Deputy M.N.R., Customs and Excise v. Mattel Canada Inc.
A-291-97
Létourneau J.A.
13/1/99
23 pp.
Appeal, cross-appeal from CITT's decision concerning transaction value of goods imported into Canada-Customs Act imposing duties on goods at percentage rate calculated by applying rate to value determined in accordance with ss. 45 to 55-Value for duty of goods appraised on basis of transaction value of goods, determined by ascertaining price paid, payable for goods sold for export to Canada, and by adjusting price with amounts mentioned in s. 48(5)-Respondent acquiring goods through ordering system controlled by American parent company, who also controls selection of goods available, prices paid for such goods-When goods ready for shipment, Hong Kong subsidiary of same parent company invoiced for goods, which in turn invoices parent company, which in turn invoices respondent-Invoices reflecting mark-up for services, profit-Both Hong Kong subsidiary, parent company taking title to goods prior to transfer of title to respondent-Goods shipped directly to respondent-Products imported including goods bearing trade-marks of licensor X, and trade-marks of group referred to as master licensors-Respondent required to pay royalties to licensor X equal to specified percentage of net invoiced billings for goods sold to customers in Canada-In addition respondent reimbursing parent company fees paid to master licensors to obtain licence rights-In determining transaction value, DMNR taking position sums paid to licensor X royalties required to be added to price paid, payable for goods as paid by respondent, directly or indirectly, as condition of sale of goods for export to Canada-With respect to reimbursement of licence fees, DMNR using last sale between parent company and respondent as basis for determining transaction value-Appeal allowed in part; cross-appeal dismissed-(1) Whether royalties paid to licensor X royalties within meaning of s. 48(5)(a)(iv)-Three criteria must be met before payments made to licensors added to price: (i) payments must be royalties or licence fees; (ii) must be paid in respect of goods so exported; (iii) must be paid, directly or indirectly, as condition of sale of goods for export to Canada-Only third criterion at issue-No requirement under s. 48(5)(a)(iv) royalties be paid to vendor as: (i) price paid, payable for goods to be exported already inclusive of all payments made, directly or indirectly, to or for benefit of vendor; therefore additional payments under s. 48(5)(a)(iv) must necessarily refer to payments to other parties; type of additions to sale price required evidences payments to third parties as part of transaction value-Not every payment of royalties intended to be dutiable under Act-Value for duty transaction value of imported goods, to be determined by ascertaining price paid, payable by purchaser to which certain number of adjustments in terms of additions have to be made-Royalties paid in respect of imported goods must be added to purchase price only when their payment condition of sale of goods for export to Canada (s. 48(5)(a)(iv))-Requiring more than simple connection (evidenced by words "in respect of the goods", referring to second criterion) of royalties with goods imported-Payment of royalties must be in respect of imported goods-Payment of royalties pursuant to s. 48(5)(a)(iv) condition of sale of goods if appearing as such in contract of sale between vendor and importer, and if either licensor or vendor can prevent importation of goods by purchaser or seriously compromise purchaser's ability to buy goods for export in cases where failed to pay royalties-As s. 48(5)(a)(iv) not referring to "condition of contract for sale", royalties need not be stipulated in sale contract-"Condition" used in Act to mean payment of royalties must be made as prerequisite or requirement for export of goods-Condition met if possibility of such control existing even though not resorted to to enforce payment of royalties-"Directly or indirectly" referring to payment made by purchaser, meant to cover instances of indirect payment, such as where buyer receiving price reduction on current importation as means of settling debt owed to him by seller, or where buyer settling in whole or in part debt owed by seller-Licensor X having no control over manufacturer so as to prevent importation of goods by respondent-Payments of royalties to licensor X not payments made as condition of sale of goods for export to Canada within s. 48(5)(a)(iv)-That part of appeal dismissed-(2) Whether reimbursements by respondent to parent company of royalty payments parent company obligated to pay to master licensors should have been included in transaction value of imported goods-Tribunal concluding reimbursements to parent company of royalty payments made by parent company to master licensors indirect royalty payments-Also concluding conditions of s. 48(5)(a)(iv), (v) not met as value of indirect royalty payments not accruing to Mattel, vendor of goods-Tribunal erred in interpretation, application of s. 48(5)(a)(v)-S. 48(5)(a)(v) requiring addition to price paid, payable of value of proceeds of resale of imported goods accruing to vendor, directly or indirectly-Payment of royalties accrue to vendor of goods because parent company, who as vendor of imported goods to respondent, by contract debtor of master licensors in respect of royalties-Parent company under legal obligation to pay royalties to master licensors-Indirect payment of royalties by respondent to master licensors, through reimbursements to parent company, accruing to parent company in that in end paid for, extinguished vendor's debt owed to master licensors-Second ground of appeal well-founded; appeal should be allowed with respect to indirect payments of royalties made by respondent to master licensors-(3) Cross-appeal: which of three sales ought to have been used as basis for determination of transaction value of goods imported by respondent-Under s. 49(5), where it is not possible to appraise value for duty of goods sold for export according to principles established in s. 48, and where two or more transaction values of identical goods, value for duty of goods being appraised, provided certain conditions met, to be determined on basis of lowest transaction value-S. 50 providing for appraisal of value for duty of goods which cannot be appraised under ss. 48, 49-In such case, value for duty of goods transaction value of similar goods sold for export to Canada-Number of conditions must be met before rule can apply-Ss. 49(5), 50(2) not applicable herein as transactions involved sale, resale of same goods rather than multiple sales of similar goods-S. 48(4) providing transaction value determined by price paid, payable for goods sold for export to Canada-Under s. 45(1) "Price paid or payable" defined as amount paid in respect of goods by purchaser to or for benefit of vendor-Respondent purchaser, parent company vendor-Therefore this sale determining price paid by purchaser to vendor-American judicial precedents relating to lowest transaction value rule run counter to Canadian legislative intention expressed in Act-Customs Act, R.S.C., 1985 (2nd Supp.), c. 1, ss. 44, 45 (as am. by S.C. 1995, c. 41, s. 17), 46, 47, 48 (as am. by S.C. 1994, c. 47, s. 71; 1995, c. 41, s. 18), 50.