Canadian importers say government misled them in iPod tax dispute

This column appeared first on CanadianBusiness.com

In a sharply worded press release, a group known as the 9948 Fair Treatment Coalition states that documents it obtained through Access to Information “raise disturbing questions” about the Canada Border Services Agency (CBSA) and the Department of Finance’s conduct in the so-called iPod tax dispute. The 9948 group includes a number of manufacturers and retailers of MP3 players, television monitors and computer speakers, including the Canadian arms of Sony, Toshiba, Panasonic, Costco and WalMart.

The Coalition alleges that “the Canada Border Services Agency (CBSA) has misled dozens of Canadian companies for years by inducing them to import MP3 players and other goods into Canada duty-free, all the while planning to later collect millions of dollars in back-duties on the goods, with interest in penalties.” The release goes on to quote members of the 9948 group, including, Ken Buschlen, VP of Finance for Panasonic Canada Inc. who explains that “[the] CBSA issued us authorization to import products duty-free, but now it appears that CBSA intended to claw back the duties later. That is plainly unfair.”

The CBSA is also criticized for demanding importers provide end-use certificates from consumers—to verify the actual use of the product—even though there is no provision or mechanism to make this enforceable.

Ernie Ubriaco of Sharp Electronics of Canada goes on to add:

CBSA directed us through Advance Rulings to import duty-free. The televisions were priced and sold based on this direction. We cannot collect millions of dollars from these television sales to pay retroactive import duties.

The CBSA knew that importers like Sharp would not have and would not be able to obtain certificates from Canadian consumers for electronic goods.

But they told us to import the goods duty free anyway. Now they want millions in back-duties because we don’t have the certificates. As an importer, it’s hard to believe or make sense of this.

Included in the press release are parts of six emails obtained from the CBSA (download these documents), along with a CBSA Ruling and three trade compliance verifications, that lay out the group’s case that the CBSA retroactively imposed an end-use certificate requirement on these goods. A July 17, 2012 internal CBSA email indicates that past statements made by the CBSA on end-use certificates “should not deter us from re-assessing the importers for the following reasons.” Unfortunately those reasons were deleted from the document provided to the 9948 group.

I’m an economist, not as a lawyer, so I cannot speak to the strength of the Coalition’s case. But the documents provided by the coalition do illustrate the needless complexity of the tariff system, the red tape that companies go through in order to import goods and raise troubling questions about the conduct of the CBSA.

In particular, there are three questions that I would like to see the government address:

1. My colleague Aaron Wherry at Maclean’s is still waiting for an answer from the CBSA to his query: “To qualify under 9948, must sellers of iPods and MP3 players collect ‘end user certificates’ from the final consumer?”

2. If the government wishes these items to come in duty free, why impose an end use certificate requirement at all? Why not simply alter the Customs Tariff to zero rate these goods for tariff purposes?

3. Are the allegations true that the CBSA instructed Canadian companies that they could import these items tariff free and without the need to obtain end-use certificates?

This “iPod tax” issue has garnered a lot of attention as a political story. We should not lose sight, however, of the unnecessary burden placed on Canadian businesses. In order for our country to prosper, our businesses should be allowed to focus on their customers rather than worry that regulations and costs will be posed on them retroactively.