That's right: duty is chargeable on more than the invoice price of goods. One corporate group found out the hard way, and they struck out in the Federal Court of Appeal last year. This is what happened:
- The US parent sold goods to its Canadian subsidiary at a price that equalled its landed cost into the US from China, plus markups for US warehousing and an arm's-length profit on the sale.
- There was also a cost-sharing agreement ("CSA") between the two parties that allocated costs relating to the costs of research, development, design, advertising and marketing activities.
- A Management Services Agreement covered charges for information technology support, accounting, finance and purchasing support, that the US parent undertook on behalf of the subsidiary.
- There was also a Canadian Intellectual Property and Proprietary Information Licence Agreement that conferred the right to exploit all intellectual property rights in the brand in Canada, in exchange for a lump-sum payment.
In the end, the reasons for why the assessment was good were quite simple:
- The transfer price of the goods did not reflect the RDD that had been incurred to help create it, as the cost was being billed directly to Canada rather than through China.
- Reimbursement for that activity was effected through the CSA, which made it an adjustment to the purchase price, and the dutiable value must include its full amount.
- The design portion of the RDD could not be considered as a duty-free "assist", as it was not being furnished free of charge.