customs regulations while educating them on the consequences of non-compliance. Whether you are new to importing, exporting or are seeking training on the movement of international goods, our trade compliance program will aim to match your needs.

Related blog post: 7 Excellent Reasons to Invest in Trade Compliance Education

 Trade Advisory Services:

If your company is chosen for a Trade Compliance Audit or Verification Audit, Pacific Customs Brokers is here to help.  Please contact our office as soon as you are notified of your audit, and one of our Certified Trade Compliance Specialists will work with you to guide your business through the audit process.  It is very important that we be brought in right at the beginning to ensure that we can represent your best interests with CBSA to mitigate the impact of any additional duty, penalties or interest that may otherwise be payable.

Our trade advisory services include but are not limited to:

  • Thorough HS database review with ongoing updates
  • Current industry training and education to review transactions completed by customs brokers thereby minimizing errors
  • Experienced counsel on valuation and origins
  • Strategic advice on withstanding a customs audit
  • Firm support through the challenges of the audit process

For more information about our trade compliance audit services, contact us today or learn more at Canada Customs Trade Compliance.

 

Do you have questions about CBSA’s   trade compliance verification priorities? Use the comments section below to leave us your thoughts or email Ask Your Broker .

Is Canada’s Softwood Lumber Industry Facing a Cold Blow from the South?

Softwood Lumber

Softwood Lumber Importers to the United States May Be about to Find Out!

The U.S. Lumber Coalition has filed petitions with the International Trade Administration for Antidumping (AD) and Countervailing (CV) relief on importations of multiple softwood lumber products originating in Canada.

This article is in response to this advisement just released: https://www.usitc.gov/

The petitioners allege critical circumstances, requesting that AD and CV duties be applied imminently. If critical circumstance is approved, “CV duties could be applicable to entries filed as early as December 15, 2016, and AD duties could appear as early as February 3, 2017.” Initial review indicates an alleged AD margin of 52.89%, while there are few specifics as to the countervailing rates. We will continue to keep you posted as more is known.

The scope of the AD Duty and CV Duty cases are dispositive. The potential Harmonized Tariff Schedule of the United States (HTSUS) headings and subheadings are provided for convenience only. Language of the scope as presented is detailed here:

Petition Coverage

The merchandise covered by these petitions is softwood lumber, siding, flooring and certain other coniferous wood (‘softwood lumber products’). The scope includes:

  • Coniferous wood, sawn or chipped lengthwise, sliced or peeled, whether or not planed, whether or not sanded, or whether or not finger-jointed, of an actual thickness exceeding six millimeters.
    Coniferous wood siding, flooring and other coniferous wood (other than moldings and dowel rods), including strips and friezes for parquet flooring, that is continuously shaped (including, but not limited to, tongued, grooved, rebated, chamfered, V-jointed, beaded, molded, rounded) along any of its edges, ends or faces, whether or not planed, whether or not sanded, or whether or not end-jointed.
  • Coniferous drilled and notched lumber and angle cut lumber.
  • Coniferous lumber stacked on edge and fastened together with nails, whether or not with plywood sheathing.
  • Components or parts of semi-finished or unassembled finished products made from subject merchandise that would otherwise meet the definition of the scope above within the scope of these investigations.

Softwood lumber product imports are generally entered under Chapter 44 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Softwood lumber products that are subject to these petitions are currently classifiable under the following ten-digit HTSUS subheadings in Chapter 44: [Please see attached for detailed list of 47 specifically-included ten-digit HTSUS provisions].

Subject merchandise may also be classified as stringers, square cut box-spring frame components, fence pickets, truss components, pallet components, and door and window frame parts under the following ten-digit HTSUS subheadings in Chapter 44: 4415.20.40.00; 4415.20.80.00; 4418.90.46.05; 4418.90.46.20; 4418.90.46.40; 4418.90.46.95; 4421.90.70.40; 4421.90.94.00; and 4421.90.97.80.

Although these HTSUS subheadings are provided for convenience and customs purposes, the written description of the scope of the investigation is dispositive.”

We are here for YOU

In addition to the AD and CV duties, there are likely to be additional requirements from the surety company who provides your Continuous Transaction Bond with Customs. It is imperative that you remain aware of your requirements proactively.

Should you prefer to communicate directly, our Trade Compliance Group is well-versed in AD and CV processes and ready to answer your questions or help to address your concerns. You can reach us 24/7 Toll Free: 877.332.8534 for all entry processing requests.

Estimated vs. Actual Duty Costs: CBP Liquidation Explained

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

It is common practice for customs brokers to invoice for projected duty, often listed as “estimated costs,” on the invoice instead of the actual duty payable. Amounts that must actually be paid remain an “estimate” with U.S. Customs and Border Protection (CBP) until “liquidated.” The liquidation process can be lengthy, therefore “estimated costs” are used until such time as the final determination is set by CBP.

According to CBP, liquidation is defined as, “the final computation or ascertainment of duties on entries for consumption or drawback entries.” (Source: 19 CFR §159.1)

The Liquidation Process

Importers are required to declare imported goods to CBP in the form of an entry, often prepared by a customs broker. Based on the value of the goods and H.S. tariff classification, duties and taxes are calculated and paid to CBP either direct by the Importer of Record (IOR), or by the customs broker on behalf of the IOR. CBP will review the entry for duty and tax accuracy (during the pre-liquidation period) and either agree with the calculations as paid or inform the customs broker or IOR of the recalculated amounts and any duties owing or payable. CBP will then liquidate the entry 314 days after entry submission.

Liquidation can be extended upon request, however the IOR must provide reason to do so. CBP is also at liberty to extend this time frame if the duty payable amounts are in question. Extensions are granted in one year increments and cannot be extended more than 3 times.

Anti-dumping and or countervailing duty investigations can cause the liquidation process to be suspended, as can a number of other issues, such as reconciliation entries our outstanding ruling requests.

Many IORs ask how they will know when the liquidation has been completed. Importers will receive a Courtesy Notice of Liquidation on a form 4333A, which utilizes the date of the actual liquidation. This notice requires no further action apart from record keeping requirements. However, if there is additional duty owing, the Courtesy Notice of Liquidation will be pink and if customs has extended or suspended the liquidation, this will be indicated on the form.

While the liquidation of entries may seem like a simple matter, it is important that importers review their liquidation notices for anomalies such as extensions, suspension, changed status, change in amounts due, etc. While the majority of entries do liquidate on schedule and as expected, there can be surprises. Should you receive a liquidation notice that does not match your expectations, get in touch with your customs broker for clarification as soon as possible in order to maintain your legal right to protest the matter should you find it objectionable.

Have you received a questionable liquidation notice? Share with us in the comments section below or email us at Ask Your Broker.