There is an iPod tax after all

A CBSA lawyer warned the government was ‘perpetuating a fraud’ with its denial

On the afternoon of April 4th, 2013 I published an article (no longer available online) at the Globe and Mail detailing how changes to the 2013 Budget created an iPod tax, placing a tariff on MP3 players manufactured in China where one did not exist before. Minister Flaherty’s office, the Finance Department and the Conservative Party would all claim that these items could come in tariff free using a provision in the tariff code, 9948.00.00 (9948), which allows for the duty-free importation of computer equipment through the use of end-use certificates, where the “end user” of the item could attest that they would use the item as a computer part. Documents obtained this weekend through the access to information act reveal that these arguments were being made despite the vehement objections of the Canada Border Services Agency (CBSA), the agency that enforces tariff regulations. One CBSA official went as far as describing the government’s 9948 argument as “perpetuating a fraud”.

At 5:19 PM, a few hours after my original piece was published, Andrew MacDougall, the then Prime Minister’s Director of Communications was kind enough to send me an e-mail detailing Finance’s position:

As an FYI, Finance officials say that iPods are exempt under this tariff classification:

http://www.cbsa-asfc.gc.ca/publications/dm-md/d10/d10-14-51-eng.pdf

Since the iPod plugs into a computer, Finance says, it falls under the following exemption:

“Only goods that were committed by design to enhance the functioning of computers and other high-tech products cited in tariff item 9948.00.00 were afforded customs duty-free importation under this tariff item.”

A few minutes later Conservative MP Michelle Rempel made a similar argument on CBC’sPower and Politics. Later that evening, Kathleen Perchaluk, Press Secretary to the Minister of the Office of the Minister of Finance issued the following press release:

Subject: NO IPOD TAX

Hi,

I am sure you have heard some rumblings today about a potential Ipod tax. I want to clarify that there is no ipod tax. Please feel free to pass this information along to your colleagues.

“The NDP are alleging that changes to the General Preferential Tariff – which removes preferential access to our marketplace to countries like China – is similar to the iPod tax proposed by the NDP. This is absolutely false.

Music devices like iPods are imported into Canada duty-free under a long-standing special tariff classification from 1987 (http://www.cbsa-asfc.gc.ca/publications/dm-md/d10/d10-14-51-eng.pdf). That special tariff classification was in no way altered by recent changes to the General Preferential Tariff foreign aid program.”

What was written in the below Globe and Mail article is incorrect and this has been confirmed by Department of Finance officials.

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/ipods-face-new-tax-under-budget-tariff-changes/article10772959/

The Globe and Mail responded to the press release by first pulling the iPod article, then replacing it with a statement that read:

An article published earlier at this URL incorrectly stated that the recent Canadian federal budget imposes a tax on iPods. That article was incorrect and has been withdrawn.

Documents obtained from the CBSA through Access to Information show that the CBSA, the agency responsible for enforcing the tariff code, strongly disagreed with Minister Flaherty’s office. The next day, Anne Kline, Director General of the Trade Programs Directorate would write:

As per the telephone conversation that I had with Ken and the PO nearly an hour ago, Mr. Moffat is actually quite bang-on in his interpretation of the tariff provisions.

Rod McKenzie, the Senior Program Advisor of the Tariff Policy Unit at the CBSA, would later write:

I think Mr. Moffatt really hit the nail on the head. His analysis is practically flawless.

The documents contain an e-mail at 8:11PM on April 4th from Ms. Kline to Patrick Halley, the Senior Chief of Tariff and Trade at Finance Canada, showing the CBSA had issues with Finance’s statement that MP3 players were being brought into the country tariff free using the 9948 provision.

We know that SOME iPods (and other MP3 players) have been imported (albeit incorrectly) under the duty-free provisions TI 9948.00.00. It is also very likely that some iPods and other MP3 players have been imported duty free by virtue of having been manufactured in a GPT country. And others still may have been duty-paid at the applicable MFN rate…

That said, I already feel quite confident that it cannot be purported that ALL iPods are being imported duty-free under the provisions of TI 9948.00.00, as that is really unlikely.

If someone from your department is actually making that statement, you might want to correct that misinterpretation.

Byron Fitzgerald,  Manager of the Litigation Section of the CBSA would later characterize the argument made by Finance and the Conservative Party that iPods could come into the country tariff free under 9948 using end use certificates as “perpetuating a fraud”:

from my perspective the message should be that if the end user doesnt have it joined to a computer it dont qualify. Just like the tv issue. And suggesting end use certificates is perpetuating a fraud because the vast majority of folks don’t use them with computers.

Its up to finance to clarify 9948. This might be the catalyst forcing them to do so.

The next day, Doré Charbonneau, then Manager of the Beyond the Border Communications Team at the CBSA would e-mail her colleagues a draft version of a media response:

The CBSA would like to clarify the tariff classifications for iPods as well as other electronics:

It’s important to clarify that iPods do not qualify for the provisions of tariff item (TI) 9948.00.00. In order for goods to qualify for importation under TI 9948.00, they must be for use in computers and enhance the functions of the computer. Further, the actual user of the goods must certify that they are being used in a computer. [Emphasis in the original e-mail]

To my knowledge a final version of this media release was never issued to the public.

The Globe and Mail asked me to write a replacement article with my findings on the iPod tax issue, with the Globe‘s public editor weighing in the next week. Ms. Kline would express her displeasure at the replacement article:

It is really unfortunate that he [Moffatt] has been led to believe that the Agency is somehow interpreting things differently and is dismissing jurisprudence arising from a case that upheld the CBSA’s position!

An hour later, she would add:

I remain concerned that readers are being led to believe that TI 9948.00.00 applies and it really does not.

This episode should raise a number of red flags. Why was Minister Flaherty’s office, the Department of Finance and the Conservative Party claiming that the 9948 provision applied over the objections of the CBSA, the agency tasked with enforcing tariff regulations? Furthermore, how are businesses supposed to comply with tax and tariff regulations, when different arms of the government cannot agree on what the rules are?

There is an iPod tax after all

  1. So when will the Globe apologize?

    • Margaret Wente is working on one but since that plagiarism brouhaha she has to come up with something original on her own.

      It could be a long wait.

  2. Why? Because lying is what they do. Because they had really planned on sliding that on by without anyone noticing.

    • People would be surprised what is taxed if they ever read the monster sized duties and tariff documents and understood them. CBSA’s #1 job isn’t protecting the border, its collecting over $40 billion of hidden taxes, GST/PST/HST and provincial tariffs extra.

      Its all about tax greed. Milk the people and deceive them so buddies get inflated contracts and bailouts.

      Governemtn slides things on people all the time. Take the currency drop of 9 cents, that means 9.9% inflation to you. StatsCan will lie about real inflation so the tax tables go up 1% while inflation is 9.9% for a whooping cumulative tax increase of 8.9%++ on the the difference. Inflation is a cumulative tax on people, pensions, savings and incomes.

      Its why they spend so much time on the insanity of a lower value money. Its inflation to you and your company. As $1000 of US steel or other material now costs $1099 CAD…. And if your employer can’t pass on the inflation, your job is at risk.

      But not one politicians in the is entire country is telling the truths….as our bloated governments are technically bankrupt and refusing to downsize, its why your grand kids, even if unborn will have huge debts to pay for todays statism greed.

      • You’re wrong. The drop of our dollar in trade does not trigger inflation as you have described. But it does highlight the need for ongoing investments in resource industries. It is the fact our dollar is so thinly traded that can trigger such a huge swing. Big money coming in to resource investments will help it swing back, but not too much we hope. We need a lower dollar for our exports, and right now this came at a great time.

  3. Perpetuating a fraud, fake lakes , fake citizenship ceremonies , fake ad programs , Li’l steve likes to decieve!

    • Steve is typical of Ottawa bloat and deception for other peoples money. The whole idea is to sell bloated government and keep the ruse going.

      When the public is tired of the Harper name, the back room powers will put new false hope in a new name to continue the ruse. Its all about managing the people out of their wealth. Modern day taxation has become modern day slavery.

      No options on my ballot for less government waste, less governemtn bailouts, less taxes…. only option I have is who gets more of my money to do less and less beneficial to us for it. Thats the ruse of democracy. Back room money and media manage us, we don’t manage government at all.

      • Your conspiratorial fantasy would have made much more sense when unions and corporations had greater control over parties. Now that they are not allowed to contribute a cent, they have zero power.

        Perceptions are controlled by the media and some media take it upon themselves to oppose governments anywhere to the right of their editorial stance. That includes all of the MSM in Canada.

        Democracy is not a ruse. To enhance your own thinking, however, you might like to read ‘The Political Illusion’ by the late Jacques Ellul. Or perhaps that’s what you read, once.

        The Conservative Party has moved to reduce taxes and allow people to control market directions, not the government. It has made our economy stronger.

    • Obviously a Liberal. Is it true they pay you $2 per post? Even for misspelled ones? Or is that part of the conceit, to make it look like you aren’t a typist for hire. The NDPers are usually far more careful and are here to persuade not impersonate.

      • How are working conditions at the Ministry of Truth? Did you ever track down Pierre Poutine ?HAND , have a nice deficit .

  4. Waaaaa! or keep digging?

    See kids what can happen when you misrepresent yourself as an “expert in tariffs” and enter into the political arena.

    • Are we reading the same article, or is this an example of Poe’s Law at work? You don’t have to be an expert in tariff’s to understand the ludditian mistake the Finance Minister’s office has made. Obviously the tariff item in question was meant for computer components and peripherals. In 1987 the Internet of Things didn’t exist. The iPod is practically the vanguard of this age. From a purely judicial perspective it doesn’t comply. If the government meant for it to, the law needs to be re-written. I have no doubt that they made the error in ignorance and not malice, but the outcome is the same. Professor Moffat was bang on from the outset. It would seem that instead of maligning him, the Government would have been better to hire him.

      • Part time assistant professor Moffatt first wrote about the “ipod tax” in the G&M Economy Lab (not politics lab) because in the previous election, the Liberals and NDP supported a tax for copyright infringement to support recording artists. The Conservatives labelled it as an “ipod tax”.

        So, his interest in pursuing this was purely political. These two items are in no way identical, or intended to address the same policy objectives.

        In the review of his article that was pulled, the Public Editor at the G&M accepted unquestioningly Moffatt’s claim that he was an expert in tariffs. He doesn’t even have a PhD in Economics. He left the G&M shortly thereafter.

        • Forgive me, as it would seem that you have researched this vigorously, but could you point out any information which refutes Prof Moffat’s initial analysis? I would really like to understand this as well as you seem to

          • Never saw his original post before all the squawcking on twitter. He was allowed the opportunity to research the subject matter further before being allowed to repost, in which case he provided a number of mea culpas.

            He’s written endlessly on this topic. And got lots of personal mileage out of it here, and elsewhere.

            You need to ask yourself “why”?

          • iPods need to attach to computers and computer networks to work. Songs are sold via the internet. Smartphones are technically computers, too. You can’t use an iPod (any that I’ve owned) without it being attached to a local computer and the internet. That is why the interpretation was made as it was. Moffatt is beating a dead horse. For political reasons, obviously.

          • iPods do not need to connect to computers at all anymore. They run the same software as an iPhone. They only lack the 3G wireless card but do include wifi. During setup even, you can complete the entire process on the iPod itself, using your Apple ID and iCloud to access your library. Unfortunately sir I think you have made the same mistake as the government. If you like, you may want to find a thirteen year old to show you how it all works.

          • If anyone is doing anything for political reasons, it is Flaherty & Co making up bad interpretations of the Tariff Code on the fly to try to hide the fact that – depending on country of origin – devices like iPods may potentially be taxed under his new regs. See also tatonca’s reply; the iPod Touch can do all kinds of wonderful things. And even if your older model has to connect to your PC, it is not enhancing the PC as required under 9948; rather, the PC is enhancing your device (polar opposite).

        • You’re sort of right – this isn’t THE “iPod tax” that the opposition proposed. But it is AN iPod tax, in the sense that it is being taxed and is not exempt under the tariff code Flaherty & Co claimed would protect it from the tax.

          • The policy decision was to remove China and a number of other developing countries from tariff relief because they no longer qualified under the existing criteria.

            Affects a multitude of products, across a number of industries, depending upon country of origin of a number manufacturer’s products.

            Why not call it a Northern Gateway Pipeline tax given that the O&G industry sources steel from China? Equally nebulous. And political.

          • Yes, the author explains all that in the article. But the point is, the CPC said iPods would be exempt and they more or less aren’t (it depends on where they are manufactured). So they lied – and Moffatt got it right.

          • Well, I’m sure Gerald Butts and Rob Silvers’ wife appreciate his efforts as much as you do in this and other areas. Too bad the G&M didn’t.

          • No. The interpretation of the Finance Dept, which is the one that matters most, is that this does not apply to iPods. That’s the end of the argument. No iPod tax was introduced. No change was made to start taxing iPods. Moffatt has hurt his reputation and was her trying to rehabilitate it. He failed. Perhaps he doesn’t own an iPod. He descends to the question of whether a computer has to be internal to be a peripheral. So does he believe external hard drives are tariff-deserving? They pretty much depend on being attached to computers, too.

          • The wording of 9948 is clearly inapplicable, – and if CBSA is applying the tariffs as written (and the article implies it is) then the Finance Dept’s interpretation counts for zero in the real world. Intent doesn’t count; actions do. Find something that demonstrates the CBSA is uniformly applying 9948 – despite the clear inapplicability of the tariff on a plain reading of the tariff – and you’ll have a case. Otherwise…

          • As to iPods vs hard drives – the hard drive is designed to operate with the computer, not separate from it. The iPod can be connected, but its use is largely independent of the computer. it does not “enhance the functioning” of the computer.

          • My sister bought a pc simply to load DRM (digital rights management) protected audio books she downloads from her library onto her Zen MP3 player.

            How do you argue this case?

          • Simple. Her PC “enhances the functioning” of her MP3 player – not the other way around, as the Tariff requires. True of any similar item – iPod or other MP3 player or eReader. The devices themselves do not, in their normal, primary usage, require them to be connected to a PC. When they are connected to a PC, it is to update the device – NOT to make the PC function better.

            The tariff changes introduced by the gov’t impact a wide range of products, including (though by no means limited to) iPods and other devices if sourced from the affected countries.

            Unless an Interpretation Bulletin has been issued that essentially says “ignore the plain and ordinary meaning of the tariff if the device in question is an iPod or similar device” then despite assurances to the contrary from the gov’t, Tariff 9948 does NOT exempt such devices.

            Flaherty et al could easily correct this, if they wanted, by amending this tariff so it says what they claim it does. So you may want to ask them why they haven’t done so.

          • The devices themselves do not, in their normal, primary usage, require them to be connected to a PC. When they are connected to a PC, it is to update the device – NOT to make the PC function better.

            The device is of no use without a pc. The pc would not have been sold without this enhancement.

            Like Moffatt, your bias endures and clouds your judgment.

          • The designer of the device assumed its users would already have a PC; not the designer’s fault your sister was previously PC-free. But the argument still stands: You are using the PC to serve the needs of the device, whereas the tariff is explicitly set up to eliminate taxation on items designed to enhance functioning of the PC – e.g. a mouse, keyboard, extra RAM…

            Your sister’s PC is in no way enhanced by connecting her MP3 player to it.

            It is basic grammar and extremely simple logic. If you don’t get it, it’s either because you deliberately choose not to (speaking of enduring bias) or you have reading comprehension issues.

          • Your sister’s PC is in no way enhanced by connecting her MP3 player to it.

            She’s a Mac user. This pc is ONLY used when it is attached to the Zen MP3 player. It needed windows Media Player to function. They are inextricably linked.

          • Once again:

            Only goods that were committed by design to enhance the functioning of computers and other high-tech products

            qualify under 9948. Her Zen does not enhance the functioning of her PC. Her PC serves to enhance her use of her Zen by delivering to it the needed files – much like your cable box enhances the use of your TV.

            In fact, as her Zen is a “high tech product” you could make a stronger argument for importing her PC under 9948 than you can for her Zen.

            I’m guessing you sucked at math word problems in school, too.

          • Obviously, you and Moffatt took your philosophy training from the same proctologist. Similar view of the world.

            Ommmmmm….

          • It’s a little thing called reading comprehension. And logical rather than magical thinking.

          • Hey, the Canadian dollar just devalued again to around 90 cents.

            It’s a carbon tax on imports! It’s a GST hike! No, no, IT”S AN IPOD TAX!!!

            Hey G&M – it’s an ipod tax!
            Hey twitter. It’s an ipod tax!
            Hey Canadian Business – it’s an ipod tax!
            Hey Macleans – it’s an ipod tax! get it? let me repeat ten times. It’s an ipod tax!
            Hey Sun Media – it’s an ipod tax!
            Het Rob Breakenridge- it’s an ipod tax!
            Het Finance Committee – it’s an ipod tax! (What, my Liberal ties? oopsy, forgot)

            Zing, wadda wadda wadda. Woop, woop. Bada bing, bada boom. Ipod, you pod, he pods, she pods. We all pod! Cookoo for cocoapuffs and ipods,

            Rinse, lather, repeat. ad infinitum, ad nauseum.

          • If you read the article – or, for that matter, my earlier comments – the reality is this:
            * The opposition said (playing politics) – Hey, your new change in tariffs will mean that, among other things, iPods will be taxed because they are produced in the affected countries
            * the government said – No they won’t, because they will be exempt under Tariff 9948

            Now either the government misread the tariff, or they deliberately lied in the hope no one would notice. Either way, they were wrong, and iPods will fall under the new tariff regime.

            So while it isn’t solely an iPod tax, the fact remains they will be taxed despite Flaherty’s and Finance’s assertions to the contrary – unless the government either changes 9948 or the codes they actually get classified under – or adds another tariff code to specifically exempt them.

            So yes, the title of the article is a little misleading – but the facts are accurate. See if you can wrap your wee little brain around that. Anyway, I’m done wasting my time answering you, as clearly you are either too stupid to get this or are a CPC troll.

          • I see your point. When you freely throw around words like “fraud” and “lying” it must be a pretty tall horse to come down from.

          • When you freely throw around words like “fraud” and “lying”…

            It was a government employee who used the phrase “perpetuating a fraud”, which was quoted in the article. This marks its first appearance in a comment by me on this thread. I used the word “lying” exactly once, in the phrase “the govt is ether lying or incompetent.” A phrase I stand by, as they were clearly incorrect in saying 9948 applies to iPods.

            So I was hardly “freely throwing around” those words. Direct your slander elsewhere, troll.

          • Your first entry, second comment overall:

            Why? Because lying is what they do.

            QED

          • OK; two. Somehow the search in Google Chrome missed that one. I stand by that too. This government has been caught lying so often, if one of them has his/her mouth open it’s safer to assume a lie is coming.

          • When you lose track of how many times you use the pejorative term in a relatively small comment stream, it’s time to take a break and reevaluate what you’re doing.

            From my perspective, these types of comments reflect more on the individual making the claim. Especially when it involves regs that are subject to interpretation. My experience as a non lawyer is that in reality nothing is as black and white as you suggest.

        • Correct. His motives were obviously political. He was splitting hairs. He found a bureaucrat that had been in one of his classes to agree with him.

          • Or the CBSA bureaucrat who improperly applied the tariff “retroactively” and may be in the hot seat when the appeal goes to trial.

  5. Not sure if this demonstrates their:
    - inability to draft legislation that actually works
    - desire to hide their true intent
    - habit of lying because they can
    - all of the above

    • Yep, and if we change the politicians name, give us false hope and repeat….the illusion of democracy.

      Reality is none of these parties represent the mainstream people other than to deceive and tax us more.

      No options on my ballot for less government waste, less bailouts, less buddy deals, less taxes. So no one really represents my needs on the rigged ballots I get. All that changes is the name of who gets to screw us.

    • Complexity of tax regulations and interpretations is all it demonstrates. It shows how civil servants dwell on inane details. And how people can politicize anything.

  6. Just as I finished reading the article the commercial for the Ad Council of Canada about truth in advertising. Guess the Harper Government is exempt.

  7. Another day, another lie revealed by the Harper government. Another tax on the middle class. I would like someone to name me one thing this government has done FOR Canadians while in power. ONE!

  8. The Red Flag here is that “The Globe and Mail responded to the press release by first pulling the iPod article”, thus acting in the interest of their corporate masters, ie the government, instead of standing by the journalist and looking into it a little further.

    • It’s ironic that the knuckle dragging Harper base always whine about the unfair media and tend to ignore the fact that the greatest promoters of the corporate placemen that are the Harper Gov are the corporate media tjhemselves.

    • No. They looked at the facts and agreed with the Finance Dept. Moffatt was misrepresenting. He still is. He still fools some. The Globe is no friend of the federal government.

  9. Don’t underestimate CRA/CBSA tax greed. We even tax food and clothing for poor people and disabled. You can have minimum wage, working poverty level wages and pay taxes in this tax greedy country.

    They even devalue our money, you make 9% on the TSX for a year, then get 9.9% devalued money and taxes on 9%. Huge hidden value loss for workers, pensioners, pension plans, savings and incomes. Yep, 9% inflation and tax tables only go up 1% for a 8% rise in taxes on the slide.

    Never underestimate government greed and deception. Its a lesson Harper Liar on Trust victims know well.

  10. What? it’s surprising that the left hand doesn’t know what the right is doing! This is gov’t, let’s not forget.

  11. Mr. Moffatt doth protest too much. To answer his question “Why was Minister Flaherty’s office, the Department of Finance and the
    Conservative Party claiming that the 9948 provision applied over the
    objections of the CBSA, the agency tasked with enforcing tariff
    regulations?” — because they make the rules. Most people familiar with the device (I own one) believe an ipod has to be attached to a computer to work, hence their interpretation is correct. And it likely means whoever reviewed the documents did not believe it meant what Moffatt (and/or his sources) stubbornly claim.

    To answer this other question “Furthermore, how are businesses supposed to comply with tax and tariff
    regulations, when different arms of the government cannot agree on what
    the rules are?” — this happens when you have complex regulations and complex bureaucracies. It’s why simplification and reduction and elimination of tariff rules make the most sense.

    This sentence shows the stubborn stupidity of civil servants: “And suggesting end use certificates is perpetuating a fraud because the vast majority of folks don’t use them with computers.”

    ‘Perpetuating a fraud’? – c’mon, buddy. You’re stamping your little feet because you don’t know iPods are primarily used with computers (to set them up, to load and re-load them with tunes, etc.) and then using the loaded term “fraud”. Glad I don’t deal with you daily.

    And, then, of course, the question remains about Moffat’s motivation and sources. Does he have a buddy inside the bureaucracy that wants to sell him on a narrow interpretation that misses the point? Is their political motivation? And is he now stamping his own little feet? Shameful, really.

    • “Most people familiar with the device (I own one) believe an ipod has to be attached to a computer to work” – really? Kind of eliminates the mobility aspect doesn’t it? You never use it without toting along your laptop? Get real!

      The government’s stated intent does not matter in court if the wording of the law does not match what the politician said. 9948 does NOT say what Flaherty says it does, and you’d have to be illiterate to interpret it to read the way the gov’t claims. Produce an Interpretation Bulletin that clearly state iPods are exempt despite the clear meaning of 9948, and you have a case. Otherwise the govt is ether lying or incompetent. (Or, as is increasingly apparent, both)

  12. It seems to me the easiest answer is to expand the definition of “attach to a computer” to include wireless connections. Doing so would include items that require wifi connections to reach the internet, but that aren’t actually computers themselves.

    Or maybe consider updating 9948 so it doesn’t use language from the 1980s (or language from 2014, for that matter…legislation should be written flexibly enough that it still applies as technology evolves). Computers have changed a bit since the days when you had to boot your operating system off a 5 1/4″ floppy disk.

    These are better solutions than the Conservative solution of reflexively lying about what the government is applying taxes to, anyway.

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