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Importers of Electronic Goods Seek Clarity on Tax Exemption 

Canadian Tax Adviser


July 09, 2013


Angelos Xilinas
Vancouver, Indirect Tax


John Pajek
Toronto, Trade & Customs


Importers of certain electronic goods such as MP3 players may be able to import these goods duty-free without the need for retailers to have their individual customers sign certificates about the end-use of these products. The Canada Border Services Agency (CBSA) recently clarified its policy on this matter, but some uncertainty still remains.

Although the CBSA's practice has been to allow duty-free status without having to provide these certificates, the CBSA recently decided it did want the certificates and asked some importers to provide them retroactively for goods previously imported. When importers could not provide the certificates, the duty-free status was denied and duty was collected.


The CBSA has clarified in a new notice that it will no longer require importers to obtain and keep on file end-use certificates signed by individual consumers. However, importers are still required to keep written records about the intended use of the goods and it is unclear exactly what these records must include. The status of the duty collected for not having the certificates is also unclear.


Background - The "iPod tax exemption"
According to documented CBSA policy and tariff classification rulings issued to various importers, the CBSA allows certain electronic goods to qualify for duty-free status under the special provisions of tariff item 9948.00.00 (9948) of the Customs Tariff. This rule has become known as the "iPod tax exemption".


Goods such as HDTVs, iPods, MP3 players and computer speakers designed to be connected to a computer or other data processing machine (e.g., a video game console) qualify under this provision provided that the goods are used (i.e., are capable of being used) with a host machine and enhance the function of a host machine.


Precedents issued by the Canadian International Trade Tribunal (CITT) provide that such goods could be committed by their design to meet the use requirement. As such, importers understood that no end-use certification or proof of "actual" end-use was required.


Audits deny duty-free status
However, in recent verification audits, the CBSA has denied the tax exemption where an importer could not furnish an end-use certificate signed by the ultimate consumer certifying that the goods would be connected to a qualifying host machine. The CBSA cited regulations stipulating that an importer must furnish proof of end-use in the form of an end-use certificate if requested by the CBSA in a verification.


For example, to obtain the certificate, an importer would sell MP3 players to a retailer, who would ask each customer to sign an end-user certificate attesting that the MP3 player would be connected to a computer (the host machine). The retailer would then send the signed certificates to the importer.


KPMG observation
The denial of the tax exemption caused confusion among importers because the CBSA had informed many importers that end-use certificates were not required for qualifying electronic goods imported under tariff item 9948. As a result, importers have stated their views that the CBSA changed its policy without notification and further that they believe end-use certificates should not be required for qualifying goods purchased by individual consumers.


New notice intends to clarify CBSA policy
The CBSA released a new notice on June 28, 2013 to clarify what records must be kept by an importer to meet the end-use requirements of tariff item 9948. Customs Notice 15, "Clarification of the Imported Goods Records Regulations", states that the CBSA will no longer require an importer to obtain and keep on file end-use certificates signed by individual consumers. However, importers are required to "keep records of written attestation sufficient to confirm the intended use to be made of the goods." The notice does not provide any further guidance regarding what this attestation must include.


Further, the notice indicates that importers must report any diversions from the designated end-use to the CBSA under section 118 of the Customs Tariff. This statement is difficult to interpret in the context of qualifying goods purchased by consumers.


Additional clarification is required as it remains uncertain what information the CBSA requires for importers to qualify for the iPod tax exemption.


For more information, contact your KPMG adviser or Angelos Xilinas (Vancouver) at 604-691-3479 or John Pajek (Toronto) at 416-777-8329.






Information is current to July 09, 2013. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500


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