Computed Value MethodMemorandum D13-8-1

Ottawa, February 4, 2014 This document is also available inPDF (150 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 outlines the manner in which a value for duty is determined under the computed value method.

LegislationGuidelines and General InformationMaterials and Production or Other ProcessingAssistsEngineering, Development Work, etc., Undertaken in CanadaProfit and General ExpensesExamples of Calculating a Computed ValueAdditional InformationReferences Materials and Production or Other ProcessingAssistsEngineering, Development Work, etc., Undertaken in CanadaProfit and General ExpensesExamples of Calculating a Computed ValueAdditional Information

Sections 47 to 52 of theCustoms Act.

1. The computed value method is used in those cases where the conditions of the transaction involving the imported goods are such that the importer cannot determine the value for duty under any of the previous methods of valuation. The importer may, under the provisions of subsection 47(3) of theCustoms Act(the Act), reverse the order of application of the deductive value method (section 51 ofthe Act) and the computed value method (section 52 ofthe Act). 2. Paragraphs 52(2)(a)and(b)ofthe Actset out the elements which are to be included in the computed value.

3. In calculating the computed value, subparagraphs 52(2)(a)(i) and (ii) ofthe Actrequire that the costs, charges, and expenses or the value of the following be included: (a)materials employed in producing the goods being appraised; and(b)the production or other processing of the goods being appraised. 4. Under the provisions of subparagraphs 52(3)(a)to(c)ofthe Act, the following are considered to be included in the elements shown above and are therefore to be included in the computed value: (a)the packing costs and charges referred to in subparagraph 48(5)(a)(ii)the Act. For more information, refer toMemorandum D13-4-7,Adjustments to the Price Paid or Payable;(b)the value of the goods and services referred to in subparagraph 48(5)(a)(iii)the Act. For more information, refer toMemorandum D13-3-12,Treatment of Assists in the Determination of the Value for Duty;(c)any costs, charges, and expenses incurred by the producer in respect of engineering, development work, art work, design work, plans, or sketches undertaken in Canada. 5. The amounts referred to in paragraphs 3 and 4 above, under subsection 6(1) of theValuation for Duty Regulations,must be determined on the basis of the commercial accounts of the producer or other sufficient information relating to the production of the goods being appraised. This information is to be supplied by or on behalf of the producer of the goods and prepared in a manner consistent with the generally accepted accounting principles of the country of production (refer to memorandaD13-1-1,Value for Duty of Imported Goods, andD13-3-8,Generally Accepted Accounting Principles).

6. The value of the goods and services referred to in paragraph 4(b)of this memorandum is to be determined and apportioned to the goods being appraised in the manner described in subparagraph 48(5)(a)(iii)the Act. 7. While the value of the assists is considered as part of the elements specified in subparagraphs 52(2)(a)(i) and (ii) ofthe Actand therefore part of the computed value, the manner in which the value is added to the computed value depends on whether the assist has been provided free or at a reduced charge. The value of an assist provided free of charge should not be included as part of the elements in subparagraphs 52(2)(a)(i) and (ii) ofthe Actfor the purposes of calculating an amount for profit and general expenses over costs as specified in paragraph 52(2)(b)ofthe Act, but should be added as part of the elements of subparagraphs 52(2)(a)(i) and (ii) ofthe Actonly after this calculation has been made. The value of an assist provided at a reduced cost is to be treated as above, for that portion of the value provided at no cost to the producer. The portion of the value for which the producer incurs a cost or charge is to be added to the elements in subparagraphs 52(2)(a)(i) and (ii) ofthe Actwhen calculating the amount for profit and general expenses over costs as specified in paragraph 52(2)(b)ofthe Act. The examples provided in paragraphs 16 and 17 of this memorandum illustrate the calculation of a computed value in the situations described above.

8. The amount of costs, charges, and expenses referred to in paragraph 4(c)of this memorandumis to be apportioned to the goods being appraised in the manner described in subparagraph 48(5)(a)(iii) ofthe Act(refer toMemorandum D13-3-12).

9. Under paragraph 52(2)(b)ofthe Act, an amount for profit and general expenses, considered together as a whole, is to be added to the cost of production of the goods being appraised. This amount to be added is that which is generally reflected in sales for export to Canada of goods of the same class or kind as the goods being appraised made by producers in the country of export. 10. Subsection 6(2) of theValuation for Duty Regulationsstates that the amount for profit and general expenses is to be calculated on a percentage basis and determined from sufficient information prepared in a manner consistent with the generally accepted accounting principles of the country of production. 11. Under subsection 6(2) of theValuation for Duty Regulations, this information is, in the first instance, to be supplied by or on behalf of the producer of the imported goods. Normally, this information need only relate to the producer's own figures for export sales to Canada. These figures will be used as the basis for the adjustment if they are themselves based on sufficient information, prepared in accordance with generally accepted accounting principles, and if it can be determined that they are consistent with those figures generally reflected in sales for export to Canada of goods of the same class or kind. The figures used by the Canada Border Services Agency (CBSA) to verify if the producer's own figures are consistent will be obtained from export sales to Canada of goods of the same class or kind by producers who are not related to the purchaser or from producers who, though related to the purchaser, have previously demonstrated to theCBSAthat the price paid or payable has not been influenced by the relationship. The sales examined will be from the narrowest group or range of goods of the same class or kind as the goods being appraised.

12. Where theCBSAdetermines that figures for profit and general expenses supplied by or on behalf of the importer are unacceptable, theCBSAwill apply an amount determined in accordance with section 6 of theValuation for Duty Regulationsand paragraph 11 of this memorandum. 13. In this regard, it should be noted that the amount for profit and general expenses will be taken as a whole. If, in a particular case, the producer's profit figure is low and its general expenses are high, the profit and general expenses taken together may nevertheless be consistent with that usually reflected in sales of the goods of the same class or kind. Such a situation might occur, for example, where a product is being introduced and the producer accepts a nil or low profit to offset high general expenses associated with the introduction of the new product. 14. In other cases, the producer's figures for profit and general expenses taken together may be lower than those usually reflected in sales for export to Canada because the producer's profit on these sales is lower. There may be valid commercial reasons, in terms of the usual marketing or pricing practices of the branch of industry concerned, for the producer taking a lower profit. In such cases, theCBSAwould be prepared to consider representations by or on behalf of the producer which would establish that these profit figures, although inconsistent with those generally reflected in sales for export to Canada of goods of the same class or kind, are acceptable when account is taken of the usual marketing or pricing practices of the branch of industry concerned.

15. Under subsection 6(3) of theValuation for Duty Regulations, where information supplied by or on behalf of the producer is not sufficient information, the amount added for profit and general expenses will be based on information drawn from an examination of sales for export to Canada. The sales examined would be of the narrowest group or range of goods of the same class or kind as the goods being appraised made by producers in the country of export, including the goods being appraised, from which sufficient information can be obtained.

16. This first example illustrates the calculation of the computed value where an assist has been supplied free of charge to the producer of the goods being appraised: (a)A Canadian firm purchases and imports architectural equipment from foreign firm A. The methods of valuation described in sections 48 to 51 ofthe Actare found to be inapplicable, and the value for duty is determined under section 52 ofthe Act.(b)Drawing on the commercial accounts of the producer A, the following costs are determined:materials$10direct labour8factory overhead12packing1$31(c)In addition to the above, the Canadian purchaser provides firm A, free of charge, plans undertaken outside Canada and necessary for the production of the imported goods. The value of these plans, apportioned over the total number of units imported, equals $1 per unit.(d)Firm A is able to provide sufficient information relating only to the profit and general expenses generally reflected in that firm's own sales for export to Canada of goods of the same class or kind: 20%. However, that figure is consistent with the amount generally reflected by producers in the country of export in sales of such goods for export to Canada and, thus, is acceptable.(e)Expressed as a percentage of the costs incurred by the producer, the amount for profit and general expenses equals $6.20 (20% of $31.00).(f)The computed value of the imported goods is therefore $38.20. This value has been calculated by taking the costs (plus the value of the assist provided free) plus the amount of profit and general expenses as a percentage of actual costs incurred by the producer, i.e.,$31.00 + $1.00 + $6.20 = $38.20. materials$10direct labour8factory overhead12packing1$31 17. This second example is based on the first one, except that the plans undertaken outside Canada and necessary for the production of the imported goods have been charged at a reduced cost to foreign producer A.

(a)The value of the plans charged to the producer, and apportioned over the total number of units imported equals $0.50 per unit.(b)The value of the plans not charged to the producer ("assist") and apportioned over the total number of units imported equals $0.50 per unit.(c)Assuming the commercial accounts of the producer A do not include the value of the plans charged to him, his costs equal $31.00 as in the previous example.(d)The producer's profit and general expenses figure remains the same since it represents the firm's profit and general expenses on its sales for export to Canada of goods of the same class or kind.(e)The computed value of the imported goods is, in this example, $38.30:materials, processing costs, packing$31.00plans (assist) to the extent incurred by the producer0.50$31.50plans (assist) not charged to the producer0.50$32.00profit and general expenses (20% × 31.50)$  6.30computed value for duty$38.30 materials, processing costs, packing$31.00plans (assist) to the extent incurred by the producer0.50$31.50plans (assist) not charged to the producer0.50$32.00profit and general expenses (20% × 31.50)$  6.30computed value for duty$38.30

18. 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

Customs Act