Multinationals Beware! Customs Evidentiary Burden of Proof

On January 4, 2013, the federal Canadian tribunal with appellate jurisdiction relating to customs valuation, among other subjects, schooled multinationals on their obligations to meet the evidentiary burden of proof relating to declared values for duty. In particular, the tribunal found that once the Canada Border Services Agency (CBSA) meets its obligation to prove that an importation has taken place, the burden of proof relating to all elements of the import declaration shifts to the importer. The importer must establish that the values are as it has appraised them, and not as have been re-determined by the President of the CBSA. This is long standing law, but placed in the context of related party cross border transactions, it informs multinational importers of their particular obligations as they relate to the nature of the sale for export (i.e. which party is the vendor to the purchaser in Canada) and the potential dutiability of services rendered by the related vendor (or affiliates) to the purchaser.

In Jockey Canada, AP 2011-008, the importer/purchaser took the position that  it purchased goods in sales for export to Canada from unrelated Asian entities and related Caribbean entities. There were admittedly incidental related party purchases from Jockey International Inc pursuant to a written Sales & Distribution Agreement under which prices were set at Canadian wholesale price less 35%. Jockey International also provided a number of services, including management services. Documentary evidence was not probative that Jockey International was only a service provider, and the tribunal held that it was vested in and transferred title to the goods in sales for export to Jockey Canada; the claims by Jockey Canada that the Asian and Caribbean suppliers were the vendors in the sales for export to Jockey Canada were dismissed by the tribunal. Most compelling was the evidence of accounting and tax records which, in the view of the tribunal, supported the  position that Jockey International was the only vendor, disconcerting as the value for duty was determined to be based on the wholesale price less 35%, a higher result than if based on prices charged by the Asian and Caribbean suppliers.

The case result is a lesson to multinational organizations that support Canadian business through supplies of goods, services and intellectual property. Planning related party commercial transactions in a fashion that provides duty relief is acceptable, but in addition to meeting the letter of the law, supporting, probative documentation must accurately reflect the legal positions taken. Attention should be paid to customs books and records, tax returns, commercial documentation, and contracts evidencing sales and service contracts.

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