19 July 2007 Excise Interpretation 85758 - Request for Reconsideration of Instrument Certification Requirements as Outlined in EDM 1.1.5

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

I am writing in response to your XXXXX and subsequent telephone conversations with Ron Hagmann, Manager of the Canada Revenue Agency's (CRA) Softwood Lumber Unit. In your earlier communications, you raised the issue of the requirement for independent remanufacturers to pay the export charge on certain secondary products based on the first mill price. You noted that this could put them at a disadvantage when compared to non-independent remanufacturers exporting similar secondary products.

The CRA has completed its review of this matter, and I must confirm that independent remanufacturers are required to calculate the export charge on the export price, pursuant to paragraph 13(2)(b) of the Softwood Lumber Products Export Charge Act, 2006 (Act). As you are aware, this provision allows the independent remanufacturer to pay the charge based on the price paid to its lumber supplier (first mill), thereby avoiding an increased charge amount that would result if it was required to pay the charge on its production value added. The option to apply to become a certified independent remanufacturer was included for the benefit of independent remanufacturers.

The first mill price applies to all products covered under the scope of the agreement that are exported by an independent remanufacturer, regardless of grade or actual selling price of the final product. In contrast, pursuant to paragraph 13(2)(c) of the Act, non-independent remanufacturers use an export price which is essentially the sale price of their products. On secondary products, this may indeed be lower than the first mill value that the independent remanufacturers must use, which of course results in a lower export charge.

During the course of our deliberations, the CRA consulted with representatives of the Department of Foreign Affairs and International Trade. It seems clear that this matter was not foreseen by government or industry when preferential treatment for independent remanufacturers was negotiated under the Softwood Lumber Agreement, 2006. The Act faithfully implements Canada's obligations under the SLA and the CRA is required to administer the Act as it is currently written. And, since there is no provision for an alternative means of determining export price for the secondary products of an independent manufacturer, the first mill value must continue to apply.

We have discussed the issue with respect to action that may be pursued to raise this matter with our U.S. counterparts. It was agreed that this subject could be referred to the Canada/U.S. Softwood Lumber Technical Working Group on Permits and Customs Issues for further consideration. Mr. Stephan Moreau, Deputy Director, Softwood Lumber Controls Division, may be contacted in this regard at (613) 944-0842.

If you have any further questions, please do not hesitate to contact me at (613) 954-0111.

Yours truly,

Phil McLester
Director
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate
Canada Revenue Agency

2007/07/20 — RITS 93137 — End User Refunds