Related-Party Imports: How CBSA Values Goods From Your Parent or Affiliate

If your Canadian business buys goods from a parent company, a sister company or a foreign affiliate, you may be a related-party importer under the Customs Act. You can still use transaction value (the price paid or payable, adjusted as the Customs Act requires) as your value for duty, but only if you can show the relationship didn't influence that price. If your price changes later, for example through a year-end transfer pricing adjustment, you may have to correct your customs declarations. This post explains who counts as related, what proof CBSA expects, and when corrections are due.

Does this apply to my business?

It applies if you import commercial goods into Canada and the seller is "related" to you under subsection 45(3) of the Customs Act. That subsection sets out nine tests, in paragraphs (a) to (i). Between them, they cover:

A Canadian subsidiary buying from its foreign parent (or the reverse).
Two companies controlled, directly or indirectly, by the same person, such as a US manufacturer and its Canadian distribution company.
One company directly or indirectly controlling the other.
Officers or directors in common: one is an officer or director of the other, or both are officers or directors of the same two organizations.
5% voting shares: one owns, holds or controls 5% or more of the other's voting shares, or a third person does so in both.
Individuals connected by blood relationship, marriage, common-law partnership or adoption (within the meaning of subsection 251(6) of the Income Tax Act). This test applies to individuals. Whether businesses owned by family members are related depends on the other tests, such as common control or 5% ownership.
Partners, or an employer and an employee.

If none of these fit, your sale is at arm's length and the usual transaction value rules apply. If you aren't sure, see Memorandum D13-3-2, Related Persons or ask your broker before your next entry.

The short answer: what CBSA requires

Transaction value (the price paid or payable, with the required additions and deductions) is the main way to value imported goods. Under paragraph 48(1)(d) of the Customs Act, a related importer can use it only if it can clearly demonstrate one of two things:

The relationship did not influence the price. CBSA looks at the circumstances of the sale. Or:
The price closely approximates a "test value". This is a value for duty CBSA has already accepted for identical or similar goods exported at the same or nearly the same time. It can be based on a sale for export to Canada between unrelated parties, or on a deductive or computed value.

If you can't show either one, CBSA can reject the transaction value and appraise the goods under the other methods in sections 49 to 53 of the Act, in order. You can ask in writing, before the appraisal starts, to have the deductive and computed value methods tried in reverse order. That can change your duty and GST.

How to show the price isn't influenced

Memorandum D13-4-5 lists ways you may be able to show the price isn't influenced by the relationship:

Sales to unrelated customers. The seller also sells to unrelated customers in Canada who buy under the same or similar conditions as you, and a comparison with those sales supports your price. If the conditions differ, the price differences can be justified by those differences, such as quantity or level of trade.
Normal industry pricing. The price follows normal pricing for the industry. Commodity goods priced off published market rates (copper, zinc, sugar) are a common example.
A transfer pricing agreement that also meets customs rules. A tax transfer pricing study helps, but CBSA warns that a study based on profit methods (such as TNMM) may not be enough on its own. A price-based method like the Comparable Uncontrolled Price method may better support a price for customs valuation.
Cost plus profit. The price covers all the seller's costs plus a profit in line with the seller's overall profit on the same class or kind of goods over a representative period, such as a year.

Whatever you rely on, keep it on file. CBSA can ask for it at any time under the Imported Goods Records Regulations. If CBSA believes the relationship did influence the price, CBSA's policy is to tell you in writing why, and you get a chance to respond.

Transfer pricing adjustments: when to correct your entries

Many related companies adjust prices during or after the year so the result meets their transfer pricing policy. Here's how CBSA treats those adjustments:

Net result for the fiscal period	What you must do
Upward (you paid more in total)	File a correction under section 32.2 of the Customs Act, even if the goods are duty-free.
Downward (you got money back in total)	A section 32.2 correction is required only if it's revenue neutral. That includes duty-free goods, even though the GST goes down (no GST is refunded). If duty was paid, a refund request under section 74 is voluntary.

For transfer pricing adjustments, you can correct within 90 days of each adjustment (for example, quarterly), or wait until you know the net total of upward and downward adjustments for the fiscal period. Once you know the net total, you have "reason to believe" your declared values were wrong, and the section 32.2 correction is due within 90 days. The duty to correct ends four years after the goods were accounted for. Since CARM Release 3 took effect on October 21, 2024, you make these corrections as an adjustment to the Commercial Accounting Declaration (CAD) through the CARM Client Portal, EDI or API, using the value for duty reason code (R3-32-2-2.VFD). The CAD replaces the old Form B2 adjustment request. For goods accounted for on a Form B3 before CARM, see Memorandum D17-2-4. See Memorandum D11-6-6 for the correction rules and Memorandum D17-2-1 for how to submit the adjustment.

Two more points:

Downward adjustments get extra scrutiny. Under paragraph 48(5)(c) of the Customs Act, a price cut after import can't lower value for duty. CBSA's exception: a downward transfer price adjustment may be accepted if it comes from a written agreement in effect when the goods were imported. For a refund, you'll also need to show four things: the adjustment brings the result within the arm's length range in your transfer pricing documentation, money actually changed hands, it was in your CRA tax filings, and the adjusted price is still uninfluenced.
Other payments to the seller count too. Royalties and licence fees for the goods that you must pay as a condition of the sale are added to value for duty, except charges for the right to reproduce the goods in Canada. Any share of resale proceeds that goes back to the seller is added too. Management or service fees may be left out only if you can show they pay for reasonable, identifiable services that wouldn't normally be part of the price between unrelated parties. See D13-4-9, D13-4-3 and D13-4-13.

Related-party importer checklist

Confirm whether you and each supplier are related under subsection 45(3).
Make sure each CAD line uses the right value for duty code: the first digit shows whether you and the seller are related (2 = related, 1 = not related) and the second shows the valuation method. Your commercial invoice (or the optional Canada Customs Invoice) must show the price actually paid or payable.
Document how the price is set: price lists, unrelated-customer sales, cost-plus support, or your transfer pricing study.
Check whether royalties, fees, assists or commissions should be added to value for duty.
Track transfer pricing adjustments and work out the net total for each fiscal period.
File section 32.2 corrections as CAD adjustments in the CARM Client Portal within 90 days when the net result is upward (or when a downward result is revenue neutral, such as duty-free goods).
Decide whether a section 74 refund is worth claiming when the net result is downward.
Keep your import records at your place of business in Canada (or another place CBSA has designated) for six years after the goods are imported.

Why it matters

Value for duty drives both the duty and the GST you pay on your imports. If CBSA finds that a related-party price was too low, it can re-determine past entries, and missed corrections can lead to penalties under the Administrative Monetary Penalty System (AMPS). Getting it right up front is far cheaper than a verification years later. Use our duty calculator for a non-binding estimate of how a change in value affects what you owe.

FAQ

Is related-party pricing allowed for customs?
Yes. Being related doesn't disqualify you from transaction value. You just have to be able to show, when CBSA asks, that the relationship didn't influence the price or that it closely matches a test value.

Is my income tax transfer pricing study enough for CBSA?
Not always. CBSA says a study based on a transactional profit method like TNMM may not support the price of specific imported goods. Expect CBSA to ask for price evidence tied to the actual imports.

Do I have to correct entries if the goods are duty-free?
Yes, for a net upward adjustment. D13-4-5 says a section 32.2 correction is required whether or not the goods are subject to duties.

Can I get duty back after a year-end downward adjustment?
Possibly, through a refund request under section 74, if the adjustment comes from a written agreement in effect when the goods were imported and you can support it. It's voluntary, and CBSA reviews these requests closely.

My foreign parent is the importer of record. Does this still apply?
Usually, but check which sale counts. Transaction value is based on a sale for export to a "purchaser in Canada". A non-resident with no permanent establishment here that, before buying the goods, had already agreed to sell them to a Canadian resident doesn't qualify as one, so the value may be based on that sale instead. If that sale is between related parties, the rules in this post apply. Read our guide to importer of record in Canada, or see our non-resident importer service if a foreign company is importing in its own name.

Sources

Memorandum D13-4-5: Transaction Value Method for Related Persons (December 6, 2021)
Memorandum D13-3-2: Related Persons (August 9, 2013)
Memorandum D13-4-1: Transaction Value Method of Valuation (August 22, 2013)
Memorandum D13-4-3: Customs Valuation: Price Paid or Payable (January 7, 2014)
Memorandum D13-4-9: Royalties and Licence Fees (January 14, 2014)
Memorandum D13-4-13: Post-importation Payments or Fees (Subsequent Proceeds) (March 31, 2015)
Memorandum D11-6-6: Reason to Believe and Corrections to the Declaration of Origin, Tariff Classification or Value for Duty (October 21, 2024)
Memorandum D17-2-1: Adjusting Commercial Accounting Declarations (October 21, 2024)
Customs Act, sections 32.2, 40, 45, 47, 48 and 74
Valuation for Duty Regulations, section 2.1

Importing from a parent or affiliate and not sure your values hold up? J.W. Smith Customs Broker Ltd is a family-owned licensed customs broker in Brampton, serving commercial importers since 1974 with over a million shipments cleared. We can review how your related-party values are declared, handle your Canadian import clearance and file corrections when your prices change. Request a quote or call (905) 542-7327.