There is a mechanism you can use to overturn this decision
Each year, the Border Services Agency (“CBSA“) conducts more than 200,000 commercial checks or audits of Canadian businesses. In the normal course of business of a company that imports or sells goods in Canada, it is likely that you may be verified in the course of the CBSA’s port-importation audit process. This is a process undertaken to verify and confirm an importer’s compliance with the various dispositions administered by the CBSA in the course of import operations.
The CBSA is responsible for the enforcement of several acts including the Customs Act, the Special Import Measures Act and the Customs Tariff, as well as a multitude of other federal acts and regulations, in partnership with other agencies and departments. When importing goods into Canada, the Act allows CBSA to determine the tariff classification, origin or value of the imported goods. However, the law stipulates that it is the responsibility of the declaring party (usually the importer or seller in Canada) to ensure the accuracy of the information provided, particularly on the Coding Forms (“B3“).
Based on the information reported, administrative audits by a CBSA officer may, however, take place up to four (4) years after the goods are accounted for. An importer or vendor may be assessed on a random basis or as an “audit priority”, for example, in cases of previous non-compliance, large number of entries or type of goods imported or as part of the CBSA’s Risk-Assessment Priorities (Historical verification priorities (cbsa-asfc.gc.ca)).
The verification process begins following receipt of a letter providing the importer with 30 days to comply with the request for information and documentation. The customs officer will review the situation and determine if further information is required or if the information is sufficient to make a determination (interim report). Unless there is a change, a final report will then be issued within 30 days, listing the importer’s obligations and the corrective actions that must be undertaken. In cases where audits result in findings of non-compliance, duties and taxes owed, plus interest as well as in many cases administrative penalties may be demanded, based on goods imported over a period going back four years. Of course, this means that the amounts owed, if any, may have to be amortized other than by the selling price of the goods involved. In other words, these assessments will hit a company’s bottom line.
Two findings are generally possible depending on whether the importer had “reason to believe” that his own declarations were incorrect. It is important to understand that the “reasons to believe” concept refers more specifically to the legislative provisions of which the Customs Tariff is a part, as well as Interpretative Notes, to all “official” documents, letters or written communications from the CBSA, any internal notice or reports brought to the importer’s attention, as well as to any decision in customs matters including all the applicable precedents. These are all considered as “reasons to believe” that can justify or not the payment of customs duties or taxes to the CBSA.
Based on these “reasons to believe”, the CBSA determines that specific information was not available or conversely was available from the importer.
Possible outcome #1: CBSA determines that specific information was not available
CBSA identifies errors in the declarations but determines that the importer did not have “reason to believe” that the statements were incorrect. In this case, the importer must correct all erroneous declarations within the audit period (usually one year) as well as returns after that period, i.e., on a prospective basis and going forward. In some cases, a correction of a customs declaration may even result in a refund of customs duties to the importer.
Possible outcome #2: CBSA determines that specific information was available
CBSA identifies errors and determines that the importer had “reason to believe” that his customs declarations were incorrect. This is the case, for example, when a prima facie, evident and transparent tariff classification provision in the legislation were not followed. With respect to value for duty, i.e., the CBSA may determine that the importer had “reason to believe” that subsequent payments (royalties, license fees, revenue, interest) from the importation of goods should be included in the price paid at the time of the annual financial statement and therefore reported to the CBSA at year-end. Thus, CBSA normally takes the position that the importer ” knew”, or “should have known”, that the values reported were incorrect from the time the year-end adjustment is recorded. In all cases, if the corrections result in the payment of duty, the importer will be required to self-correct for returns dating back to the specific information date for up to four years.
Dispute and appeal
In such circumstances, there is an administrative dispute procedure and appeals can be filed under the Customs Act within a strict 90-day period following the CBSA’s final report, notice or decision.
An importer or vendor who disagrees with the CBSA’s decision may file a request for review but should keep in mind that there can be no suspension of payment in the event that amounts are to be paid. Notwithstanding the initiation of the dispute, the importer or vendor will be required to pay the amount of the assessment within 30 days before interest accrues. Security may be posted if the amounts owed are substantial or represent a significant burden to the importer. However, non-payment of duties and taxes will result in a penalty under the Administrative Monetary Penalty System (“AMPS“) and is sufficient reason for any challenge to be dismissed.
Several conditions must be met for the appeal to be accepted by the CBSA and it is therefore recommended that a lawyer or customs broker be retained to maximize the chances of successfully challenging an unfavourable determination. In all cases, the importer appealing a determination must present persuasive and relevant arguments and documentation to support their position. There must be a logical reason behind the request. If the applicant is successful, the fees and interest will be refunded. If fees are due, they must be paid within 30 days of the decision.
Importers who disagree with a CBSA re-determination may appeal within 90 days to the Canadian International Trade Tribunal (“CITT“), a quasi-judicial tribunal, where the matter will be heard on a de novo basis (i.e a fresh start). Written argument and evidence, witness testimony and a hearing will take place before a Tribunal member. It is highly recommended that a customs attorney be retained for this type of proceeding.
Conclusion
If you, your association or your company have any questions regarding commercial remedies in Canada, please do not hesitate to contact one of our legal advisors.
DS Avocats has an experienced team of lawyers with expertise in trade remedies and advocacy. We also provide comprehensive expertise in customs issues.
