Reason to Believe is one of those customs terms that makes importers' eyes glaze over and think about anything else other than the doom and gloom they are being advised on. With the current state of the world, the last thing anyone wants to talk about is anything that will trigger that familiar shot of anxiety that rockets up your spine. But since Halloween is right around the corner, this scary topic seems entirely fitting.
We are all aware that when importing into Canada, commercial importers are responsible for correctly classifying and valuing their goods so that Canada Border Services Agency (CBSA) can properly assess duties, collect statistics, and determine whether all legal requirements are met. They are also obligated to self-adjust declarations and make corrections to the origin, tariff classification and value for duty. This obligation is predicated on the basis that the importer has reason to believe that the declaration is incorrect. In this blog we will take a closer look at what reason to believe means, and why importers cannot solely rely on their customs broker to ensure that they meet this obligation.
What Does Reason To Believe Mean?
Reason to believe occurs when specific information was considered to be available to the importer to indicate that an origin, tariff classification, or value for duty declaration was incorrect. If the original declaration is not corrected and CBSA determines that specific information was available, the importer will be considered to have had reason to believe.
When importers import goods into Canada they must know everything about their product. They must be aware of the specific tariff classification and any changes that may have occurred with that tariff classification prior to the importation. If it becomes apparent that there is an error after the original declaration and the importer was aware or had reason to believe that there was an error they must then voluntarily correct the error within 90 days.
Reason To Believe Timelines
The importer is responsible to submit corrections for the same and similar goods impacted by the same issues within the 90-day period.
When the corrections are made within the grace period the importer is not subject to penalties but must pay the additional duties if they apply and the interest on the amount owed.
Importers who do not file corrections within the 90-day period will be liable to penalties under the Administrative Monetary Penalty System (AMPS).
“The self adjustment process is activated when the importer has reason to believe that a declaration of origin, tariff classification, or value for duty was incorrect. The 90-day period to make corrections pursuant to section 32.2 of the Act starts on the date that the importer has, or was considered to have had, specific information that a declaration was incorrect” (Souce: CBSA memorandum D11-6-6)
The obligation ends four(4) years after the goods are accounted for.
Reason To Believe Example
Let's take a look at a common example of what reason to believe looks like. And because it’s Halloween, let's pretend I’m telling you this spooky story around a campfire with the firelight flickering off my face… whoooo ha ha ha...
Once there was a company who imported shoes from Italy. For the first 3 shipments, they used the tariff classification code given to them by the manufacturer of those shoes because they make them and therefore know best… or so they thought.
The customs broker hired to declare those shoes to Customs questioned the use of this code. They did this in a written form such as an email. They explained that the tariff code being used is not exactly what they would advise using moving forward because, well, it’s incorrect. (dun, dun duuuuun.)
Bam! Right there…. reason to believe has been established. That company has been given reason to believe that the tariff and subsequent duty paid on those 3 shipments of shoes was incorrect. That email started the 90-day countdown which they must use to investigate the tariff application validity. They must make the necessary adjustments before that timer goes off.
More examples of reason to believe are contained in the Guidelines and General Information of CBSA Memorandum D11-6-6.
Now, before you go thinking that the customs broker in this story was the villain for starting the reason to believe timer, note that CBSA puts 100% accountability for all things imported squarely on that company's (or their stakeholders) shoulders. The customs broker will not be held accountable at all. In fact, in this scenario the customs broker is trying to save the importer for an ever worser fate; AMPS penalties and or loss of importing privileges.
For this reason, there are two pieces of advice any good customs broker will tell importers over and over again:
- Review every declaration (B3) made by your customs broker on your behalf. This should be done by a manager with education in international trade, upon receipt. If anything looks out of sorts, go over it with your customs broker. Seek out their council. Hire a trade advisor if you need to ensure that the data provided to Customs moving forward is correct, and your company is protected.
- Choose your trade chain partners wisely. Do not rely on the accuracy of your import value, tariff or origin to the company who made it or sold it to you. You must ensure that you do your due diligence in determining if these vital aspects of your import are correct. You must ensure that they are kept up to date with the changes in HS tariff classifications. Choose a compliance minded customs broker who partners with you.
Voluntary Disclosure Program
When all else fails, and the 90 days are up, and you’ve made no effort to correct a mistake you didn’t know to, you can still utilize CBSA’s Voluntary Disclosure (VDP) program to right the wrong.
The objective of the program is to promote voluntary compliance and have clients come forward voluntarily to disclose previously unreported information or correct inaccurate or incomplete information.
This program comes into play for the importer when the 90-day period to voluntarily disclose corrections has run out.
CBSA may accept an adjustment to the original declaration as long as it is voluntary and meets the VPD policies as stated in CBSA Memorandum D11-6-4. An importer that misses this 90-day period is exposed to potential penalties and interest. The VDP process allows the importer to fix this error and reduce or eliminate its risk.
But! A word to the wise.... find your declaration errors before Customs finds them for you (queue cackling laughter.)
Have a happy and safe Halloween.
PCB can offer assistance in both the clarification of Reason to Believe and the method to make self-adjustments, and the Voluntary Disclosure Program.