Tax memo: Retailers: Customs is targeting imports of footwear and apparel

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Memo No. 2012-25

Retailers who import footwear and apparel should be aware that the Canada Border Service Agency (CBSA) has added these products to its list of priorities for “value for duty” audits. This move is not surprising, given that the 15% to 18% rates of duty on footwear and apparel are among the highest in the Tariff.

If the value for duty (VFD) declared by the importer is found to be incorrect, the CBSA can re-assess duties and taxes for up to four years. Even if the goods are duty-free, the CBSA will require that the original customs entries be corrected.

The CBSA can impose financial penalties when it considers that the importer had “reason to believe” that the value originally declared was incorrect, whether or not the error resulted in a loss of revenue.

Penalties may be avoided if the importer submits a voluntary disclosure before the commencement of any enforcement activity, such as an audit. In addition, if the error is discovered as a result of an internal review, or a review by an external party (such as PwC), the importer may not be required to correct the error on past entries even when additional duty may be owed.