A Canadian subsidiary of Skechers USA, the footwear company, must add research, design, and development (R&D) payments made to its parent under a cost sharing agreement (CSA) to the customs value of imported footwear supplied by its parent, Canada’s Federal Court of Appeals has ruled in a March 2 decision.
In so concluding, the court upheld the Canadian International Trade Tribunal’s (Tribunal) controversial December 13, 2013, decision in the case, calling the Tribunal’s decision “transparent, intelligible, and justifiable.”
Skechers USA Canada Inc purchases the footwear it sells in the Canadian market from its US parent, Skechers USA, at a price equal to the factory price paid by Skechers USA to its manufacturers; the cost of shipping the goods to the US and warehousing the goods there; and an arm’s length profit.
The subsidiary also makes payments to Skechers USA pursuant to a CSA to compensate the parent for activities associated with the development and maintenance of the Skechers brand and to the sale of footwear.
Upholding the Tribunal’s decision, the court ruled that CSA payments relating to research, design, and development were “in respect of” the goods sold for export into Canada and were thus part of the “price paid or payable” for the goods for customs purposes.
Court reasoned that the footwear could not be produced without the research design and development process.
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