customs and foreign trade | duty drawback

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Duty Drawback Understanding changes on the horizon

Duty Drawback: Understanding changes on the horizon

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Agenda

Background

Drawback

– Direct Manufacturing

– Substitution Drawback

– Rejected Merchandise

– Internal Revenue Taxes

– Construction and Repairs

– Substitution of Finished Petroleum Derivatives

– Second-Party Drawback

– Ace and Data Collection

Updates on Drawback

Foreign Trade Zones


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Background

Duty Drawback is as old as America.

Billions of dollars have been refunded over the past two centuries.

At its heart, drawback is about saving jobs and promoting both exports and the use of domestic producers of raw materials.

The failure of the import community to embrace this program is puzzling.


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Drawback

The United States Customs and Border Protection Agency (CBP) collects approximately $32 billion annually of customs duty paid on imported goods entering the United States of America.

In addition to ordinary duties, CBP may also collect ad valorem Merchandise Processing Fees (MPF), Harbor Maintenance Fees (HMF), and Anti-dumping(AD)/Countervailing Duties (CVD) as well as certain Internal Revenue Taxes (IRT) that attach upon importation.


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Drawback

Certain of these customs duties, taxes and fees are subject to refund upon export or destruction through use of the CBP duty drawback program.

According to industry estimates and through discussions with industry personnel, roughly $2-3 billion of customs duty, taxes and fees eligible for customs drawback goes unclaimed annually.


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Drawback

Other IRT excise taxes paid or payable on imports after entry are also eligible for export-related refunds or credits that may go unclaimed.

Dollars are being left on the table due to a general lack of indirect tax planning by importers and exporters.


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Drawback

What is most peculiar about this statistic is that of all the costs involved with global trade and transportation, duty drawback is the most straightforward to recover.

Customs estimates that anywhere from $2-3 billion dollars a year of possible drawback goes unclaimed.


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Direct Manufacturing

Essentially, if a client imports raw materials or components and pays a duty on them, manufactures a product, or assembles these components and then exports the goods, we can make a claim for drawback on the duties paid when the raw materials or components were imported.


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Direct Manufacturing

We may claim any duties paid up to three years from the date of the file and expect a 99% refund plus interest.

The look back on drawback claims is 36 months.


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Substitution Drawback

If both imported merchandise and any other merchandise of the same kind and quality are used to manufacture articles, some of which are exported or destroyed before use, then drawback not exceeding 99% of the duty which was paid on the imported merchandise may be payable on the exported or destroyed articles.


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It is immaterial whether the actual imported merchandise or the domestic merchandise of the same kind and quality was used in the exported or destroyed articles.

This provision makes it possible for firms to obtain drawback without the expense of maintaining separate inventories for dutiable and other merchandise.


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These substitution claims are often difficult as they are based on the ability to show both the imported and domestically procured materials were “fungible.”


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Rejected Merchandise

If merchandise is exported or destroyed because it does not conform to samples or specifications, or has been shipped without the consent of the consignee, or has been determined to be defective as of the time of importation, then 99% of the duties which were paid on the merchandise may be recovered as drawback.


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Internal Revenue Taxes

For certain products manufactured with the use of domestic alcohol and exported, a drawback of the Internal Revenue taxes paid on the domestic alcohol may be obtained from CBP.

The “upside” on this opportunity is fascinating.


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Construction and Repairs

If imported materials are used to construct and equip vessels built for foreign account and ownership, 99% of the duties paid on the materials may be recovered as drawback, even though the vessels are not, in the strict meaning of the word, exported.


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Construction and Repairs

If imported merchandise is used in the United States to repair jet aircraft engines originally manufactured abroad, the duties paid on the imported merchandise may be recovered as drawback, in amounts not less than $100, when the engines are exported.


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Substitution of Finished Petroleum Derivatives

If exported articles meet the very difficult definition of a “qualified article” [Title 19 of the Code of Federal Regulations (CFR) at 191.172(a)], or are of the same kind and quality as qualified articles, then 99% of the designated duties paid or attributable to the eligible articles may be recovered as drawback.


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Second-Party Drawback

At its heart, duty drawback is a forensic exercise looking deep into the production activities of a company. An often overlooked area of opportunity is the refunding of duties paid by the original importer and passed along to the eventual exporter.


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If you were to import raw materials and pay a duty on them, then sell them to an exporter, the exporter may file a claim for the original importer’s duty.

This claim will require the original importer’s documentation for submission. Because of the complexity of these claims, they are rarely pursued.


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This is an opportunity for you as a domestic sales entity as well.

If you know that you are selling the goods to someone who will eventually export them – try and broker a deal upfront where you share in the exporter’s recovery via your import documentation.

Use your own drawback firm for the transaction.


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Ace and Data Collection

In the new arena of drawback, an ACE account is essential.

There is simply no faster way to identify imports and exports of materials, uncover possible universes of opportunity, and link drawback claims to transactions.

The issue of identifying the sku remains the golden key.


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Updates on Drawback

Imported goods of one eight-digit HTSUS subheading would be permitted to qualify for duty drawback when goods of the same subheading are exported.

The time frames for filing drawback would be standardized, and the claimant recordkeeping requirements would be modernized.

The bill would remove the requirement to file a certificate of delivery to evidence the transfer of merchandise, which could instead be accomplished by maintaining records kept in the normal course of business.


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Updates on Drawback

The importer and the party claiming drawback would be jointly and severally liable for the full amount of the drawback claim made.

Drawback claims would have to be filed electronically and no later than five years after the date on which the merchandise is imported or, if the claim is based on merchandise imported on more than one date, the earliest date.


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Foreign Trade Zones

If you find you are continually engaged on significant levels of drawback, it may be time to consider the benefits of a foreign trade zone (FTZ).

Beyond the duty avoidance, FTZs offer tax deferments and avoidance as well as significant reductions in transactions fees.


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Contact Information

Pete Mento

Principal, Customs and Foreign Trade

[email protected]

781.359.3800

Ray Shaw Principal, Customs and Foreign Trade

[email protected]

972.934.0022

Stacy Hallon

Manager, Customs and Foreign Trade

[email protected]

972.934.0022

Patrick Crowley Manager, Customs and Foreign Trade

[email protected]

401.272.3363

mailto:[email protected]




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This document is presented by Ryan, LLC for general informational purposes only, and is not intended as specific or personalized recommendations or advice. The application and effect of certain laws can vary significantly based on specific facts, and professional advice of any nature should be sought

only from appropriate professional advisors. This document is not intended, and shall not be deemed, to constitute legal, accounting or other professional advice.

customs and foreign trade | duty drawback

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