Decision costs UPS USD 2.9M in overpaid GST
United Parcel Service Ltd. has received a costly lesson from one of the country’s highest courts: good intentions and tax law don’t mix.
UPS may have been doing customers a good turn by paying upfront for the taxes and duties they owed on parcels shipped into this country from the United States.
But the Federal Court of Appeal has sided with Canada’s tax collector, ruling that UPS isn’t entitled to a rebate for those payments — leaving the company about USD 2.9-million out of pocket.
The decision also means UPS could be on the hook for USD 1.1-million in penalties and interest.
The “problem” centers on two scenarios, both involving mistakes made by either UPS or one of its customers.
In some cases, the parcel company mistakenly overvalued a package’s value, say USD 2,000 instead of USD 200. When the parcel arrived, the customer doesn’t want to pay GST on the overcharged amount– USD 1,800–so UPS either let things slide and swallowed the extra tax, or collected the tax from customers, but credited their account for that overcharged amount.
In other instances, it was the customer who incorrectly valued the package, even though UPS already paid tax on the higher amount. Again, UPS either ignored the overpayment or collected in full, but credited the customer.
UPS then subtracted the shortfall — USD 2.9-million — from its tax bill.
The federal court ruling overturned an earlier decision from Donald Bowman, Chief Justice of Canada’s Tax Court, who said that UPS was entitled to a rebate.
Last summer, UPS lost a long-running trade dispute with Canada Post, arguing that the letter carrier had an unfair advantage over competitors because its courier and express post services relied on a government sanctioned monopoly of sorting facilities, mailboxes and post offices that private firms must provide for themselves.
United Parcel Service Ltd. has received a costly lesson from one of the country’s highest courts: good intentions and tax law don’t mix.
UPS may have been doing customers a good turn by paying upfront for the taxes and duties they owed on parcels shipped into this country from the United States.
But the Federal Court of Appeal has sided with Canada’s tax collector, ruling that UPS isn’t entitled to a rebate for those payments — leaving the company about USD 2.9-million out of pocket.
The decision also means UPS could be on the hook for USD 1.1-million in penalties and interest.
The “problem” centers on two scenarios, both involving mistakes made by either UPS or one of its customers.
In some cases, the parcel company mistakenly overvalued a package’s value, say USD 2,000 instead of USD 200. When the parcel arrived, the customer doesn’t want to pay GST on the overcharged amount– USD 1,800–so UPS either let things slide and swallowed the extra tax, or collected the tax from customers, but credited their account for that overcharged amount.
In other instances, it was the customer who incorrectly valued the package, even though UPS already paid tax on the higher amount. Again, UPS either ignored the overpayment or collected in full, but credited the customer.
UPS then subtracted the shortfall — USD 2.9-million — from its tax bill.
The federal court ruling overturned an earlier decision from Donald Bowman, Chief Justice of Canada’s Tax Court, who said that UPS was entitled to a rebate.
Crown lawyers argued that, while UPS paid too much, the company isn’t entitled to a break under tax law.
The federal court said that UPS wrongly chose to become a customs broker for clients, and is now paying the price for that mistake.
Last summer, UPS lost a long-running trade dispute with Canada Post, arguing that the letter carrier had an unfair advantage over competitors because its courier and express post services relied on a government sanctioned monopoly of sorting facilities, mailboxes and post offices that private firms must provide for themselves.
