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Navigating Cross-Border Business: Insights from Davidson & Sons and Smythe — Transcript

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0:04Okay. Um so welcome to our webinar
0:08today. Uh we are discussing navigating
0:10crossber business with insights from
0:12Davidsons and Suns. Um just want to go
0:15through a few housekeeping items before
0:17we get started. Um today we'll have the
0:20chat function is going to be disabled
0:22during the webinar. Um, however, you can
0:24submit your questions using the Q&A
0:27function at the top um, strip of the
0:29team's uh, webinar screen. Greg's going
0:32to be taking questions throughout each
0:34section of uh, of his presentation and
0:36then I'll help him flag those questions
0:38as they come up and we'll also leave
0:41some questions at the back end of the
0:42presentation. So, um, if you didn't have
0:45an opportunity to so we can try to get
0:47to those as well. Um, there's no need to
0:49take any notes. We are going to share
0:51the recording along with the slides um
0:54after the webinar uh probably tomorrow
0:57be distributed. And then just um want to
1:00let you know that we've got two of our
1:01smi marketing um team as support today.
1:05Sarah um and Chirona will be supporting
1:08us through this um and providing any Q&A
1:11and techn technical support.
1:14Um I'll the next slide please.
1:20Um, my name is Suki Gil. I'm a partner
1:23in the assurance group and I've got
1:25Aaliyah Golden as well. Um, and she's a
1:27partner in our tax group. Um, next
1:31slide, please. A little bit about SMICE.
1:34Um, we are fullervice uh, accounting
1:37firm based out of BC. Uh, our primary
1:40location is Vancouver and we have
1:42offices in Langley as well. We have 20
1:44partners in our partnership along with
1:46over 200 staff across those two
1:48locations and we're ranked 12th amongst
1:51the largest accounting firms in BC. Next
1:54slide please. Our expertise um includes
1:59uh many niches. Uh one of the niches
2:01which is applicable to this group would
2:03be manufacturing distribution. Uh we
2:06provide all services including um
2:08accounting services uh audit uh reviews,
2:13compilations, bookkeeping um for all
2:15types of entities including um private
2:18not for profofit and all types of GAP as
2:21well as
2:24US GAPs.
2:26We also have um our corporate tax team
2:29um which uh helps us with the corporate
2:33tax compliance piece personal and uh
2:36corporate along with helps uh with us
2:38with structure and planning which
2:40Aaliyah will talk about a little bit
2:41more crossborder structuring um and M&A
2:44and compensation and we have a business
2:47valuation team that helps clients with
2:50devestigages um acquisitions
2:52uh intergenerational transitions and um
2:55exit strategies and also just doing
2:57those business valuations as needed. Um,
3:00but at this point I'm going to pass it
3:01over to Aaliyah.
3:04>> Thanks CP. Um, so before Greg gets
3:06started, we just wanted to make sure
3:08that we were highlighting a couple of
3:09things from the tax side of it. So from
3:12the tax perspective, you know, one of
3:14the things that we often see is that
3:16customs is often treated separately from
3:18tax when in reality it it does have the
3:21ability to impact taxable income and
3:23cash flows and just overall
3:25profitability. So when one is managed
3:27without the other, there could be some
3:29missed tax planning opportunities. Uh we
3:32do feel that right now is a great time
3:33to review crossber structures and so
3:36this includes how entities are being set
3:38up um how cash flows are operating
3:41intercomp transactions and just making
3:43sure that you know profits are maximized
3:45and taxes are minimized. So our role
3:48really is to work alongside yourselves
3:50as well as the custom bro customs
3:52brokers to make sure that the duty
3:54structure aligns with the tax structure.
3:56So just keeping that in mind uh while
3:58Greg does his presentation. So, we'll
4:00turn it over to Suki and she will
4:02introduce Greg.
4:05Next slide, please.
4:07>> So, uh just Greg uh is a colleague and
4:10friend of ours at SMI. He actually
4:12articled with me a long long time ago.
4:15So, uh we've known each other for a long
4:17time. Um but Greg has a a vast
4:19experience and he'll go into his
4:21experience now. Thanks, Greg.
4:24>> Uh thank you, Suki. And uh good morning
4:26everyone. Thank you for taking the time.
4:28I will try to be as brief as possible.
4:30Uh, I'm here at Davidson and Suns. Uh,
4:32we are a 108-year-old
4:35Canadian customs broker. To be clear,
4:37I'm a chartered accountant. I am not a
4:39customs broker. I've been here at
4:42Davidson and Suns about 7 years. Prior
4:44to that, been a CFO in a variety of
4:46industries. To be frank, I never even
4:48knew what customs brokerage was prior to
4:50seven years ago. As Suki mentioned, we
4:52did our CAS together.
4:54Uh and recently when Suki and I were
4:57chatting and we were discussing the
4:58issues facing clients currently, the
5:01subject of risk came up, specifically
5:04the risks related to importing and
5:06supply chain in general. And so we
5:08thought it might be useful for for us to
5:10get together and share some thoughts.
5:12The comments that I will make today are
5:14my own observations about some of these
5:16risks. Some of some of my comments are
5:19generalizations that may not apply to
5:21your specific business or to your
5:23specific staff for that matter. Next
5:25slide, please.
5:28Uh, as I mentioned, Davidson and Sons
5:30familyowned and operated. It's been
5:31serving clients since 1917. BCbased.
5:35Current CEO is D Bill Davidson. He's
5:37representing the fourth generation of
5:39leadership. Offer a full suite of
5:41services including customs brokerage,
5:43freight, and trade consulting. clients
5:46of all sizes from small m and paw shops
5:49to Fortune 500 uh companies and we're
5:52all across the country. Our our largest
5:54customers actually in Quebec.
5:57The number one thing that Davidson and
5:59Suns focus on and has for 107 108 years
6:03is compliance with the rules and
6:05regulations of the Canada Border Service
6:07Agency. And I'll talk more about that in
6:09a minute. Next slide please.
6:14So the role of the customs broker, maybe
6:16one more slide if you wouldn't mind.
6:19The role of the customs broker is to act
6:21on behalf of clients facilitating the
6:23importation of goods into Canada in
6:25accordance with CBA CBSA rules and
6:28regulations.
6:29Brokers have been around for overund
6:31year 100 years and they're represented
6:33by the Canadian Society of Customs
6:35Brokers. However, it is should be noted
6:38the Canadian Society of Customs Brokers
6:40does not have legislative authority over
6:43brokers unlike the CA Institute. It's
6:46there for to represent the industry, but
6:48that's it.
6:50This slide that you have in front of you
6:52kind of represents a few of the cooks
6:54that are in the kitchen when importing
6:55gets done. It's even more complex than
6:58this. You've got suppliers in in other
7:01parts of the world. You've got freight
7:02forwarders. It makes its way to Canada
7:05where you deal with a port. You've got a
7:07customs broker dealing with the CBSA.
7:10PGAs are also known as participating
7:13government agencies. They require
7:15information as well from the broker and
7:17the importer eventually then making its
7:20way to perhaps another freight forwarder
7:22and then to the ultimate importer.
7:26Next slide please.
7:31So hopefully I'm not telling you
7:33anything you don't already know, but a
7:35transaction at its fundamental
7:38nature, a broker gets the paperwork from
7:41the client's suppliers prior to the
7:44goods arriving in Canada. We enter the
7:47goods into our system, determine the
7:48appropriate value for duty, duty rates,
7:51submit this paperwork to the CBSA, and
7:54the CBSA pre-approves these goods for
7:57clearance, or as we say, release into
8:00Canada before the plane, train, or
8:02automobile arrives at the border. When
8:05the carrier arrives at the border, the
8:07CBSA matches up the paperwork from the
8:10carrier to the paperwork submitted by
8:12the broker and goods are allowed to
8:15cross into Canada.
8:17First point of note there, we're relying
8:19upon paperwork provided by the supplier.
8:23Very important to keep in mind. The
8:25relationship with our clients has always
8:27been very transactional and I'll speak
8:29more about that today. We generally work
8:31with the purchaser and our clients to
8:33obtain the necessary details about the
8:35goods being imported to apply the
8:38appropriate HS code. There are over
8:4010,000 HS codes and small nuances can
8:45make big differences. As an example, the
8:48paperwork from a supplier says dental
8:50floss case. Does it have dental floss
8:54inside it or is it just an empty case?
8:56One has 20%, one has zero.
9:00How do we know? These small
9:02specifications about a product are often
9:04not on that paperwork that the supplier
9:06provided, but they're vitally important.
9:09Another example, the thread count on a
9:11bolt. Huge impact on duty rates. One
9:15thing new clients to Davidson and Suns
9:17will often say is, "Why do you need that
9:19paperwork? My old broker didn't ask for
9:21it." And that's because the devil is in
9:23the details. And I'll talk about that
9:26more
9:27again as we rely so much on the
9:30paperwork that our our importing clients
9:33get from their suppliers.
9:35We like to say this, our clients know
9:38their products better than us, but we
9:41know HS codes better than our clients.
9:45The relationship needs to be an equal
9:48partnership, both sides working
9:50together.
9:51um not just and we often do see this
9:55where an importer is relying upon
9:57strictly 100% upon the advice of a
10:00broker
10:01especially in this day and age we think
10:04that's risky and I'll talk about that a
10:06little bit more ultimately remember the
10:09importer is responsible for the duties
10:11and taxes if that HS code is wrong the
10:14importer is liable
10:16next slide
10:21One more.
10:23If you're importing into Canada, you've
10:25heard this acronym, KARM.
10:27This is the Customs Accounts Receivable
10:29Management System. It was delayed for
10:31many years by the CBSA.
10:34It was marketed as a way for importers
10:36to have greater visibility over their
10:38imports. In reality, it is a way for the
10:42government to see greater details about
10:44import transactions. And I believe that
10:47was their intention all along as the
10:50government feels they've left tax
10:51revenue at the border with each with
10:55karm each importer had to register on
10:57the karm portal and to obtain their own
11:00release prior to payment bond.
11:03Now, one thing that we do notice is that
11:05clients often aren't quite sure when it
11:08comes to car management and the RPP bond
11:11management. Is that a logistics
11:14department function or an accounting
11:16department function? And therein lies
11:18one of the business risks. The required
11:21value of a bond is 50% of the highest
11:24one month's duties and taxes. Keep in
11:26mind that includes any of the numerous
11:28sir taxes that have come in in the last
11:3012 months.
11:32What is the bond at its fundamental?
11:35From 1935 until right up till KARM,
11:38brokers gave a bond to the government of
11:40Canada as a form of security. Our
11:43clients used it that allowed the goods
11:45to come in with duties and taxes being
11:48paid later. The government no longer
11:51accepts a broker bond and each importer
11:53has to have their own bond.
11:55But as I mentioned, the value of that
11:58bond includes duties and taxes. It
12:00includes GST which is quite a sticking
12:03point and it includes any of these large
12:05sir taxes that have come out. Recently
12:07there has been a sir tax announced on
12:09steel and steel derivatives. This has
12:12forced bonds to go upwards drastically.
12:16Underwriters maintain the right to
12:18require audited financial statements if
12:21the bond crosses a threshold. For
12:24private businesses that have not
12:25previously had an audit, the sudden
12:28requirement to produce audited financial
12:30statements will be ownorous and
12:32potentially expensive.
12:35Without the increased bond limit, the
12:36CBSA can withhold RPP released prior to
12:41payment of duties and taxes. Those
12:43privileges can be denied and without
12:45audited financial statements, importers
12:47will be left with no option but to give
12:50a cash deposit. We have clients that
12:52have chosen not to get their financials
12:53audited and have given very large cash
12:56deposits to the government of Canada.
12:58The difference is while an RPP bond is
13:0050% of the highest one month,
13:04in the case of a cash deposit, it's a
13:06100,000, excuse me, it's it's 100% of
13:10the duties and taxes. So if you have a
13:12large amount of cash lying around to go
13:15and give to the government, okay, but
13:16otherwise
13:18uh that could be a very um sharp impact
13:22on your importing. This is when I make a
13:24shameless plug for my friend Suki and
13:25Smi Ratcliffe or what used to be Smi
13:27Ratcliffe. If you need an audit, do one
13:31before you need it so it doesn't impact
13:33your supply chain.
13:36Next slide, please.
13:42So the biggest thing about Karm is
13:45something that has never been announced.
13:47Um
13:49and the fact of the matter is this.
13:50Prior to Karm,
13:53the broker did a final accounting for a
13:55transaction. So what does that mean? The
13:57goods crossed the border. Governments
13:59let them in. And then a broker has five
14:02days to do a final accounting
14:05verifying the value for duty, country of
14:08origin, etc. And then we submit that to
14:11the government in the form of what was a
14:12B3 and now it's called a CAD form. What
14:16would happen is the government would
14:18accept the form and maybe down the road
14:216 12 months later they would randomly
14:23select a tiny fraction of those imports
14:28for an after-the-act randomly selected
14:31ad hoc audit. Frankly, the risk of
14:34getting audited was low. Now, every
14:37single CAD form that we submit is being
14:41audited in real time by the government's
14:44new system. Imagine you have an audit
14:47and materiality is zero.
14:50Again, I refer back to my prior
14:52comments. Purchasers have often relied
14:54upon the broker's word about what is the
14:57right coding, etc. The clients, our
15:01clients, the importers know the product
15:03better than us, but we know HS codes
15:05better. And most importantly,
15:08ultimately, the importer is liable. It's
15:11a tremendous risk and it's a risk that
15:14we've often seen for clients has been
15:16focused in the hands of one individual
15:19primarily the the purchaser
15:22in we are noticing the fact in the
15:24United States
15:26audits by the government of the United
15:28States are up 500%
15:31in the past year audits in Canada also
15:34going up the error rate is bordering on
15:3870%
15:40That's and I'll get to the errors in a
15:42moment with that much risk to the
15:44import.
15:46Do you really want to have it in the
15:48hands of one individual? That's my
15:50comment. It needs to be in my opinion a
15:53group decision, a group analysis by
15:56everyone involved both the importer from
15:59the importer side. The the purchasers
16:01obviously have expertise, CFOs have
16:03expertise in the area of risk. It needs
16:06to be a collaborative effort together
16:08with their customs broker. Next slide,
16:11please.
16:13Maybe I'll stop there. Any questions?
16:21>> No questions, Greg.
16:23>> We're good. Okay. What are those common
16:26errors that we're seeing? First and
16:28foremost is the HS code.
16:32It's important to note that what is the
16:36required paperment uh paperwork to do an
16:38import into Canada. The broker needs two
16:41things. The broker needs to have a bill
16:43of leading for the transportation of the
16:45goods and a commercial invoice.
16:49However, one very important document
16:51that I'll speak a few times about today
16:53is a bill of materials.
16:56That is a document brokers do not need
16:59in order to import into Canada.
17:01But without a bill of materials, rely
17:03relying upon the supplier invoice can
17:06leave a high degree of import risk. If
17:09the importer doesn't have an in-house
17:11compliance expert, the purchaser should
17:14ask the broker two simple questions. I
17:16recommend this highly. Is there another
17:18HS code that might apply?
17:22What it is what is it about your
17:24understanding of our product that makes
17:26you think this HS code is the most
17:28appropriate?
17:30Next slide, please. Oh, we'll stick with
17:31this slide. So, this is a very simple
17:33numerical example of the wrong HS tariff
17:36treatment. Maybe the dental floss case
17:40didn't have dental floss in it and all
17:41of a sudden 20%.
17:44Maybe there's more threads on a bolt
17:46than the invoice from the supplier said
17:51and your import got selected for a
17:54deeper dive. The first thing the
17:55government of Canada is going to ask for
17:57is a bill of materials.
18:00With that, they see the the code doesn't
18:02apply. They slap on 20% not only for the
18:05current year, but back for the prior
18:08three years. Look what it does to the
18:10bottom line on a P&L.
18:12Vast sums. You've already sold this
18:14product.
18:16The damage financially can be very
18:19severe, very severe. Another area that
18:22we see is the KUSMA form, also in the in
18:25the states known as the NAFTA form. Many
18:28times businesses use code A as an
18:32exemption or why they are allowed to use
18:34KUSMA. Rarely is this used correctly. It
18:36basically only applies to livestock.
18:40But again, if it's being used
18:42incorrectly,
18:44no, no duties are being paid on it. We
18:46advise our clients if they choose not to
18:48go and get the correct form, that's a
18:50massive risk. when it gets audited,
18:53current year plus three year back three
18:55years worth of duties and taxes would be
18:57owed. Next slide, please.
19:00>> And Greg, just a quick question on that.
19:02When you do find that you had done it
19:04incorrectly and you use the wrong HS
19:06code, what's your recommendation uh with
19:09respect to going back uh and fixing
19:12those duties?
19:13>> Sure. Absolutely. When great when new
19:15information comes to light, the best
19:17thing immediately is to advise the
19:20government of Candela is to say we have
19:22a reason to believe that there's an
19:24error. That starts the process. It gets
19:28it gets you in their good books from our
19:30experience that that you're being
19:32transparent, doing your best to be on
19:34side with CBSA rules and regulations. To
19:37us, that's always the first step.
19:38Obviously, every situation is different
19:42and checking with your broker on their
19:43guidance. I would recommend I'm not a
19:45customs broker but that's the advice
19:46that we would generally give to our
19:48clients is to write that reason to
19:50believe letter it's called
19:52>> and then on you know I think one of the
19:55main things that I'm noticing on your
19:57calculations here is that the duty
19:59impact is significant and if you don't
20:01know what it's going to be you can't
20:02really pass down those costs and you're
20:04going to be eating those margins and so
20:06it's really important to pre-plan and
20:09have a good understanding so you can
20:11push these costs down Um otherwise it's
20:14going to eat up the profit margin.
20:16>> Absolutely. And I'll I'll discuss that
20:18in a moment about financial planning and
20:21and how to consider what you know all
20:24the other things that are going to come
20:25down the pipeline in July when
20:27negotiations happen. I'll discuss that
20:29further in just a moment. Country of
20:31origin is one where we um often see
20:35errors where the government is finding
20:37major mistakes. Prime example of that,
20:40you buy goods from the United States and
20:42the supplier hand wrote on there country
20:45of origin United States and you claim
20:48zero duty. That will not pass an audit.
20:51What have you done to verify that? Many
20:54times your supplier in the United
20:55States, they bought it in brought it in
20:57from another country. The country of
20:59origin and the country of export are not
21:02the same. This is vitally important. And
21:06if you've brought that in and have for
21:07years, saying country of origin, United
21:10States, and it turned out your supplier
21:11was importing them from, say, China or
21:14somewhere else, you're as the importer
21:17into Canada ultimately on the hook. That
21:20is a massive financial risk. And we know
21:23that there's been long-term
21:25relationships with suppliers. Finding
21:27good suppliers is hard. I've been there
21:29for years. and ones that provide a good
21:32product that is reliable at a good price
21:34where there's a good relationship that's
21:36hard to find. But with the uncertainty
21:39in supply chain now, auditing that
21:42paperwork from a supplier I think has
21:44never been more important.
21:46This is a very simple numerical example,
21:50very similar idea
21:52that you have been using a koozma form
21:55to claim tariff treatment 10 which is
21:57zero. government selects your file for
22:00an audit. First thing they do when they
22:03you show them the koozma, they say,
22:04"Show us a bill of materials, you get
22:06the bill of materials, and it turns out
22:08that while yes, it was to a degree made
22:12in the United States, for example,
22:1551% of the value came from another
22:17country that had had duties on it. That
22:19does not qualify as country of origin in
22:21the United States. It does not qualify
22:23for KUSMA." So this is where again
22:26auditing the paperwork from a supplier
22:28has never been more important. Otherwise
22:30after the fact it goes right to the
22:32bottom line. It's a massive hit to cash
22:34flow. Okay.
22:37Uh next slide please.
22:40So some of the supply chain risks that
22:44we are really seeing,
22:47cargo insurance,
22:50we offer it every single time and the
22:54number of times we hear no, we're
22:56covered
22:59and you're not. Most commercial
23:03insurance policies do not cover goods in
23:05transit. They don't.
23:08Cargo insurance is extremely
23:09inexpensive,
23:11very very inexpensive. Yet the number of
23:14times that the purchaser is declining
23:16that with good intentions to save the
23:18company's money is vast.
23:22Secondly, another area of very very high
23:26financial risk is what's called
23:30uh the law of general averages. Now this
23:34is not something that happens often.
23:36It's happened once a year for the last 5
23:39years. It's I had to look it up. It's
23:41actually comes from the 15 and 1400s.
23:45And it's where a s a ship sunk or got
23:48damaged and everybody every party who
23:51has cargo on that ship has to contribute
23:56to refinancing or to the financing of a
23:59new ship. Most recently in November of
24:01last year in the port of Los Angeles, a
24:03ship caught fire. I expect this is going
24:06to happen more and more with the number
24:08of lithium batteries that are that are
24:10traveling around the world. But a ship
24:12caught fire in the Los Angeles port. The
24:16ship's owner declared the law of general
24:18averages. And with that, every single
24:22party that has cargo on that ship is put
24:24on notice that they will be or if
24:28they're smart, their insurance company
24:30will be financing
24:32the rebuild of a ship. A mediumsiz ship
24:35around 8,000 20ft containers is about
24:38$160 million.
24:41Next slide, please.
24:45Oh, it's okay. Simple math says that if
24:47you had four containers on that ship,
24:51you're going to cut a check for
24:52$100,000.
24:55It's not done on the number of
24:56containers. It's actually done on the
24:57value of the containers. But again,
25:00you're going to be writing a large check
25:02to cover the cost, your portion of the
25:04cost of rebuilding that ship. And a good
25:07all risk cargo insurance policy will
25:10cover the law of general averages. yet I
25:14see more times than not
25:17uh importers are saying no thank you to
25:19cargo insurance and and I don't
25:21understand why. So just something to
25:24keep in mind something I wanted to bring
25:26to attention to CFOs.
25:29The next slide
25:31that I think is very very important is
25:35supplier concentration.
25:39Finding a reliable overseas supplier
25:42takes time.
25:45Often these relationships are built up
25:48over many years and a codependency
25:51develops. We see that we hear about this
25:53in the news quite often these days. And
25:56this is both both a blessing and a
25:59curse. It's a blessing because you don't
26:01have to shop around. It's a curse
26:03because of the reliance that you've
26:05placed. And recently, international
26:07trade tariffs, both actual as well as
26:10threatened, make supplier concentration
26:13a real business risk.
26:18What if, I'm going to ask a number of
26:19questions here I hope people will
26:20consider. What if goods from your
26:23overseas supplier were suddenly 50% more
26:25expensive?
26:27Can you pass that cost on to your
26:29customers?
26:31Can you afford to eat the cost? because
26:33it's not a cost that you can pass on uh
26:36that your customers will will or be
26:39willing to absorb.
26:41What has the purchasing team done to
26:44protect the business against this risk?
26:46At this point in time, you need to
26:49analyze, do you have multiple suppliers
26:52in different geographical regions for
26:55each of your inputs
26:59or your product lines?
27:02very very important how much have you
27:04quantified how much reliance you have
27:06placed on one supplier
27:09as Suki and I were talking about earlier
27:12at this point in time I think it's vital
27:13have you done a model to model out what
27:15would be the impact
27:18um how much of a impact there would be
27:21should the goods from your supplier
27:23suddenly be hit by a new tariff
27:27let's think about the negotiations that
27:29are happening this summer when they
27:31renegotiate NAFTA.
27:34The president of the United States
27:36pretty much quote unquote has said we
27:38don't need NAFTA.
27:41That may be posturing. Who knows?
27:45But that's a significant risk that
27:48should be modeled out.
27:51It's very possible. And also, Greg, I
27:54think one of the other risks
27:55particularly uh for food products when
27:59um our government's been really
28:00promoting uh by Canadian, I think this
28:04is where we have you have to mitigate
28:06that risk when Canadians are looking for
28:08Canadianmade products and wanting that
28:11stamp on them. And so, absolutely, you
28:13know, so it's just not even globally uh
28:16looking outside, but in in Canada as
28:19well.
28:20>> Absolutely. Our own government has
28:21placed recently the steel derivatives
28:24tax sir tax that includes the metal
28:28frames of furniture.
28:32It's going to be farreaching. One of our
28:34clients we looked and saw if that sir
28:37tax had applied in 2025 they would have
28:39$19 million in additional sir tax that
28:43they would have to pay or somehow pass
28:45on to their customers somehow. It's it's
28:48massive. And so to ignore it, I think
28:51would be very foolish. You need to be
28:54modeling out if I bring do I have
28:57alternate supplies of the same quality
28:59or or comparable uh substitutes. If not,
29:04where can I get them? That doesn't
29:05happen overnight. Obviously, you know,
29:08we have a a customer and they were hit
29:10by double tariffs. They had tariffs on
29:12their high-end product coming in from
29:14the EU. They had tariffs coming in on a
29:17low-end product for for for from from uh
29:20Asia. And I said, "You've got to reach
29:22out to other parts of the world. Have
29:24you considered Mexico?" The individual
29:26said, "How do I do that?" And I said,
29:28"Well, you know, British Columbia has 24
29:30trade offices
29:32uh around the world." I think this is on
29:34our next slide, by the way.
29:38There we are. There not very simple.
29:42Give them a call. friend of mine. He's
29:44one of our clients. He said, "Any idea
29:46how I find building supplies in Mexico?"
29:48I said, "Here's the telephone number.
29:49Call the trade office in Mexico. This is
29:52what they're there to do. They're there
29:54to help us." And this is a time when
29:56reaching out has never been more
29:57important. And it takes time to build
30:00those relationships and to verify the
30:02quality and reliability of the product.
30:05But I think to continue to rely on the
30:08suppliers you've had uh and and assume
30:11all will be the same uh would not be
30:14wise at this time. Similar to what Mr.
30:16Carney said, Davos.
30:21Uh next slide, please.
30:24So, and you can go one more.
30:27Not going to spend a lot of time
30:30on this slide. uh you'll be getting all
30:33of these slides
30:36but what I'd really focus on is the part
30:39about internal controls
30:41segregation of duties all stuff that we
30:44studied to get our designations right
30:47when you look at point number two
30:48segregation of duties between the
30:50requesttor of a supplier and the
30:52selector
30:53very very important and why is that
30:56because supply chain starts when you
30:59just consider a new supplier
31:02You know, are they is it coming from a
31:05country that allows forced labor? CFOs
31:09have to sign off now on a report to the
31:10government of Canada have since 2024
31:13confirming that all of your products in
31:15your supply chain have not been made
31:18with forced labor. That means selecting
31:21suppliers needs to start and be involve
31:25people who whose job aka CFOs is risk
31:29assessment, risk mitigation. And it
31:30needs to start very early on and work
31:33its way through the whole supply chain
31:35and constant reviewing of it similar to
31:38auditing koozmas things that have been
31:41happening for years that another set of
31:44eyes I think is vital and using those
31:47auditing skills that we learned so many
31:49years ago. So I won't go through this
31:52whole slide. Um it will be presented
31:55when we send out the the slide deck but
31:57I encourage you to look at it.
32:00happy to take phone calls or questions
32:01about this on on um on ways to
32:04strengthen your supply chain from an
32:06internal controls perspective.
32:10Uh next slide please. So one of the
32:13things that we notice is this is that
32:18purchasers
32:20have a lot on their shoulders right now
32:24and I don't envy them. They work very
32:26hard. They have done so much good work
32:30from so many of our clients to secure
32:32product, especially when a couple of
32:34years ago during COVID when
32:38freight rates went from 3,000 a can to
32:4220,000 a can, they were still able to
32:45get product on the shelves. And
32:46obviously, you can't sell what you don't
32:48have at inventory.
32:50But being a a purchaser and being a
32:53compliance expert are two different
32:55things. Purchasers have great expertise
32:58in the area of logistics,
33:01not necessarily in the area of
33:03compliance. And for many, many
33:05businesses,
33:06they assume that one person can handle
33:09all of this. And they'll know they'll
33:12somehow be able to keep up to date with
33:14the changes that are being announced
33:16every single day, almost every single
33:17day, in sir taxes and new rules, etc.
33:22It's a lot. And I think, you know, to
33:25assume that tax that Suki is a tax
33:27expert or God forbid that I'm a tax
33:30expert would be foolish. I think at this
33:32time to assume that your purchaser is
33:35also a compliance expert. I think that's
33:38a risk. And I've provided this chart
33:41here so that CFOs can see and do some
33:44analysis on what's the best delegation
33:47of duties and and where do where is
33:49additional resources perhaps required.
33:56Next slide, please.
33:58So, are you leaving money on the table?
34:02You can go back one if you wouldn't mind
34:03for a minute.
34:05So, leaving money on the table. What
34:08does this mean?
34:10Leaving money on the table can mean you
34:13do an audit of your of your imports and
34:16you find you were paying duties you
34:18didn't need to be paying. You can get
34:20that back.
34:21That's one area.
34:24One that certainly there will be a lot
34:26of work being done is remission
34:30requests.
34:31So the government of Canada comes out
34:33and says we're going to apply a sir tax.
34:36If an importer is able to prove that
34:39they cannot source from Canada a reason
34:42a a comparable substitute, you can make
34:46a remission request to either first of
34:49all get back any duties you might have
34:51paid on those items and secondly to not
34:53have to pay them going forward. These
34:55are remission requests. We expect on the
34:58most recently announced steel
35:00derivatives that there will be lots of
35:02remission requests and so that's a
35:05second area. A third area
35:09um that we often see is have you
35:12reexported? We focus so much here on the
35:15importion and this discussion's been
35:17about the importing into Canada. So if
35:19you've paid goods, paid duty, brought it
35:22into Canada and then you've reexported
35:24it. Well, can you get the duty back?
35:26Quite often you can. But that involves
35:28keeping tracking your whole product all
35:31the way through from importing initial
35:33component parts all the way to exporting
35:35final product. And fourth, and this
35:39isn't necessarily getting money back,
35:41but leaving money on the table, is
35:45does your product, for example, coming
35:47from Mexico or the United States, does
35:49it qualify under KUSMA, and you have
35:52just haven't asked for a KOSMA
35:53certificate from your supplier and
35:55you've been paying duties you don't need
35:57to pay. That's money that you are
35:59leaving on the table. Well, you're not.
36:00You're spending it when you don't need
36:02to. That's right there. There's Canada
36:05has free trade agreements with lots of
36:07different countries. Have you taken
36:09advantage of these? And and often the
36:12the answer to that is no.
36:15Uh next slide, please.
36:18So what's next?
36:21What could come down the pipe? Fuel
36:23search charges. We saw those a couple of
36:25years ago as we have unsettlements
36:29throughout the world. We know what that
36:30does to oil prices. They only go one one
36:32way.
36:34We still see uh logistics companies
36:37sometimes charging
36:39um peak period sir charges when we're
36:41trying to find where that peak period is
36:43to be frank. Um you know port strikes,
36:48additional reporting. I mentioned the
36:50reporting requirement for uh forced
36:53labor. Canada also now has reporting
36:56requirements on plastics.
36:59Very ownorous. Those are all reporting
37:01requirements. Failure to do so means
37:03penalties.
37:05Importing used to be straightforward. It
37:07is no longer. The business risks to me
37:10are too great to be left as they have
37:12been often in the hands of one or a very
37:15select few number of staff members.
37:18Supply chain risk begins the moment a
37:20supplier is selected. What process
37:23controls are in place along the way?
37:27And finally, next slide, please.
37:31The key takeaway, supply chain risk is
37:34greater than ever
37:36to me. CFOs are trained to identify and
37:39mitigate risks.
37:41Work with your purchaser and your
37:42customs broker to audit all steps of the
37:45supply chain. And most importantly, and
37:47I'd like to revert back to one of my
37:49first slides, don't wait till the goods
37:51are at the border to call the broker. It
37:53needs to be a partnership. It needs to
37:56have CFOs, purchasers, any other
37:59individuals in a company involved in
38:01logistics and your broker. Get the bill
38:04of lighting. Get excuse me, the bill of
38:06material. Audit it. Make sure the the
38:10broker's understanding of that those
38:12goods is exactly how the importer views
38:15those goods. Often there's a lot in the
38:17gray there. It needs to be a partnership
38:19perhaps more than it has been in the
38:21past.
38:23And any questions
38:27>> right now? I don't see anything in the
38:29question Q&A, but we'll give it a few
38:31minutes. But, you know, hey, I learned a
38:34lot from this, Greg. And I think um this
38:37just highlights the risks um that
38:39companies face um as they're going
38:42through this process. And I I do think
38:45there's a lot of opportunity to make
38:48sure that you're not exposing yourself
38:51um with these risks. Um and so things
38:54like the assessment of controls uh
38:56reviewing your supply chain which you
38:58know that there was a lot of discussion
39:00about that when the tariffs came out
39:02saying hey take a look at your supply
39:04chain and you know it's a big exercise
39:07but a good exercise to do. Um and I it's
39:11something that should be re reiterated
39:13of and doing it constantly because
39:15things are changing quickly. um you know
39:19with respect to the duties of the
39:21purchaser um I I I think that's a great
39:24slide and something that CFOs should
39:26refer back to and saying hey you know do
39:29you have too much on their plates and
39:31are we protecting ourselves because you
39:32could spread someone so thin that you're
39:34missing a bunch of opportunities and
39:37missing you know you know if you have
39:39the HS code long or you know they don't
39:42have the right documentation there's
39:43just too much exposure there
39:45>> there's just tremendous exposure And to
39:47be frank, you know, the it's a it's not
39:50an area you've, you know, if purchasers
39:52have have done a great job and have
39:54built up those great supply networks for
39:57so long, it's worked just fine.
40:00It's worked just fine. Goods have got on
40:02the shelves. But is it going to continue
40:07or is all of a sudden a 20% search tax
40:10going to be hit on that? The risk to a
40:12business is so high. Sometimes you can
40:15pass it on, sometimes you can't. We have
40:17some customers that have gone to their
40:20their customers and negotiated how
40:22they're going to handle that increase
40:23and they've split the difference or or
40:25come to an agreement. But to ignore it,
40:28I think is a very large business risk
40:31that would be that would be foolish to
40:33ignore.
40:35>> And again, there's also here where
40:36we're, you know, risk avoidance also um
40:40has a flip side to it, which is
40:41opportunity.
40:43>> Yeah.
40:44Right.
40:48>> So, I don't see any questions. Um,
40:52you know, we're happy, you know, and
40:54Greg has uh his emails in the
40:56presentation. So, if you have any
40:57questions and want to get uh in contact
41:00with Greg, go ahead. And um you know,
41:03Aaliyah and I from Smite, our contacts
41:05are available as well. And we're happy
41:07to take any questions and help out from
41:09a audit assurance side. um along with um
41:13the tax side, but even if you need help
41:16with cash flow modeling, we're happy to
41:18help you with that or reviewing internal
41:20controls as well um as you're going
41:22through those engagements.
41:26>> Great.
41:27>> Okay, thank you so much.
41:29>> Thank you.
41:29>> I really Yeah, really appreciate uh you
41:32attending the webinar today.

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