Vol. 146, No. 21 — October 10, 2012
SOR/2012-183 September 20, 2012
EXCISE ACT, 2001
Regulations Amending the Regulations Respecting Prescribed Brands of Manufactured Tobacco and Prescribed Cigarettes
P.C. 2012-1084 September 20, 2012
His Excellency the Governor General in Council, on the recommendation of the Minister of National Revenue, pursuant to paragraph 304(1)(o) of the Excise Act, 2001 (see footnote a), makes the annexed Regulations Amending the Regulations Respecting Prescribed Brands of Manufactured Tobacco and Prescribed Cigarettes.
REGULATIONS AMENDING THE REGULATIONS RESPECTING PRESCRIBED BRANDS OF MANUFACTURED TOBACCO AND PRESCRIBED CIGARETTES
1. Schedule 1 to the Regulations Respecting Prescribed Brands of Manufactured Tobacco and Prescribed Cigarettes (see footnote 1) is amended by adding the following in alphabetical order:
1839, An American Heritage
Joe’s Con Filtro
Muskoka Special Blend
2. Schedule 2 to the Regulations is amended by adding the following in alphabetical order:
COMING INTO FORCE
3. These Regulations come into force on the day on which they are registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
The Excise Act, 2001 (the Act) imposes excise duty on domestically manufactured and imported tobacco products for consumption in Canada. Tobacco products manufactured in Canada or imported into Canada are “stamped” to indicate that federal excise duty has been paid.
Manufactured tobacco and cigars that are not intended for entry into the Canadian duty-paid market (e.g. exports) are not stamped, but instead must be entered into an excise warehouse and require “tobacco markings.”
Subsection 38(1) of the Act requires that, before a container of manufactured tobacco or cigars may be entered into an excise warehouse, it must have printed on it or affixed to it tobacco markings and other prescribed information. Depending on the circumstances, the tobacco marking will specify that the product is not for sale in Canada or not duty-paid. The specific wording, format and application of tobacco markings and other prescribed information are outlined in the Stamping and Marking of Tobacco Products Regulations.
Pursuant to subsections 38(3) and (4) of the Act, certain brands of manufactured tobacco and cigarettes can be exempted from the tobacco marking requirements. To be exempted, the manufactured tobacco cannot be commonly sold in Canada or, in the case of cigarettes, the particular formulation must never have been sold in Canada. In addition, the brands of manufactured tobacco and cigarettes must be prescribed in the Regulations Respecting Prescribed Brands of Manufactured Tobacco and Prescribed Cigarettes (the Prescribed Brands Regulations).
In addition to being subject to the marking requirements, tobacco products that are manufactured in Canada and exported are also subject to a special duty. Certain brands of tobacco products and cigarettes manufactured in Canada destined for export may be conditionally exempted from the special duty that would otherwise apply. To be exempted, the brands cannot be commonly sold in Canada and must be prescribed in the Regulations Relieving Special Duty on Certain Tobacco Products (the Special Duty Regulations).
Relief under the tobacco marking regime works concurrently with the relief from special duty. Consequently, the prescribed brands identified in the Prescribed Brands Regulations exactly match the prescribed brands identified in the Special Duty Regulations (“prescribed brands program”).
Under the prescribed brands program, Canadian tobacco manufacturers can make application to the Canada Revenue Agency (CRA) to add new brands to the prescribed lists created by the above two regulations.
The Prescribed Brands Regulations and Special Duty Regulations must be periodically updated to include newly qualified tobacco brands on the prescribed lists.
The prescribed brands program provides a mechanism whereby exports of tobacco brands that are not normally sold in Canada can be relieved from the marking requirements and special duty such that these products can be sold in foreign markets on a more competitive basis.
The CRA recognizes that some Canadian tobacco licensees have specific brands for which they have legitimate business opportunities in foreign markets and are reliant on these brands gaining prescribed status for their business plans to be realized.
The CRA has initiated a comprehensive administrative review of the prescribed brands program to control the number of brands added to the prescribed lists. Although the program review is not yet terminated, suspending the addition of new brands to the prescribed lists until such time as the program review is complete could adversely affect tobacco licensees as business opportunities could be lost.
Accordingly, in September 2011, the CRA provided tobacco licensees with an opportunity to submit up to four brands for consideration ahead of the completion of the program review. To ensure that the integrity of the prescribed lists is maintained, each request had to be accompanied by a summary business plan providing details and where possible, documentary evidence of the following:
- how the product formulation differs from Canadian product in terms of physical characteristics before and during consumption;
- the export market contracts in place, in development, or being negotiated;
- details of product packaging graphics for the intended market; and
- business projections (volume, sales, markets).
The objective of this amendment is to add 30 brand names to the prescribed lists created by the Prescribed Brands Regulations and Special Duty Regulations. To date, 280 brands have been prescribed under these two regulations.
This initiative accommodates the legitimate business plans of Canadian tobacco exporters and aims to ensure that the prescribed brands program continues to promote Canada’s export interests by positioning Canadian tobacco manufacturers to compete in foreign markets.
The CRA received valid submissions from 10 tobacco manufacturers for a total of 30 brands. As a result, this regulatory action amends the Prescribed Brands Regulations and the Special Duty Regulations by adding those 30 new brands to the 280 brands currently on the prescribed lists.
The addition of 30 brands to the prescribed lists is based on requests received from tobacco licensees in response to an invitation extended to all tobacco licensees. In order to be successful, the applications had to satisfy all of the conditions of the prescribed brands program described above.
These amendments will enable licensees to generate additional revenues from export markets, whereas failure to act would result in a loss of potential contracts and associated revenues. If such losses were to materialize, the effects could be detrimental to the licensees, their workers and the communities in which they operate.
While these amendments are relieving in nature, and can be expected to create new business opportunities, the addition of 30 new brands to the prescribed lists does not give rise to any additional costs or savings to any stakeholder.
Implementation, enforcement and service standards
These regulatory amendments will come into effect the day on which they are registered.
The CRA is responsible for ensuring compliance with the requirements of the Act at the manufacturer level. Manufactured tobacco and cigars that do not meet the conditions set out in the legislation are ineligible for relief from the tobacco marking and information requirements imposed under subsection 38(1). When a tobacco manufacturer cannot demonstrate that the conditions have been met, the CRA will impose any sanctions that the legislation provides. Section 234 of the Act provides for an administrative monetary penalty of up to $25,000 for contravention of the marking requirements in section 38 of the Act.
Prescribed manufactured tobacco and cigars are to be exported and sold outside of Canada. The CRA conducts audits and verification visits of tobacco manufacturers to confirm that prescribed brands are indeed exported from Canada. The CRA also has a memorandum of understanding and a service level agreement with the Canada Border Services Agency (CBSA), under which the CBSA examines export shipments of prescribed brand products to assist the CRA in reconciling these exports with information gained during audits of tobacco manufacturers in Canada. The Royal Canadian Mounted Police (RCMP) is responsible for enforcement activities relating to the illegal possession, purchase, or sale of prescribed manufactured tobacco and cigars in Canada.
No additional resources will be required by the CRA, the CBSA or the RCMP for the implementation of these amendments or related compliance and enforcement activities.
Mr. Phil McLester
Excise Duties and Taxes Division
320 Queen Street
Place de Ville, Tower A, 20th Floor
S.C. 2002, c. 22