MEMORANDUM D4-3-3

Ottawa, February 11, 1991

SUBJECT

DUTY FREE SHOP - LICENSEE RESPONSIBILITIES

This Memorandum outlines and explains duty free shop licensee responsibilities with respect to the establishment and operation of a duty free retail outlet.

TABLE OF CONTENTS

• Guidelines and General Information
• Security Requirements
• Licence Fee Remittals
• Report and Control of Inventory
• Operational Requirements
• Other Responsibilities
• Appendix
• References

Legislation

For the Regulations governing the guidelines and general information contained in this Directive, refer to Memorandum D4-3-1, Duty Free Shop - Regulations.

GUIDELINES AND GENERAL INFORMATION

1.Duty free shop licensees are responsible for establishing and maintaining appropriate operating and administrative practices and procedures to ensure that the regulatory requirements of the licence are being met. These requirements generally relate to: the posting of security, payment of licence fees, reporting, accounting and physical control of inventory, maintenance of facilities and, the provision of appropriate services to the public.

SECURITY REQUIREMENTS

2.A duty free shop licensee must deposit security, prior to commencing operations for each licence held, in an amount sufficient to ensure payment of any duties payable in respect of the duty free shop inventory.

3.The amount of security will be based on 60 per cent of the highest total projected value of inventory for the first year of operation of the duty free shop as indicated in the approved application for a licence. The amount of security for subsequent years will be based on 60 per cent of the highest total value of inventory of the previous year. In all cases, however, the amount of security will not be less than $10 000 in respect of each duty free shop licence.

4.The types of security considered acceptable for a duty free shop operation are specified in the Regulations. General policies and procedures for posting security are outlined in Memorandum D1-7-1, Posting Security for Transacting Bonded Operations, and a listing of guarantee companies and banks approved by the Treasury Board is included. When a bond of a guarantee company or bank is submitted, it is to be in the format of the bond specimen provided in the Appendix to this Memorandum and completed in its entirety according to the instructions provided therein.

5.Goods cannot be moved into a duty free shop as inventory until security has been submitted and accepted by the local Chief Officer of Customs. Upon receipt of a copy of the approved security, the Licensing Division at Headquarters will issue a licence number authorizing the licensee to begin receiving duty free inventory.

6.Original copies of bonds submitted as security will be retained on file at the local Customs office which services the duty free shop. All other types of security are to be processed and filed according to the applicable procedures set out in Memorandum D1-7-1.

Adjustments

7.Security is to be reviewed by the local Chief Officer of Customs not less than annually to ensure its adequacy relative to the value of the inventory on hand. If it is determined that an increase in security is required, the licensee is to submit amended security to reflect the revised amount within thirty (30) days of being advised to do so by the local Customs office.

8.A duty free shop licensee may at any time voluntarily increase the amount of security by submitting an amended security to the local Chief Officer of Customs or may apply to have the amount of security decreased after the initial year of operation. A request for a reduction is to be made in writing clearly stating the reasons for the proposed amount of the adjustment. The revised amount will be reviewed by the local Chief Officer, in terms of its adequacy, and the licensee will be advised accordingly. In no case, however, will a reduction in security to an amount below $10 000 be authorized.

9.The surety company for a duty free shop bond may be changed by a licensee at any time by submitting a replacement bond issued by another approved surety company. A copy of the notice to the previous surety company cancelling their bond is to be submitted to Customs at the same time.

10.At any time the security posted by a licensee is to be amended, form L 58, Duty Free Shop Licence Amendment Form, is to be completed, in its entirety, and submitted to the local Customs office. Instructions on its completion and a sample of the form can be found in Appendix B of Memorandum D4-3-2, Duty Free Shop - Licensing.

LICENCE FEE REMITTALS

11.All duty free shop operators are responsible for the payment of an annual licence fee as set out in the Duty Free Shop Regulations.

12.For a land border duty free shop, the licence fee is payable in monthly installments calculated on a variable percentage basis according to the reported gross revenue from sales to date. Instructions on calculating the fee and completion of the licence fee remittal form, Summary of Monthly Sales and Remittance of Revenue, form B 117, are provided in Memorandum D4-3-5, Duty Free Shop - Documentation Requirements.

13.At airports, the licence fee is determined on the basis of the amount of the security posted by the duty free shop licensee. The annual fee, prorated as necessary when for a lease period of less than 12 months, is payable in full to the local Customs office prior to commencing operations and on or before April 1 of each year in the licensing period thereafter. Although not used for remittance of the licence fee, form B 117 referred to in paragraph 12 of this Memorandum, is to be completed by airport licensees on a monthly basis for the purpose of reporting sales.

14.Payment of the licence fee does not relieve the licensee of any other liability to Her Majesty in respect of any lease or purchase arrangement for the land, building or space in which the duty free shop is located.

REPORT AND CONTROL OF INVENTORY

15.It is the responsibility of the duty free shop licensee to ensure all goods are reported to Customs promptly upon arrival and that fully completed accounting documents are presented within five days of such report being made. Documentation procedures for accounting of goods both in and out of inventory are outlined in Memorandum D4-3-5. If adequate supporting documentation is not available at the time goods first arrive, the local Chief Officer of Customs may grant an extension to the five day requirement for presentation of the accounting documentation package.

16.Goods are not to be offered for sale until such time as they have been accounted for to Customs nor are they to be manipulated, altered or combined with other articles to form a new or different product for the purpose of display or sale. Goods which have been accounted for as inventory of the duty free shop are also not to be sold to employees except when they are purchased for the purpose of being exported from Canada.

17.The licensee is responsible for maintaining the physical security of the duty free shop site and building to ensure all goods sold are exported from Canada. Procedural guidelines for the reporting, inventory control and delivery of goods are outlined in Memorandum D4-3-4, Duty Free Shop - Report and Control of Inventory.

18.Accurate accounting and inventory control systems are to be maintained by the licensee with all related documentation retained for the period specified in the Regulations. Systems malfunctions are to be reported to Customs immediately and any proposed changes to these systems are to be approved by Customs prior to being put into effect. Access to the duty free shop facilities is to be permitted to Customs and Excise Officers in the performance of their duties and any records related to the operation made available to them as required.

19.The licensee of a duty free shop is liable for all duties or taxes payable on goods received in the shop unless adequate proof can be given that the goods have been exported, are still on hand or were destroyed while in the shop. Voluntary disclosure of goods found to be short or missing during an inventory check would only result in the applicable duties becoming payable and will not attract any penalty action.

OPERATIONAL REQUIREMENTS

Facility Standards

20.The building or facility out of which the duty free shop will be operated is to be physically located so as to facilitate the direct export of goods and be easily serviceable by Customs. Where site constraints do not allow it to be situated to ensure direct export, a delivery system, subject to Customs approval, must be used.

21.The duty free shop operation is not to interfere with the flow of vehicular or passenger traffic in the area. Where a licensee has agreed to provide public amenities such as telephones, washrooms and, if applicable, parking facilities, these are to be readily accessible to the handicapped.

22.In addition to the retail area, a warehouse with a separate holding area for the storage of goods pending Customs examination or release into inventory, is to be included as part of the duty free shop facility. The holding area is to be clearly marked and separated from the remainder of the warehouse area by means of a partition or other physical means satisfactory to the local Chief Officer of Customs.

23.Where the duty free shop is to be located within an existing building (such as a passenger terminal at an airport) the warehouse area may, subject to Customs approval, be located in another part of the building or in another building which is located on the same property. In all cases, the duty free shop licensee is responsible for ensuring all areas or buildings designated as part of the duty free operation are physically secure.

24.A licensee contemplating major site or building alterations to an existing duty free shop is to submit form L 58 together with detailed plans/drawings of the proposed changes to the local Chief Officer of Customs. These will then be reviewed and forwarded, along with local and regional comments, to the Director, Licensing Division, for final approval and sign-off. Completion instructions for form L 58 are provided in Memorandum D4-3-2.

25.Minor alterations to a duty free shop (those which do not entail expansion or relocation of the facility) may be approved by the local Chief Officer of Customs. Once approval has been given, a copy of the approved form L 58 outlining the proposed changes is to be forwarded by local Customs to the Licensing Division at Headquarters.

Service Standards

26.In accordance with the Regulations, information signs, in bilingual format, indicating personal exemption entitlements for persons departing from Canada are to be prominently displayed in the retail area of the duty free shop. Notices outlining export and reporting(when goods are returned to Canada) requirements for articles purchased in the shop are also to be posted.

27.The licensee of a duty free shop is to ensure services to the public are provided in both official languages if the shop is located in an area that has been designated by the Department as bilingual. A licensee will be advised prior to commencing operations of the bilingual designation of the area in which the shop will be located. The bilingual status for existing shops is identified in the listing of duty free stores found in Memorandum D4-3-2. All duty free shop operations, regardless of their location, are however, required to provide their customers with bilingual sales receipts or invoices.

28.The duty free shop licensee is responsible for ensuring that any sales transaction requiring the conversion of foreign currency into Canadian funds is carried out using an exchange rate within the range specified in the Regulations.

29.The licensee is to accept goods being returned due to prohibition, lack of permits, defects or the inability of the purchaser to depart from Canada and to make the necessary monetary refunds.

OTHER RESPONSIBILITIES

30.Pursuant to the Regulations, the sale of all wines, spirits or alcoholic liquors will be subject to provincial licensing policies. A duty free shop operator must obtain a licence from the applicable provincial authorities before such goods can be purchased for sale in the shop. A copy of the licensing agreement or letter of approval from the province is to be provided to local Customs and a copy forwarded to the Program office in Ottawa.

31.A licensee is responsible for informing Customs immediately through the use of form L 58 of any impending changes in the operation of the duty free shop or the addition or deletion of traveller services provided therein (i.e., off-site outlets, hours of operation, etc.). Licensees are to ensure that any agent acting on their behalf in relation to their shop has also been provided with the appropriate power of attorney.

32.It is the responsibility of the licensee to carry out all proposals set out in the approved licence application and comply with any other conditions of operation which may have been required by Customs. In this regard, land border duty free shop licensees are required to carry as inventory not less than 20 per cent domestic goods, calculated as a percentage of total inventory value and display area, exclusive of liquor, tobacco and perfume products.

Receivership or Bankruptcy

33.Where it is reasonable to expect that a duty free shop will be placed under the control of a receiver or may go bankrupt, the duty free shop licensee is to notify the Minister immediately in writing through the local Chief Officer of Customs. The local Customs office will conduct a complete audit of the duty free shop upon receiving such notification and ensure all inventory records are up-to-date.

34.The trustees and the licensee may be given limited access to the duty free shop but no sale or movement of goods is to take place without prior approval of Customs. In the case of a receivership, the licensee may request that the receivers be allowed to continue the day-to-day operations of the shop by forwarding a completed form L 25, Application for a Licence to Operate a Land Border Duty Free Shop, or L 24, Application for a Licence to Operate an Airport Duty Free Shop (see Memorandum D4-3-2 for forms) to the Minister through the Program office in Ottawa. In the case of a bankruptcy, the duty free shop licence is automatically cancelled and the licensee will be held liable until all goods are appropriately disposed of or duty and tax paid.

APPENDIX

CANADA CUSTOMS BOND EXAMPLE

[Form D120 not reproduced here]

COMPLETION OF CANADA CUSTOMS BOND FORM

1.A multipurpose bond format to secure various types of Customs bonded transactions was introduced by the Department on January 1, 1990 and all guarantee bonds submitted after this date are to be in the new format.

2.For purposes of a duty free shop operation, the fields on the Canada Customs Bond are to be completed as follows:

Bond No. - Indicate number assigned by surety company.

Field

REFERENCES

ISSUING OFFICE

Licensing Division

LEGISLATIVE REFERENCES

Customs Act

HEADQUARTERS FILE

7740-0

SUPERSEDED MEMORANDA "D"

D4-3-3, June 1, 1986
D4-3-4, June 1, 1986
D4-3-12, June 1, 1986
D4-3-14, June 1, 1986

OTHER REFERENCES

D1-7-1, D4-3-1, D4-3-2, D4-3-4, D4-3-5

SERVICES PROVIDED BY THE DEPARTMENT ARE AVAILABLE IN BOTH OFFICIAL LANGUAGES.

THIS MEMORANDUM IS ISSUED UNDER THE AUTHORITY OF THE DEPUTY MINISTER OF NATIONAL REVENUE.