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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 20th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 123538
May 18, 2011
Dear [Client]:
Subject:
EXCISE INTERPRETATION
Calculation of Duty and Special Duty on Exported Tobacco Products
Thank you for your letter of April 19, 2010, concerning the calculation of the "two-tiered export tax" on tobacco products manufactured in Canada and exported. We apologize for the delay.
All legislative references contained in this letter are to the Excise Act, 2001 (Act), unless otherwise noted.
Please refer to the attached Appendix for the definitions of the defined terms in this letter.
Interpretation Requested
We understand your request concerns the calculation of duty and special duty, referenced by you as "two-tiered export tax" on a carton of cigarettes manufactured in Canada by a tobacco licensee for export.
Interpretation Given
Special dutyi is imposed on certain tobacco productsii that are manufacturediii in Canada and exportediv under the following described conditions.
(A) Special duty for exports not exceeding 1.5%
A tobacco licensee1 may export up to a maximum of 1.5% of its previous year's production, per categoryv of Canadian manufactured tobacco1. These unstamped tobacco products were not subject to dutyvi and were entered into the licensee's excise warehouse1. These exported tobacco products are subject to special duty at the rates set out in section 3 of Schedule 3.
To illustrate the previous paragraph, a carton of unstamped cigarettes1 containing 200 cigarettes, manufactured by the tobacco licensee in Canada and exported, where the total quantity of exported cigarettes (as of that date) has not exceeded 1.5% of the tobacco licensee's previous year's production, is subject to $15 of special duty.
(B) Special duty in any other case
In any other case, special duty will apply at the rates set out in section 4 of Schedule 3.
To illustrate the previous sentence, a carton of stamped1 cigarettes containing 200 cigarettes, manufactured by a tobacco licensee and exported, will be subject to $17 of duty and $19.15 of special duty.
Note that special duty does not apply if the tobacco products are "prescribed brands" or if the tobacco products are exported as foreign ships' storesvii or for delivery to a foreign duty free shopviii.
Legislative background
(A) Special duty for exports not exceeding 1.5%
Paragraph 56(1)(a) provides that a special duty is imposed on a tobacco product that is manufactured in Canada and exported if the export is in accordance with paragraph 50(4)(a) by the tobacco licensee who manufactured it, at the rates set out in section 3 of Schedule 3.
Note that where a tobacco licensee manufactures a tobacco product and the tobacco product is not stamped to indicate that duty has been paid, that tobacco product must immediately be stored in the tobacco licensee's excise warehouse. The movement of unstamped tobacco products is subject to controls imposed by the Act.
Section 50 deals with the removal of tobacco products from a tobacco licensee's excise warehouse. In particular, the provisions in section 50 impose various control requirements on the different kinds and groups of tobacco products.
Specifically, paragraph 50(4)(a) sets out that Canadian manufactured tobacco may be removed from the excise warehouse of the tobacco licensee who manufactured it only if it is for export by the licensee in accordance with subsection 50(5) and not for delivery to a foreign duty free shop or as foreign ships' stores. The definition of Canadian manufactured tobacco excludes "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. Prescribed brands are relieved of special duty as per section 58. In summary, paragraph 50(4)(a) allows for the removal of certain unstamped tobacco products from the excise warehouse of a tobacco licensee for export.
Subsection 50(5), sets out the maximum quantity by category of Canadian manufactured tobacco permitted to be removed from a tobacco licensee's excise warehouse for export. A tobacco licensee may export up to a maximum of 1.5% of its preceding year's production, per category, of Canadian manufactured tobacco.
However, the total quantity of a category of Canadian manufactured tobacco manufactured by a licensee in the preceding calendar year does not include any quantity of that category that was exported by the licensee for delivery to a foreign duty free shop or as foreign ships' stores.
Therefore, as a result of the application of 50(4)(a) and 50(5), certain unstamped tobacco products manufactured in Canada by a tobacco licensee may be removed from the excise warehouse of the tobacco licensee to a maximum quantity of 1.5% per category of its preceding year's production. Special duty at the rates set out in section 3 of Schedule 3 will apply to these certain unstamped tobacco products.
(B) Special duty in any other case
Paragraph 56(1)(b) provides that, in any other case, a special duty is imposed on a tobacco product that is manufactured in Canada and exported at the rates set out in section 4 of Schedule 3.
If the tobacco product is stamped, subsection 42(1) imposes duty at the rates set out in Schedule 1.
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 Act, the 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 me directly at 613-954-5775.
Yours truly,
Faye Chen
Rulings Officer
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
APPENDIX
The following terms are defined in section 2 of the Excise Act, 2001. The definitions are reproduced below for your reference.
"Canadian manufactured tobacco" means manufactured tobacco that is manufactured in Canada but does not include partially manufactured tobacco or foreign brand tobacco. (Note: this definition only applies in section 50)
"cigarette" includes any roll or tubular construction intended for smoking, other than a cigar or a tobacco stick. If a cigarette exceeds 102 mm in length, each portion of 76 mm or less is considered to be a separate cigarette.
"duty" means, unless a contrary intention appears, the duty imposed under this Act and the duty levied under section 21.1 or 21.2 of the Customs Tariff and, except in Parts 3 and 4, includes special duty.
"excise warehouse" means the premises of an excise warehouse licensee that are specified by the Minister as the excise warehouse of the licensee.
"export" means to export from Canada.
"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.
"manufacture", in respect of a tobacco product, includes any step in the preparation or working up of raw leaf tobacco into the tobacco product. It includes packing, stemming, reconstituting, converting or packaging the raw leaf tobacco or tobacco product.
"special duty" means (a) in respect of a tobacco product, a special duty imposed under subsection 53(1), 54(2) or 56(1); and (b) in respect of imported spirits, the special duty imposed under subsection 133(1).
"stamped", in respect of a tobacco product, means that all prescribed information in a prescribed format is, in the prescribed manner, stamped, impressed, printed or marked on, indented into or affixed to the product or its container to indicate that duty, other than special duty, has been paid on the product.
"tobacco licensee" means a person who holds a tobacco licence issued under section 14.
i Please note that this is a defined term in the Excise Act, 2001. Definitions are reproduced in the Appendix. Each defined term will only be identified once, at its first appearance, within the "Interpretation Given" section.
ii A "tobacco product" in this letter refers to manufactured tobacco1 other than partially manufactured tobacco.
iii Please note that this is a defined term in the Excise Act, 2001. Definitions are reproduced in the Appendix. Each defined term will only be identified once, at its first appearance, within the "Interpretation Given" section.
iv Please note that this is a defined term in the Excise Act, 2001. Definitions are reproduced in the Appendix. Each defined term will only be identified once, at its first appearance, within the "Interpretation Given" section.
v For the purposes of subsection 50(5) a "category" of Canadian manufactured tobacco can either be: cigarettes; tobacco sticks; and manufactured tobacco other than cigarettes and tobacco sticks.
vi Please note that this is a defined term in the Excise Act, 2001. Definitions are reproduced in the Appendix. Each defined term will only be identified once, at its first appearance, within the "Interpretation Given" section.
vii Please note that this is a defined term in the Excise Act, 2001. Definitions are reproduced in the Appendix. Each defined term will only be identified once, at its first appearance, within the "Interpretation Given" section.
viii Please note that this is a defined term in the Excise Act, 2001. Definitions are reproduced in the Appendix. Each defined term will only be identified once, at its first appearance, within the "Interpretation Given" section.
---------------
------------------------------------------------------------
---------------
------------------------------------------------------------
UNCLASSIFIED
Email this Content