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, 20th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number 146713
December 5, 2012
Dear [Client]:
Subject: EXCISE INTERPRETATION
Deductibility of “Check-off Fees” to determine “FOB Value”
This is in reply to your inquiry on behalf of […] on the subject noted above. […]. […] forwarded your submission to the Canada Revenue Agency (CRA). I apologize for this late reply.
All legislative references are to the Softwood Lumber Products Export Charge Act, 2006 (Act), unless otherwise specified.
INTERPRETATION REQUESTED
Are the “check-off fees” paid to the Softwood Lumber Board (SLB) by Canadian exporters of softwood lumber products to the United States (U.S.) a deduction from the FOB value in calculating the export charge payable on such products under the Act?
INTERPRETATION GIVEN
Background
The Softwood Lumber Agreement, 2006, Annex 13, created the Canada/ U.S. North American Initiative on Lumber, which became the Binational Softwood Lumber Council (Council). The Council is a non-profit organization and has the mandate to “promote increased cooperation between the U.S. and Canadian softwood lumber industries and to strengthen and expand the market for softwood lumber products in both countries”.
In June, 2010, the CEO’s of 311 eligible softwood lumber companies that manufacture or import more than 15 million board feet per year in the U.S. voted to establish a check-off program for softwood lumber. Thus, the Council was replaced by the SLB, a non-profit organization, to carry on its mandate, but is funded and governed by the softwood lumber industry of both countries.
The Check-off Fee
Under the U.S. Department of Agriculture’s (USDA) Agricultural Marketing Service, commodity research and promotion programs, also known as check-off programs, are established at the request of their industries. Check-off programs derive funding through industry assessments (check-off fees).
On August 2, 2011, the USDA published a final rule in the U.S. Federal Register to implement a Softwood Lumber Research Promotion, Consumer Education and Industry Information Order. The Order is authorized under the Commodity Promotion Research and Information Act of 1996 and came into effect on August 3, 2011. The U.S. Secretary of Agriculture appointed the SLB, a group of industry representatives, to administer the check-off program.
The check-off program is funded by a fee of $0.35 per thousand board feet payable by U.S. manufacturers and Canadian exporters of softwood lumber. Entities are not subject to the fee on the first 15 million board feet of softwood lumber shipped within or imported into the U.S. during a year. The SLB directly invoices and collects the check-off fee from U.S. manufacturers and Canadian exporters each quarter.
FOB Value
Pursuant to section 10, every person that exports softwood lumber products to the U.S. after October 11, 2006, is required to pay an export charge. Section 12 provides that the amount of the charge is calculated by applying the rate for the month under subsection 12(3) or 12(4) to the export price of the product, as determined under section 13.
Specifically paragraphs 13(2)(a) to(c) cover the use of “FOB value” of softwood lumber products in calculating the export price of the product. Subsection 13(1) of the Act defines FOB value as “a value consisting of all costs payable by a purchaser, including those incurred in the placement aboard the conveyance for shipment, but not including the actual shipping costs and the amount of a charge payable under section 10”.
Interpretation
FOB value requires that all costs payable by a purchaser, except for those specifically identified, be included in the determination of export price of softwood lumber products exported to the U.S. The definition of FOB value does not provide for the deduction of an amount paid as a check-off fee. Consequently, whether the check-off fee is included in the sale price to the purchaser or paid directly by the exporter, there is no legislative authority for the deduction of the check-off fee in the calculation of FOB value under section 13 of the Act.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the Softwood Lumber Products Export Charge Act, 2006, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call Pauline Greenblatt, Senior Rulings Officer, directly at 613-941-1933.
Yours truly,
Preston Gallant, CGA
Manager
Softwood Lumber Unit
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
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