TV importers accuse border officials of misleading advance tariff rulings

OTTAWA -- Importers of popular electronics such as big-screen TVs and MP3 players are ramping up their fight against federal tariff changes, accusing the government of misleading them by offering tariff breaks that it planned to claw back later.

Importers of televisions are already on the hook for about $16 million in retroactive duties from 2011 after last year's crackdown on a particular tariff exemption that has become a political football.

Electronics brought to Canada under exemption 9948 are supposed to be used continuously for four years while hooked up to a computer, and importers are required to provide an "end-user certificate" proving that's how each device was used.

No such end-user certificates for consumer electronics exist, something officials at the Canada Border Services Agency have acknowledged in internal emails.

Now a coalition of importers says it has documents that prove border officials allowed them to import products duty-free, knowing the government would claim the tariffs and penalty costs at a later date.

For a Conservative government that once made political hay out of accusing the New Democrats of planning an iPod tax, the new levies on electronic goods could prove embarrassing.

"Mr. Speaker, iPods have been coming into this country tax-free and our government will ensure that that continues," Ted Menzies, the junior finance minister, told the Commons on Thursday.

Menzies ignored questions about the end-use issue as he left the House.

But his boss, Finance Minister Jim Flaherty, took a more nuanced line Wednesday evening at a Commons committee hearing.

This spring Flaherty had insisted that iPods would continue to enjoy tariff exemptions under 9948. However specific CBSA rulings have already determined that iPods require the same non-existent end-use certificate.

"You're talking about a process problem," he told Liberal MP Scott Brison, who asked directly if iPod importers required the certificates.

"Substantively, there is no tax on iPods. And end-user certificates have been required for a long, long time over a large range of products," said Flaherty.

"Some vendors have obeyed the law and some haven't. And some who haven't obeyed the law have found themselves in some difficulty. That's what happens."

Ken Buschlen, vice-president of finance for Panasonic Canada, says his company and others rely on the Canada Border Services Agency to act in good faith with its advance tariff rulings.

"CBSA issued us authorization to import products duty-free, but it now appears the CBSA intended to claw back the duties later. This is clearly unfair," Buschlen says in a news release.

The coalition bases its claims on hundreds of pages of government emails it received under the Access to Information Act.

The emails show that as early as 2008, CBSA officials recognized importers using the 9948 exemption would not be able to provide end-user certificates, but continued providing advance rulings allowing the goods to enter Canada duty-free.

Early last year officials launched a "strategy" of compliance audits, demanding end-user certificates that they knew could not be produced. Emails show the ministerial offices of Public Safety Canada and Finance were notified.

"This is a good news story for Trade ($16 million in recoverable revenue)," boasts a top bureaucrat in one email.

A "priority submission" paper for the CBSA, completed in January 2012, notes that tariff 9948 has been used often by TV importers: "Although importers may have been the subject of prior compliance verifications, the end-use has never been audited, nor have certificates been required."

The documents also cite importers whose specific advance rulings from the CBSA expressly state "there will be no end use certificates required."

New Democrats, who felt the brunt of a sustained Conservative "iPod tax" campaign in 2010, jumped on the latest document revelations.

"This is about an incompetent government that is going forth and claiming one thing and doing another," Murray Rankin, the NDP's national revenue critic, said in an interview.

"The bottom line is procedural fairness. They're doing this retroactively. They're scooping $16 million and they're not telling the people affected. It seems to me that's just bad governance."

In the highly competitive consumer electronics market, tariffs are passed on directly to the consumer.

Jacob Herzog, vice-president of Curtis International, said in the coalition news release Thursday that importers can't afford to eat retroactive tariffs.

"The televisions were priced and sold based on this direction (from the CBSA). We cannot now collect millions of dollars from these television sales to pay retroactive import duties."

A wide group of electronics consumers can expect to feel the impact of the aggressive CBSA strategy, according to internal government documents.

"Plans are underway to examine other consumer goods that are accounted for under tariff item 9948.00.00, such as CDs, DVDs and speakers ...," states an undated memo to the CBSA president.

"Refund claims that have been previously approved without a certification signed by actual users may also be 'further re-determined' to recover duties refunded, in error."