The Canada Border Services Agency (CBSA) updated its online statement of its current trade verification (audit) priorities in July 2019. Importers of goods targeted for verification would be wise to ensure that they have reviewed their current customs compliance practices and are ready to respond if they are contacted by the CBSA.
Audits cover tariff classification, customs valuation and origin, and will commonly focus on one of these programs for a defined "verification period" (generally the last complete fiscal year). The result of the verification is considered "reason to believe", on the part of the importer, that it has contravened the Customs Act, and requires the amendment of past import entries made commencing up to four years prior to the date of correction.
Tariff classification, origin and value for duty are the elements that collectively determine the amount of regular customs duties and goods and services tax (GST) payable when goods are imported into Canada:
Verification priorities are established throughout the year and reflect the CBSA's assessed risk of non-compliance with customs rules for certain categories of imported goods.
Not all audits are based on verification priorities. To promote compliance, the CBSA also conducts random verifications based on a number of factors including risk assessment, revenue, and complaints. All importers are at risk of random verifications. Compliance with trade rules not only ensures that correct amounts of duties and taxes are collected, but also supports Canada's trade negotiations by ensuring the accuracy of government trade data.
The CBSA's current verification priorities for the programs of tariff classification, customs valuation, and origin are as follows:
Import Permit Numbers
The CBSA provides the identified risks of non-compliance for each verification priority on its website.
While most current verification priorities are continued from previous years, two tariff classification priorities are new: (i) Other Chemical Products, and (ii) Parts of Machines and Mechanical Appliances. Several verification priorities have been removed since the CBSA's last publication in January 2019.
The CBSA also publishes aggregated audit results by verification priority. The rates of non-compliance are high, and exceed 50 percent for the majority of the results published as of July 2019. Several rounds of verification had 100 percent non-compliance. Non-compliance results in assessments of duties, GST, and, frequently, administrative monetary penalties, on a retroactive basis.
The high rates of non-compliance serve as a reminder to importers to review their customs practices, especially for goods covered by the CBSA's verification priorities. Related party transactions and transfer pricing arrangements are particularly important aspects of customs valuation practices that should be carefully reviewed on a regular basis to ensure contemporaneous documentation (written intercompany agreements and transfer pricing studies) are appropriate and up to date and that practices conform.