Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Kent Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 186854
Dear [Client]:
Subject: EXCISE INTERPRETATION
Prescribed Brand for sale in Duty Free Shops and for delivery as ships' stores
Thank you for your [correspondence] of August 17, 2017, concerning the application of the Excise Act, 2001 to the stamping requirements of tobacco products for sale to Canadian duty free shops and for delivery as ships’ stores.
All legislative references are to the Excise Act, 2001 (Act) and the regulations therein, unless otherwise specified.
We understand that […]([…][the Company]) […]. The brand […][X] is listed in Schedule 1 to the Regulations Respecting Prescribed Brands of Manufactured Tobacco and Prescribed Cigarettes and Schedule 1 to the Regulations Relieving Special Duty on Certain Tobacco Products (both referred to as the Prescribed Brands Regulations). The [X] brand is considered to be a brand “prescribed” for the purposes of subsections 38(3) and 58(1) of the Act, which relieves the brand from the marking and special duty requirements under the Act.
INTERPRETATION REQUESTED
You would like to know the federal stamping requirements for the prescribed brand of [X] cigarettes if they were manufactured for sale to Canadian duty free shops and for delivery as ships’ stores. For ease of reference, we will only focus on the requirements for cigarettes.
INTERPRETATION GIVEN
Based on the information provided, if the [Company] would like to sell [X] brand cigarettes to Canadian duty free shops or for delivery as ships’ stores, these cigarettes must be stamped and packaged with prescribed information. In addition, these cigarettes will be subject to excise duty at the rate set out in section 1 of Schedule 1 to the Act.
Generally, a prescribed brand is a brand that is not commonly sold in Canada and is for export. A prescribed brand is eligible to be relieved from the marking and special duty requirements as long as the brand continues to meet the conditions set out in the Act. There are no provisions in the Act that relieve a prescribed brand from the imposition of excise duty and stamping requirements when the tobacco product is destined for sale in the duty-paid market or for delivery as ships’ stores.
Consequently, please note that the actual sale of a tobacco product manufactured in Canada that is a prescribed brand (listed in the Prescribed Brands Regulations) to a Canadian duty free shop or for delivery as ships’ stores may impede on the brand’s eligibility to continue to be qualified as “prescribed”.
Canadian manufactured tobacco vs. foreign brand tobacco
“Canadian manufactured tobacco” is defined in subsection 50(1) and, for the purpose of section 50, and means manufactured tobacco that is manufactured in Canada but does not include partially manufactured tobacco or foreign brand tobacco
“Foreign brand tobacco” is defined in subsection 50(1) and, for the purpose of section 50, and means manufactured tobacco in respect of which the special duty imposed under section 56 is relieved because of section 58.
In summary, prescribed brands fall within the definition of foreign brand tobacco. Subsection 50(8) allows for the removal of foreign brand tobacco from the excise warehouse of the tobacco licensee who manufactured it only if it is exported by the licensee and not for delivery to a foreign duty free shop or as foreign ship’s stores.
Note that if the tobacco products of a prescribed brand are not exported, the products will be categorized as Canadian manufactured tobacco. Removals from excise warehouses of non-duty paid tobacco products are restricted. Most exports of Canadian manufactured tobacco are subject to volume restraints and to special duty payable by the tobacco licensee.
Duty free shop, foreign duty free shop, ships’ stores and foreign ships’ stores
For the purpose of our response, it is important to distinguish between a “duty free shop”, “foreign duty free shop” and “foreign ships’ stores”. The following terms are defined in section 2 of the Act as follows:
- “Duty free shop” means a place that is licensed as a duty free shop under the Customs Act. For ease of reference, we will refer to these duty free shops as Canadian duty free shops.
- “Foreign duty free shop” means a retail store that is located in a country other than Canada and that is authorized under the laws of that country to sell goods free of certain duties and taxes to individuals who are about to leave that country.
- “Foreign ships’ stores” means tobacco products taken on board a vessel or aircraft while the vessel or aircraft is outside Canada and that are intended for consumption by or sale to the passengers or crew while the passengers and crew are on board the vessel or aircraft.
The activities pertaining to ships’ stores are administered by the Canada Border Services Agency. For the purposes of ships’ stores in accordance with the Ships’ Stores Regulations, made pursuant to the Customs Tariff Regulations, tobacco products destined for one of the designated uses set out in those regulations may be regarded as ships’ stores.
Subsection 32(1) of the Act prohibits the sale, offering for sale and possession of tobacco products that are not stamped. Subsections 32(2) and 32(3) provide exceptions to this prohibition that apply in specific circumstances. There are no exceptions to the prohibition in subsection 32(1) that allows the [Company] to sell or offer for sale unstamped cigarettes that it manufactured to Canadian duty free shops or for delivery as ships’ stores.
All cigarettes manufactured in Canada and destined for sale to Canadian duty free shops or for delivery as ships’ stores must be packaged and stamped. “Stamped", in respect of a tobacco product, means that an excise stamp, and all prescribed information in a prescribed format, are stamped, impressed, printed or marked on, indented into or affixed to the product or its container in the prescribed manner to indicate that duty, other than special duty, has been paid on the product. The prescribed manner for affixing an excise stamp and the prescribed information and format for purposes of the Act are set out in the Stamping and Marking of Tobacco Products Regulations.
These cigarettes are also subject to the imposition of excise duty that is payable at the time they are packaged. Cigarettes that are manufactured in Canada and destined for sale to Canadian duty free shops or for delivery as ships’ stores are subject to the excise duty rate set out in Section 1 of Schedule 1 to the Act.
Prescribed Brands
Prescribed brands can generally be described as tobacco products that are manufactured in Canada and are not commonly sold or intended for sale in the Canadian market. The Act provides for relief from special duty and marking requirements for the export of tobacco products of brands that are not normally sold in Canada, as long as those brands are prescribed by regulation. Specifically, subsections 38(3) and 38(4) of the Act provide the exemption from the marking requirements for prescribed brands, and subsections 58(1) and 58(2) provide for relief from the special duty for exported prescribed brands.
The purpose of these conditions is to provide a mechanism whereby bona fide exports of tobacco products that are not normally sold in Canada can be relieved from the marking and special duty requirements and can be sold in foreign markets on a competitive basis. A prescribed brand may continue to be relieved from the marking and special duty provisions as long as the brand continues to meet the prescribed brand eligibility requirements.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the Act, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 670-7356.
Yours truly,
Faye Chen
Tobacco Operations Unit
Excise Duty and Taxes Division
Excise and GST/HST Rulings Directorate
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