Methods of Determining Value for DutyMemorandum D13-3-1

Ottawa, April 7, 2014 This document is also available inPDF (441 KB)[help with PDF files] The editing revisions made in this memorandum do not affect or change any of the existing policies or procedures. This memorandum briefly outlines and explains the methods of determining value for duty under the provisions of theCustoms Act.

LegislationGuidelines and General InformationTransaction Value Method (Section 48 of theCustomsAct)Transaction Value Method of Identical Goods (Section 49 of theCustomsAct)Transaction Value Method of Similar Goods (Section 50 of theCustomsAct)Deductive Method of Valuation (Section 51 of theCustomsAct)Computed Method of Valuation (Section 52 of theCustomsAct)Residual Method of Valuation (Section 53 of theCustomsAct)Additional InformationAppendix A - Transaction Value MethodAppendix B - Transaction Value of Identical Similar GoodsAppendix C - Deductive ValueAppendix D - Computed ValueReferences Transaction Value Method (Section 48 of theCustomsAct)Transaction Value Method of Identical Goods (Section 49 of theCustomsAct)Transaction Value Method of Similar Goods (Section 50 of theCustomsAct)Deductive Method of Valuation (Section 51 of theCustomsAct)Computed Method of Valuation (Section 52 of theCustomsAct)Residual Method of Valuation (Section 53 of theCustomsAct)Additional InformationAppendix A - Transaction Value MethodAppendix B - Transaction Value of Identical Similar GoodsAppendix C - Deductive ValueAppendix D - Computed ValueReferences

Sections 47 to 53 of theCustoms Act.

1.   Under theCustoms 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 methodSection 49 – The transaction value method of identical goodsSection 50 – The transaction value method of similar goodsSection 51 – The deductive method of valuationSection 52 – The computed method of valuationSection 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.

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) ofthe 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 andMemorandum D13-4-1,Transaction Value Method of Valuation).

5.   If the transaction value method cannot be applied, consideration must then be given to the method of valuation set out in section 49 ofthe 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 andMemorandum D13-5-1,Application of Sections 49 and 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 ofthe Actmust 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 andMemorandum D13-5-1).

7.   If the transaction value method of similar goods is not applicable to the importation in question, section 51 ofthe Actmust 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,andMemorandum D13-7-3,Deductive Value Method -Deductions From the Price Per Unit).

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 andMemorandum D13-8-1, Computed Value Method).

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 ofthe 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 toMemorandum D13-9-1,Residual Basis of Appraisal Method). 10. Appendices A to D to this memorandum contain calculation sheets, one for each method of valuation, which importers may use as an aid to assist in determining value for duty. These sheets are not part of the documentation requirements for importing goods into Canada as contained inMemorandum D1-4-1,CBSA Invoice Requirements, and need not be submitted with entry documents. However, importers may wish to keep the calculation sheets on file in order to facilitate a review by the Canada Border Services Agency (CBSA) should this prove necessary.

11. For more information, call contact theCBSABorder Information Service(BIS):Calls within Canada & the United States (toll free):1-800-461-9999Calls outside Canada & the United States (long distance charges apply):1-204-983-3550 or 1-506-636-5064 TTY:1-866-335-3237 Contact Us online(webform)Contact Usat theCBSAwebsite

In order to determine whether an importation can be valued under this method, the following questions about the transaction between the vendor and the purchaser in Canada should be addressed. Refer toMemorandum D13-4-1,Transaction Value Method of Valuation. 1.   Were the goods sold for export to Canada? Refer toMemorandum D13-4-2,Customs Valuation: Goods Sold for Export to Canada. 2.   Were the goods sold to a purchaser in Canada? Refer toMemorandum D13-1-3,Customs Valuation: Purchaser in Canada. 3.   Can the price paid or payable be determined? Refer toMemorandum D13-4-3,Customs Valuation: Price Paid or Payable. 4.   If there is a relationship between the purchaser and the vendor, can it be demonstrated that the price paid or payable for the goods was not influenced by that relationship? Refer toMemorandum D13-4-5,Transaction Value Method for Related Persons. 5.   Are there any limitations on the sale such as, restrictions, conditions, or unknown subsequent proceeds? Refer toMemorandum D13-4-4,Limitations on the Use of Transaction Value Method. If the answer to questions 1, 2, 3 and 4 is "yes" and there are no limitations, as outlined in question 5, the transaction value method must be used. The transaction value should be calculated in the following manner taking into account the adjustments provided in subsection 48(5) ofthe Act(refer toMemorandum D13-4-7,Adjustments to the Price Paid or Payable):

(a)Price paid or payable (PPP) for the goods including all direct and indirect payments to the vendor or for his benefit$_____(b)Additions, if applicable (if not already included in(a)above)(1) Commissions incurred by the purchaser (selling commissions only) refer toMemorandum D13-4-12,Commissions and Brokerage)(2) Packing costs (domestic and export packing)(refer toMemorandum D13-4-7)(3) The value of assists, i.e., goods or services supplied free or at a reduced cost by the purchaser for use in connection with the production and sale for export of the imported goods (refer toMemorandum D13-3-12,Treatment of Assists in the Determination of the Value for Duty)(4) Royalties and licence fees related to the sale of the goods (refer toMemorandum D13-4-9,Royalties and Licence Fees)(5) Subsequent proceeds accruing to the vendor refer toMemorandum D13-4-13,Post-importation Payments or Fees (Subsequent Proceeds))(6) Transportation, insurance, and associated costs up to and at the point of direct shipment (refer toMemorandum D13-3-3,Transportation and Associated CostsandMemorandum D13-3-4,Place of Direct Shipment) )Additions Sub-total______________________________$_____(c)Deductions, if applicable (if included in(a)above)(1) Transportation, insurance, and associated costs from the point of direct shipment (refer toMemorandum D13-3-3andMemorandum D13-3-4).(2) Construction, erection, assembly costs, etc., after importation (refer toMemorandum D13-4-7)(3) Import duties and taxes (refer toMemorandum D13-4-7)Deductions Sub-totalValue for duty: $PPP + $Additions – $Deductions____________________$_____ (b)Additions, if applicable (if not already included in(a)above)

(1) Commissions incurred by the purchaser (selling commissions only) refer toMemorandum D13-4-12,Commissions and Brokerage)(2) Packing costs (domestic and export packing)(refer toMemorandum D13-4-7)(3) The value of assists, i.e., goods or services supplied free or at a reduced cost by the purchaser for use in connection with the production and sale for export of the imported goods (refer toMemorandum D13-3-12,Treatment of Assists in the Determination of the Value for Duty)(4) Royalties and licence fees related to the sale of the goods (refer toMemorandum D13-4-9,Royalties and Licence Fees)(5) Subsequent proceeds accruing to the vendor refer toMemorandum D13-4-13,Post-importation Payments or Fees (Subsequent Proceeds))(6) Transportation, insurance, and associated costs up to and at the point of direct shipment (refer toMemorandum D13-3-3,Transportation and Associated CostsandMemorandum D13-3-4,Place of Direct Shipment) ) Additions Sub-total (c)Deductions, if applicable (if included in(a)above) (1) Transportation, insurance, and associated costs from the point of direct shipment (refer toMemorandum D13-3-3andMemorandum D13-3-4).(2) Construction, erection, assembly costs, etc., after importation (refer toMemorandum D13-4-7)(3) Import duties and taxes (refer toMemorandum D13-4-7) Deductions Sub-total Value for duty: $PPP + $Additions – $Deductions

1.   If the value for duty cannot be determined under the transaction value method, then the goods must be valued under a subsequent method. If identical goods were imported at or about the same time as the goods being appraised, then the transaction value of these identical goods must be used as the basis for determining the value for duty (refer toMemorandum D13-5-1,Application of Sections 49 and 50 of the Customs Act). 2.   If there were no identical goods imported but similar goods were imported at or about the same time, then the transaction value of these similar goods must be used as the basis for determining the value for duty (refer toMemorandum D13-5-1). 3.   In order to determine the value for duty under either of these methods, it is necessary that the value for duty of the identical or similar goods has been determined under the transaction value method. 4.   To determine the value for duty of the goods being appraised, use the transaction value of the identical/similar goods and adjust for any differences in quantity, commercial level, or mode and distance of transportation between the goods being appraised and the identical/similar goods (refer toMemorandum D13-5-1). (a)Transaction value of identical/similar goods$_____(b)Adjustments to(a), if any. Indicate if addition or deduction is being made (+, –)(refer toMemorandum D13-5-1)(1) quantity differences(2) commercial level differences(3) mode and distance of transportation differences_______________(c)Value for duty$_____ (b)Adjustments to(a), if any. Indicate if addition or deduction is being made (+, –)(refer toMemorandum D13-5-1) (1) quantity differences(2) commercial level differences(3) mode and distance of transportation differences

1.   If none of the previous valuation methods are applicable, the deductive method may be used to determine the value for duty. However, an importer can request a reversal of the order of application of the deductive and computed methods to the CBSA, as provided for insubsection 47(3)ofthe Act. 2.   Under this method, it is first necessary to establish the predominant price per unit at which the goods, or identical or similar goods, were sold in Canada, either in the condition as imported or after further processing. Further instructions for determining a price per unit are contained inMemorandum D13-7-1,Deductive Value Method –Determination of the Price Per Unit. 3.   From the price per unit, deductions are made for either commissions earned on sales in Canada, or an amount for profit and general expenses on sales in Canada and certain other elements specified inMemorandum D13-7-3,Deductive Value Method – Deductions From the Price Per Unit, where applicable. 4.   The amount for profit and general expenses is to be calculated as a whole and expressed as a percentage of selling price. 5.   The valuation provisions ofthe Actspecify that amounts for commissions or profit and general expenses be those generally reflected on sales of imported goods of the same class or kind in Canada. In applying this provision, the CBSA is prepared to accept the importer's own figures for commissions or profit earned and general expenses incurred based on sales of the narrowest range of goods for which accounting records are available.

(a)  Price per unit (refer toMemorandum D13-7-1)$_____(b)Deductions(1) Commissions or profit and general expenses (refer toMemorandum D13-7-3)(2) Transportation costs from the point of direct shipment (refer toMemorandum D13-3-3andMemorandum D13-3-4)(3) Duties and taxes in Canada (refer toMemorandum D13-7-3)(4) Assembly, packaging, further processing costs (if applicable) after importation (refer toMemorandum D13-7-3)____________________(c)Value for duty$_____ (b)Deductions (1) Commissions or profit and general expenses (refer toMemorandum D13-7-3)(2) Transportation costs from the point of direct shipment (refer toMemorandum D13-3-3andMemorandum D13-3-4)(3) Duties and taxes in Canada (refer toMemorandum D13-7-3)(4) Assembly, packaging, further processing costs (if applicable) after importation (refer toMemorandum D13-7-3)

1.   If none of the previous valuation methods are applicable, the computed method may be used to determine the value for duty.  If the applicability of the computed method has been considered before the deductive method in accordance withsubsection 47(3)ofthe Act, the deductive method must next be considered. The deductive value method is explained in Appendix C. 2.   In order to determine a value for duty under the computed value method, it will be necessary to obtain information from the country of production of the goods, normally from the producer. 3.   A computed value consists of the aggregate of the elements specified in paragraphs 52(2)(a)and(b)ofthe Act. These are materials, production or other processing costs, packing, assists, the cost to the producer of any engineering work, etc., undertaken in Canada, and supplied to him and an amount for profit and general expenses (refer toMemorandum D13-8-1,Computed Value Method). 4.   The amount for profit and general expenses to be considered when calculating the computed value is the amount generally reflected in export sales to Canada by producers in the country of export. In applying this provision, the CBSA is prepared to accept the producer's own figures based on sales to Canada of the narrowest range of goods for which accounting records are available. (a)  Elements specified in paragraph 52(2)(a)ofthe Act(1) materials employed in production(2) production and processing costs(3) packing costs(4) value of assists(5) costs to the producer of engineering work, etc., undertaken in Canada_________________________$_____(b)Amount for profit and general expenses referred to in paragraph 52(2)(b)ofthe Act$_____(c)Value for duty$_____ (1) materials employed in production(2) production and processing costs(3) packing costs(4) value of assists(5) costs to the producer of engineering work, etc., undertaken in Canada (b)Amount for profit and general expenses referred to in paragraph 52(2)(b)ofthe Act