Engineering, Development Work, etc., Undertaken Elsewhere Than in CanadaMemorandum D13-3-7

Ottawa, August 22, 2013 This document is also available inPDF (313 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 explains the meaning and application of the term "undertaken elsewhere than in Canada" as it relates to certain goods and services provided by the purchaser free of charge, at a reduced cost, or paid to the vendor in connection with the production and sale for export of imported goods.

Sections 45 to 53 of theCustoms Act.

1. The term "undertaken elsewhere than in Canada" is introduced insubparagraph 48(5)(a)(iii)of theCustoms Act, which provides for the treatment of "assists". Refer toMemorandum D13-3-12,Treatment of Assists in the Determination of the Value for Duty. 2.Clause (D)ofsubparagraph 48(5)(a)(iii)states that the value of engineering, development work, art work, design work, plans and sketches "undertaken elsewhere than in Canada" and necessary for the production of the imported goods is to be added to the price paid or payable in determining the value for duty. 3. The implication inparagraph 2is that the value of engineering, development work, etc., "undertaken in Canada" is not to be added to the price paid or payable in determining the value for duty under the transaction value method even when the conditions ofsubparagraph 48(5)(a)(iii)are met. 4. Payments for engineering, development work, art work, design work, plans and sketches that are made to the vendor are "in respect of the goods" pursuant to the definition of the price paid or payable insubsection 45(1). Such activities for which payment is made to the vendor by a purchaser, regardless of the stage of design or production at which they occur, are considered necessary for the production of imported goods and cannot be excluded in whole or in part from the price paid or payable for the goods. Such payments are not assists pursuant toparagraph 48(5)(a). 5. "Undertaken in Canada" means that the above goods and services must be carried out within the geographical boundaries of Canada.

6.Subsection 45(1)in defining "identical goods" and "similar goods" states that imported goods for which engineering, development work, art work, design work, plans and sketches undertaken in Canada were supplied by the purchaser free of charge or at a reduced cost for use in connection with the production of the imported goods cannot be considered "identical" or "similar" goods to other imported goods. Therefore such goods cannot be used in applying the following provisions: (a)subsection 48(3), in which the transaction value of identical or similar goods is used to establish the acceptability of a transaction value in a sale between related persons (refer toMemorandum D13-4-5,Transaction Value Method for Related Persons);(b)sections 49and 50, in which the value for duty is determined on the basis of the transaction value of identical or similar goods (refer toMemorandum D13-5-1,Application ofSections 49 and 50of the Customs Act); and(c)subsection 51(3), in which the value for duty may be derived from theprice per unitdrawn from sales in Canada of identical or similar goods (refer toMemorandum D13-7-1,Deductive Value Method – Determination of thePrice Per Unit). 7.Paragraph 52(3)(c)states that only the costs, charges, or expenses actually incurred by the producer for engineering, development work, etc., undertaken in Canada and supplied for use in the production of the goods being appraised is to be included in the value for duty determined under the computed value method(section 52). Refer toMemorandum D13-8-1,Computed Value Method.

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