24 February 2003 Excise Interpretation 44383 - The Method of Calculating the "Total Quantity" of a Category of Tobacco Product to Determine the Maximum Quantity of Canadian Manufactured Tobacco that may be Removed from an Excise Warehouse for Export

Dear XXXXX

Thank you for your e-mail XXXXX, sent to Steve Mosher, concerning a portion of our letter XXXXX XXXXX. Your question is in relation to the provisions of subsection 50(6) of the Excise Act, 2001 ("new Act"), and the method of calculating the "total quantity" of a category of tobacco product for the purposes of determining the maximum quantity of Canadian manufactured tobacco that may be removed from an excise warehouse for export.

For XXXXX, shipments to foreign duty free shops or foreign ships' stores are often made first to XXXXX, in the United States, and subsequently re-shipped to American or other foreign duty free shops or for use as foreign ships' stores.

Subsection 50(6) of the new Act states that in subsection 50(5) the total quantity of a category of Canadian manufactured tobacco manufactured by a tobacco licensee in the preceding calendar year "... does not include quantity of that category that was exported by the licensee for delivery to a foreign duty free shop or as foreign ships' stores." The provisions of subsection 50(6) are very similar and have the same intent as subsection 58.1(5) of the current Excise Act ("EA"), which was implemented under the Bill C-26 package of amendments that took effect on April 6, 2001. Prior to that date, the method of determining "total quantity" under the former subsection 23.21(3) of the Excise Tax Act ("ETA") excluded sales to foreign duty free shops, but did not mention ships' stores.

Under the former ETA provisions noted above, the exclusion was to be applied to exports of Canadian manufactured tobacco sold by their manufacturer "... to the operator of a foreign duty free shop for duty free sale by the operator in that shop." However, under the relevant provisions of the current EA, and the new Act, the exclusion applies to exports of Canadian manufactured tobacco that are for delivery to a foreign duty free shop or as foreign ships' stores. We in Excise Duties and Taxes consider that the words "for delivery to" would cover all Canadian manufactured tobacco that is intended by the manufacturer thereof to be delivered to a foreign duty free shop or as foreign ships' stores, regardless of whether it is exported first to another party for subsequent delivery to such locations or for such uses.

As you know, any Canadian manufactured tobacco that is intended to be removed for delivery to a foreign duty free shop or as foreign ships' stores is, under the provisions of paragraphs 52.1(b) and (c) of the EA, not permitted to enter a bonding warehouse. As noted in your e-mail, it must be duty paid at the time of complete manufacture, under subsection 200(1) of that Act, and is subject to excise tax under paragraphs 23.11(1)(c) and (d) of the ETA at the time of export. There are no limits placed on the volumes of Canadian manufactured tobacco that may be exported for delivery to a foreign duty free shop or as foreign ships' stores.

Thus, the calculation of "total quantity" of a particular category of Canadian manufactured tobacco made by XXXXX in the previous calendar year are to exclude any exports of such goods by your firm to XXXXX or anyone else that are intended for delivery to a foreign duty free shop or as foreign ships' stores.

This interpretation is based on the provisions of the current Excise Act and Excise Tax Act, as well on the provisions of the new Excise Act, 2001 that is scheduled to be implemented on July 1, 2003. Future amendments to the new Act could affect the information contained herein.

Since your enquiry touches directly on matters of tax policy, which falls within the purview of the Department of Finance, and also in accordance with your advice to Steve Mosher, a copy of your e-mail and this response will be sent to Patricia Malone, of the Excise Act Review Group.

Should you require further information, please do not hesitate to contact me at (613) 957-8154 or Steve Mosher, at (613) 941-1497.

Sincerely,

Preston Gallant, CGA
Manager
Excise Duty Operations
Excise Duties and Taxes Division