Declared values for samples: an unwanted surprise waiting for you?

It’s worth nothing – give a value of $1. Customs brokers must hear this sentence thousands of times over the course of their career.

Samples

Here is a common scenario: one of your foreign suppliers sends you a sample of a product that you are considering buying so that you can try it out before making an order. Two possibilities exist: the supplier can send you the sample separately or simply include it as part of your next delivery. Often, there is no cost for the sample.

Importing a sample into Canada

Most of the time when importing products into Canada, the broker is required to complete the B3 (customs declaration) form based on a commercial invoice containing several lines, including the one corresponding to the sample, whose declared value will be zero.

Below are possible scenarios:

Scenario 1

The sample is declared with the entire batch in the initial invoice total:

10 units of product “A” at $50/unit plus a sample of product “B” declared at $0.

Total: 11 declared products totaling $500.

Scenario 2

The sample is not declared with the entire batch in the initial invoice total.

10 units of product “A” at $50/unit plus a sample of product “B” that is not declared.

Total: 10 declared products totaling $500 (11 actual products).

In this scenario, the broker will ask the importer to provide the approximate value of the sample. Ninety-five percent of importers will ask their customs broker to indicate a value of $0, under the pretext that they have not paid anything for the sample. And when these importers are told that their broker cannot make a declaration of $0, they request that the value be declared at $1.

Scenario 3

10 units of product “A” at $50/unit plus a sample of product “B” declared at $1.

Total: 11 declared products totaling $501.

A very low percentage of importers provide a value that reflects the actual worth of the sample.

Scenario 4

10 units of product “A” at $50/unit plus a sample of product “B” declared at $5.

Total: 11 declared products totaling $505.

Declaration of value

An importer’s first instinct is to think that if it did not pay anything for a product, the product has no value. However, the logic here does not hold up: if a foreign friend were to offer me a car, I unfortunately could not say that the car’s value was $0. From a business perspective, nothing has a value of $0.

Administrative Monetary Penalty System (AMPS)

  • Currently, the penalty imposed for attempting to clear Customs with undeclared goods is 20% of their value. Customs does not apply any sanctions on goods for which the duties and taxes are under five dollars.
  • The penalty for not having declared the sample in question is $2,000 (see scenario 2).

Goods of negligible value

Most samples are declared at a value of $1 per unit, which often covers the actual value of the product.

In some instances, however, the actual value of the sample in question greatly exceeds the approximate value given.

The $1 rule

As noted above, declaring an approximate value of $1 has become a very common practice among importers. Moreover, some customs brokers automatically declare $1 without checking the accuracy of this value. However, this method may constitute a serious financial risk.

Real risks

During a recent conversation with an employee from an import company that regularly receives samples, he mentioned that the firm’s customs broker has always assigned samples a value of $1, and that he considered this to be an honest and accurate practice. Yet the question still remains: “What is the actual import value of the product?”

The employee explained that, when he places an order with his supplier, the product arrives on a pallet containing five units, for a total of $25,000, but in reality the sample represents half a unit. A quick calculation shows that, each time the importer receives a sample from this supplier, the actual value of the sample declared at $1 is, in fact, $2,500.

In the event of an audit on the declared values, this importer may incur a penalty of $500 for each of the samples received, plus duties and taxes, and have to pay interest on the difference between the declared value and the actual value of the goods. Ultimately, this company may face very stiff penalties.

In this particular instance, a change in guidelines and procedures had been set up with the broker so as to give a more accurate value for future imports. In addition, the company’s management will have to decide if a voluntary amendment will be instituted for previously imported samples.

Audits, checks and reviews

While the declarations concerning goods of negligible value can be subject to an audit, Customs will begin by auditing high-value shipments since they are much more profitable for the Canada Border Services Agency (CBSA). For example, in the case of an import totaling $55 that includes a $2 sample declared at $1, the risk of an audit is relatively low.

At the time of import, shipments of negligible value may nevertheless be checked periodically. A problem during an inspection of samples at Customs is an open invitation for a full audit in the future.

Moreover, samples may cause problems for high-value shipments, which will now be more likely to be inspected in the future. It is important to ensure that the declared values are as accurate as possible.

Great vigilance is required when declaring these products, which cannot be given a value of $0 or even $1. One cannot take for granted the value indicated by the broker without checking it. In the end, years of infractions can lead to very substantial penalties.

Well-meaning vendors may assign much too low a value to their sample, which then becomes a costly gift for the importer.

Same thing on the American side

The problem also exists on the U.S. side, when Canadian shippers send samples to an American consignee and minimize the declared value. However, they are considered non-resident registered importers in the United States and are responsible for Customs. As a general rule, there are no duties and taxes in the United States on Canadian products. This practice is therefore unnecessary.

Minor adjustments are all it takes

Each time a product sample is received, the declared value must be verified. If this value is not accurate, the customs declaration must be corrected and your partners must be informed of the procedure to follow in the future. You can decide to give a value to the customs broker or make an arrangement with your supplier to indicate the correct value on its commercial invoice.

Don’t take unnecessary risks: declare the correct value.


Please note that all information on this blog is subject to change. All blog articles are for information purposes only. We are always available to answer in detail any questions our clients may have regarding the information in this blog.

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About the author
John Weight is a licensed customs broker, active in the customs brokerage industry since 1970. John possesses three designations: CSCB Canadian Society of Customs Brokers, Certified Customs Specialist (CCS) and Certified Trade Compliance Specialist (CTCS).

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