Ottawa, October 4, 2013
The editing revisions made in this memorandum do not affect or change any of the existing policies or procedures.
This memorandum outlines and explains the treatment of discounts in determining a transaction value under section 48 of the Customs Act.
Sections 45 and 48 of the Customs Act.
Guidelines and General Information
Explanation of Terms
1. For the purposes of this memorandum, the term discount refers to an arrangement whereby the vendor, in return for the purchaser's undertaking of certain obligations or accepting or meeting certain conditions, reduces the amount of the price paid or payable for the imported goods. For example, the vendor may grant a discount for prompt payment (cash discount) or because the vendor operates at a certain level of trade (trade level discount) or because the purchaser has agreed to purchase a specified quantity of the goods in the sale giving rise to their importation (quantity discount).
2. The price paid or payable, in accordance with subsection 45(1) of the Customs Act (the Act), is the total of all payments, whether direct or indirect, made or to be made in respect of the goods by the purchaser, to or for the benefit of the vendor.
3. If a discount is granted prior to, or at time of importation, the amount of that discount should be considered when calculating the price paid or payable for the imported goods. However, in accordance with paragraph 48(5)(c) of the Act, any rebate or decrease in the price paid or payable occurring after importation must be disregarded.
4. As an example of a discount granted before importation, a firm in Canada purchases a machine from a foreign manufacturer. The list price of the machine is $100. However, the manufacturer grants a 10% discount to the purchaser because he operates at the retail level of trade, resulting in a total price paid or payable of $90. Since they agreed on the discount prior to importation, the price paid or payable is $90 and is an acceptable basis for value for duty, subject to the other requirements of section 48 of the Act being met.
5. In some instances, a vendor may offer cash discount terms to a purchaser that provide for a reduced payment to be made within a time period that expires after the date the goods are imported. If the purchaser has not made the reduced payment before the time of importation but intends to do so, the Canada Border Services Agency (CBSA) will, in the interests of equity, allow the discount to be considered in calculating the price paid or payable for the goods when determining the transaction value. For example, a firm in Canada purchases a machine from a foreign manufacturer, the price of which is $10,000. However, the manufacturer grants a discount of 5% if payment is made within 10 days after the date of sale. At the time of importation, the cash discount is still available but not yet taken. If the purchaser takes advantage of the manufacturer's discount terms, the CBSA will allow the purchaser to reduce the price payable by the amount of the discount, resulting in a price payable of $9,500 upon which a calculation of value for duty under the transaction value method can be based.
6. The only scenario in which the CBSA will accept a price paid or payable that is reduced after importation is one in which the purchaser takes advantage of cash discount terms offered by the vendor before or at time of importation.
Note: For coding purposes, a discount (such as a cash discount) is treated as part of the price paid or payable rather than as a adjustment identified in paragraphs 48(5)(a) or (b) of the Act. For example, when the obligation or condition necessary for a discount is fulfilled or met prior to, or at time of importation, and no adjustment identified in paragraphs 48(5)(a) or (b) of the Act applies, the value for duty code to be declared is "13", or "23" if the purchaser and the vendor are related parties.
7. For more information, within Canada call the Border Information Service at 1-800-461-9999. From outside Canada call 204-983-3500 or 506-636-5064. Long distance charges will apply. Agents are available Monday to Friday (08:00 – 16:00 local time/except holidays). TTY is also available within Canada: 1-866-335-3237.
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