MEMORANDUM D13-3-8

Ottawa, March 28, 2001

SUBJECT

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(CUSTOMS ACT, SECTIONS 48 TO 53)

This Memorandum outlines the manner in which generally accepted accounting principles are to be applied in determining the value for duty.

Table of Contents

• Guidelines and General Information
  • General Instructions
  • Subparagraph 48(5)(a)(iii) of the Customs Act
  • Section 5 of the Valuation for Duty Regulations
  • Section 6 of the Valuation for Duty Regulations
  • Costs of Production in the Computed Value Method
  • Profit and General Expenses in the Computed Value Method

GUIDELINES AND GENERAL INFORMATION

General Instructions

1. For the purposes of the valuation provisions of the Customs Act, "generally accepted accounting principles" in Canada are those that are acceptable for preparation of financial statements under section 44 of the Canada Business Corporations Regulations made under the Canada Business Corporations Act, or the equivalent authority in the country of production, as the case may be.

2. Section 44 of the Canada Business Corporations Regulations reads as follows:

The financial statements referred to in paragraph 155(1)(a) of the Act shall, except as otherwise provided by this Part, be prepared in accordance with generally accepted accounting principles as set out in the Handbook of the Canadian Institute of Chartered Accountants.

3. "Generally accepted accounting principles in the country of production" may mean such principles as are prescribed in the country of production by or pursuant to applicable legislation or, where a recommendation has been made by an association in the jurisdiction equivalent to the Canadian Institute of Chartered Accountants, it may mean the principles recommended by that association.

4. In the absence of information concerning the accounting principles generally accepted in the country of production, reference will be made to the relevant standards issued by the International Accounting Standards Committee.

5. Subject to paragraph 6, in preparing information for customs purposes, the accounting practices or principles usually followed in the preparation of the financial statements or reports of the person concerned should be adhered to, provided these practices or principles are consistent with those generally accepted in Canada or the country of production as the case may be.

6. In cases where financial statements, reports, or records are not audited, the generally accepted accounting principles usually followed in the preparation of audited statements in the branch of industry concerned should be applied.

7. An importer may, if he wishes, furnish a statement by a public accountant familiar with the usual accounting practices of the person concerned, to the effect that the information provided to the Canada Customs and Revenue Agency (CCRA) has been prepared in accordance with the relevant accounting principles. On occasion, the CCRA may request that such a statement be provided. In either case, such a statement would be considered as evidence that the requirements of the law have been met.

8. Further guidelines on each of the provisions in the proposed amendments which require the application of generally accepted accounting principles are given below.

Subparagraph 48(5)(a) (iii) of the Customs Act

9. The value of the goods and services referred to in subparagraph 48(5)(a) (iii) (assists) will be treated for customs purposes as if it were an element of the cost of production of the imported goods. The accounting principles and practices generally accepted in Canada and relevant to the treatment of such costs will serve as the standard for determining whether this value has been apportioned in accordance with generally accepted accounting principles (see Memorandum D13-4-8, Assists (Customs Act, Section 48) ).

Section 5 of the Valuation for Duty Regulations

10. Information pertaining to the amount to be deducted from the price per unit under section 51 (deductive value method) is to be prepared in a manner consistent with accounting principles generally accepted in Canada. The accounting principles and practices relevant to the treatment of expenses arising in connection with the sale of the goods in Canada, including all costs of marketing the goods, should be referred to in this case (see Memorandum D13-7-3, Deductions From the Price Per Unit (Customs Act, Section 51) ).

Section 6 of the Valuation for Duty Regulations

11. In applying section 52, information pertaining to certain of the elements which constitute the cost of production of the imported goods is to be prepared in a manner consistent with the accounting principles generally accepted in the country in which the goods were produced. Information pertaining to the amount to be added to that cost, in respect of profits and general expenses, is to be prepared in a similar manner (see Memorandum D13-8-1, "Computed Value" Method (Customs Act, Section 52) ).

Costs of Production in the Computed Value Method

12. The elements described in paragraph 52(2)(a) will be treated, for the purposes of section 52, as the costs of producing the goods being appraised. These elements are as follows:

13. For these elements, the relevant accounting principles and practices generally accepted in the country of production are to be followed when preparing information for customs purposes.

Profit and General Expenses in the Computed Value Method

14. Subsection 52(3) defines the term "general expenses," for the purposes of section 52, as meaning the direct and indirect costs, charges, and expenses of producing and selling goods for export, other than the costs, charges, and expenses referred to in paragraph 52(2)(a).

15. Under subsection 6(2) of the Valuation for Duty Regulations, information pertaining to the amount of these general expenses and to the amount of profit must be prepared in a manner consistent with the relevant accounting principles generally accepted in the country of production.

REFERENCES

ISSUING OFFICE -

Origin and Valuation Policy Division
Trade Policy and Interpretation Directorate

LEGISLATIVE REFERENCES -

Customs Act subparagraphs 48(5)(a) (ii) and (iii), section 51, paragraph 52(2)(a), and subsection 52(3)
Valuation for Duty Regulations, sections 5 and 6
Canada Business Corporations Regulations, section 44

HEADQUARTERS FILE -

7034-5-8

SUPERSEDED MEMORANDA "D" -

D13-3-8, June 1, 1986

OTHER REFERENCES -

D13-4-8, D13-7-3, D13-8-1

Services provided by the Canada Customs and Revenue Agency are available in both official languages.

This Memorandum is issued under the authority of the Commissioner of Customs and Revenue.