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02 August 2018 US proposes new customs drawback regulations for public consultation On 2 August 2018, US Customs and Border Protection (CBP) issued a Notice of Proposed Rulemaking (the NPR) proposing new customs drawback regulations. The NPR reflects a complete re-writing of existing customs drawback regulations in order to implement the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA). While TFTEA generally expands drawback rights, the NPR itself raises concerns for importers and exporters which may warrant submitting comments by 17 September 2018. Drawback is a mechanism to recover duty, taxes and fees paid with respect to imported merchandise when the imported merchandise (or its substitute) or a product manufactured with the imported merchandise (or its substitute) is subsequently exported. Customs drawback of excise taxes that are imposed under Federal law upon customs entry or importation has been allowed by statute for some types of drawback since 2004, and TFTEA made recovery of excise taxes imposed at import uniformly available for all types of drawback. Nevertheless, the NPR proposes restrictions on excise tax recovery for "substitution drawback," in which a domestic product is exported and a claim for drawback is made on an imported product (e.g., the export is "substituted" for the import). The NPR proposes to limit excise substitution drawback to the amount of taxes paid (and not returned by refund, credit or drawback) on the substituted merchandise. Exported products are generally exempted from relevant excise taxes, so this requirement effectively eliminates excise recovery for substitution drawback in most cases. While the NPR proposes this restriction for all manufacturing excise taxes contained in Internal Revenue Code Chapter 32, environmental taxes contained in Chapter 38, alcohol excise taxes in Chapter 51 and tobacco excise taxes in Chapter 52, significantly impacted businesses are importers and exporters of alcoholic beverages, tobacco, and petroleum products. The NPR requires substitution drawback claims to be based on the per-unit average value of all imports reported on a single line of a customs entry (effectively goods which share a customs classification). However, direct identification claims must be made on the value of the specific import. The NPR proposes restricting the use of a single entry line to only one type of claim, based on the first drawback claim filed with respect to the line item. This restricts benefits for businesses that export to Canada and Mexico, where the North American Free Trade Agreement limits drawback to direct identification, and to other countries, where no such restrictions apply and the business wishes to use substitution drawback. TFTEA replaces historic documentation requirements on transfer of drawback rights with a requirement that transfers may be evidenced by documents maintained in the ordinary course of business. The NPR sets forth specific content that must be included in documentation, which many businesses would not ordinarily keep. In addition, the NPR makes clear that export data and business records must be created and retained until such time that the Government makes necessary changes to its electronic export filing system. Importers should know that under the NPR they will now be jointly and severally liable for related drawback claims filed by exporters, potentially necessitating re-examination of risks and contractual protections between parties. Manufacturers are required to have rulings to effectuate drawback, and most drawback claimants have privileges allowing waiver of prior notice of export and accelerated payment. No manufacturing rulings will carry-over to periods after 23 February 2019. New ruling requests must be submitted. Privileges previously granted may be carried over under specific circumstances. Existing privilege holders will want to carefully review these provisions. The entire NPR is over 400 pages, and any current or prospective drawback beneficiary will want to carefully review the proposal for potential impact on the specific business. In addition to understanding what requirements may be, companies impacted by the NPR will, in many cases, want to consider filing comments by the 17 September deadline.
Document ID: 2018-5930 |
