Administrative Monetary Penalty System
C352

Guidelines

The term “per issue” applies to each uncorrected tariff classification error of a good regardless of how often that error is repeated on import documents. A “good” also includes the same and similar goods that have the same function as the goods being verified, that differ in a manner (e.g., size, colour, capacity) that does not alter the tariff classification of the goods at the tariff item level.

The term “per occurrence” at the first, second, and third levels applies to each uncorrected tariff classification error of a good per B3 accounting document and not per B3 line.

Non-compliance is normally discovered by a Senior Officer Trade Compliance (SOTC) as a result of an audit, examination, verification or subsequent monitoring activity.

Applied against the importer of record.

Contravention C352 applies only in cases where customs duties and/or taxes are payable by the importer as a result of the correction. Where customs duties and/or taxes would not be owed as a result of required corrections, see C082.

Contravention C352 also applies when importers had “reason to believe” that declarations in respect of excise duty, excise tax and/or the goods and services tax (GST) were in error and failed to correct the error within 90 days of the date of the “reason to believe”. Errors with respect to excise duty, excise tax and/or the GST are treated as “tariff classification errors” for purposes of paragraph 32.2(2)(b) of the Customs Act.

Contravention C082 will not be applied in addition to this contravention.

Errors discovered during a second or subsequent audit, examination, verification, or monitoring activity, that are unrelated to the first penalty assessment will incur only first level penalties.

The SOTC must record in their report each error along with a detailed explanation of what constituted “reason to believe” for that error. This is required in order to establish the level of penalty for the next occurrence of the same error.

There will be a cap of $1,000 for each group of repeated and incorrect declarations where the client can demonstrate to the SOTC that the errors in the declaration were caused by a single keystroke / data entry error. This cap will apply only to first level penalties and only where corrections are made within 90 days of the date of the trade compliance verification final report.

Any combination of penalties issued under C082 and C352 shall not exceed the maximum penalty amount for each specific level and shall include all penalties that are issued as a result of an audit, examination, verification or subsequent monitoring activity. The maximum penalty amount for the first level is $5,000 (per issue) or $25,000 (per occurrence) depending on applicable reason to believe criterion. The conditions under which either of the $5,000 or $25,000 maximum penalties would be applied are explained in the First Level Penalties paragraph below. The maximum penalty amount for the second level remains unchanged at $200,000. The maximum penalty amount for the third level also remains unchanged at $400,000.

“Reason to Believe”

In regards to the obligation to self-correct under section 32.2 of the Customs Act, specific information regarding the tariff classification or diversion of the imported goods that gives an importer reason to believe that a declaration is incorrect, can be found in:

• (a) legislative provisions such as specific tariff provisions that are prima facie (i.e., at first sight), evident (i.e., obvious, apparent), and transparent (i.e., clear, self-explanatory). For example:
  • i) Obvious classification
    0104.10.00
    - - - (Live sheep and goats) Sheep
  • ii) Involving conditional relief which is contingent upon a specific use
    0812.10.10.00
    - - - Pitted sweet cherries, with stems, provisionally preserved by sulphur dioxide gas, for use in the manufacture of maraschino cherries with stems;
• (b) formal assessment documents issued by the Canada Border Services Agency (CBSA) to the importer, relating to the imported goods, such as determinations (other than “deemed determinations”), re-determinations, further re-determinations, etc.;
• (c) final tribunal or court decisions in which the importer was the appellant, respondent or intervenor;
• (d) information received from exporters, suppliers, manufacturers or producers, etc. (e.g., change in production material or functionality that would impact the tariff classification);
• (e) written communication addressed directly to the importer from the CBSA such as a ruling (e.g., national customs ruling), an advance ruling under section 43.1 of the Customs Act, or a trade compliance verification final report;
• (f) a final report from an importer-initiated internal audit or review, or from an external company conducting an audit or review of an importer’s company; or
• (g) knowledge that the goods no longer qualify or comply with a condition of relief or a restriction imposed by the concessionary tariff item declared (e.g., goods diverted to a non-qualified conditional use or conditional user).

First Level Penalties

A tariff classification error occurs when a good is not classified and accounted for in accordance with the rules and schedules of the Customs Tariff Act. Penalties apply where an importer failed to correct the tariff classification of the good within 90 days after having reason to believe that the declaration was incorrect.

For errors that have occurred as a result of “reason to believe” criterion (a):

First level penalties penalties that are the result of criterion (a) will be assessed on a per issue basis for each issue not corrected within 90 days of having “reason to believe”. A penalty of $500 will be assessed for each issue up to a maximum of $5,000. First level penalties will be assessed at $500 for each issue regardless of how often an error is repeated during the reassessment period, provided that all occurrence of the error are corrected within 90 days of the date of the trade compliance verification final report.

Errors that are not corrected within 90 days of receiving the trade compliance verification final report will be assessed a penalty of $500 per occurrence to a maximum of $25,000.

Example:

Plastic conveyor belts are classified under Chapter 84 when they are specifically excluded by virtue of Note 1(a) to Section XVI, and the error was repeated on multiple accounting documents. Only one penalty of $500 will apply if the error is corrected within 90 days of receiving the trade compliance verification final report, regardless of how often the same error is repeated over multiple accounting documents. If the error is not corrected within 90 days of receiving the trade compliance verification final report, a $500 penalty will apply for each occurrence of the error throughout the reassessment period, to a maximum of $25,000.

For errors that have occurred as a result of reason to believe criteria (b) through (g):

First level penalties that are the result of criteria (b) to (g) will be assessed on a per occurrence basis for each error not corrected within 90 days of having “reason to believe”. A penalty of $500 will be assessed for each occurrence over the reassessment period up to a maximum of $25,000.

Second Level Penalties

Second level penalties can only be applied to errors made on the same goods that have been assessed a first level penalty within the retention period.

For the same tariff classification errors previously assessed a penalty at the first level, a second level penalty will apply following all subsequent audits, examinations, verifications, or monitoring activity for each declaration (B3) where the importer failed to correct the tariff classification within 90 days after having “reason to believe” that the declaration was incorrect to a maximum of $200,000 for the reassessment period.

Second level penalties would also apply to all adjustments made by importers where they failed to correct declarations within 90 days of having “reason to believe” that corrections are required.

Third Level Penalties

Third level penalties can only be applied to errors made on the same goods that have been assessed a second level penalty within the retention period.

For the same tariff classification errors previously assessed a penalty at the second level, a third level penalty will apply following all subsequent audits, examinations, verifications, or monitoring activity for each declaration (B3) where the importer failed to correct the tariff classification within 90 days after having “reason to believe” that the declaration was incorrect, to a maximum of $400,000 for the reassessment period.

Third level penalties would also apply to all adjustments made by importers where they failed to correct declarations within 90 days of having “reason to believe” that corrections are required.

References

Legislation

Customs Act, paragraph 32.2(2)(b)

D-Memo

D11-6-6, “Reason to Believe” and Self-Adjustment to Declarations of Origin, Tariff Classification, and Value for Duty

Other

• Excise Act, 2001, Section 44
• Excise Tax Act, Section 103
• Excise Tax Act, Subsection 216(2)