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Duty Recovery: Don't Leave Money on the Table

|Nov 28|magazine14 min read

Written by Marc Roy – VP, Global Business & Solution Development, eCustoms

 

The phrase “Don’t leave money on the table” first originated from the game of poker. The impression was that if you held a winning poker hand and folded cards due to another player’s bluff, you “left money on the table” because you could have won the pot. Nowadays, the phrase has taken on additional meaning, especially in the world of business. Currently, other meanings include “not taking the utmost advantage of something,” or “not addressing every aspect of a situation.” While many companies are prideful of their business practices and bottom line, they often don’t realize that they too are leaving money on the table when it comes to their import practices, more specifically, the amount of duty they pay to Customs.

Duty in Canada

There are companies importing products into Canada that overpay duty or pay the wrong duty to the Canada Border Services Agency (CBSA) amount without realizing this.  The rate of duty paid is directly calculated by the Harmonized Commodity Description and Coding System (HS) Code. The HS is built upon a six digit product code, and was developed and is maintained by the World Customs Organization, an independent intergovernmental organization that includes over 160 countries as members. Canada employs a ten digit code that adds onto the first six digits to show more detail, as specified in the Canada Customs Tariff.

What many corporations don’t realize is that the most obvious code they have chosen may not always be the best or correct one.  There are ways to interpret the tariff system that can provide HS Codes that not only result in lower duty charges, but sometimes end with no duty charges at all.  Considering the HS consists of approximately 10,000 classification numbers, it’s no wonder that many importers don’t realize the opportunity they are missing out on. The easiest solution for companies that are unsure about their classifications is to hire an expert in Duty Recovery to assist them in reviewing their HS codes. In addition to recovering past duty, they can also assist in ensuring compliance with Customs by identifying compliance issues and recommending solutions.

The CBSA allows companies four years from the time of importation to reclassify a commodity. Should a successful case be made to the CBSA via rulings or appeals, the difference in duty rate between the original classification and the revised HS Code can be refunded to the importer. So not only can a company recover recent funds, but they are also able to recover four years’ worth of “money on the table.” That means that in addition to saving in the future, four years’ worth of recovered funds could equal a tidy lump sum.

Don’t Be Afraid

A common objection to compliance projects is the thought that there isn’t enough in the budget to address the issue, or that they will wait for an audit before taking steps. Without even realizing the potential cost savings, managers are dismissing the idea of compliance for fear that they do not have the resources to address it. What they may not know is that the CBSA targets hundreds of companies a year for multi-program audits to assess overall compliance. The government often uses monetary penalties to enforce compliance laws. So in lieu of recovering duty and adding to their bottom line, some companies face fines and penalties for not keeping a good profile with the government.

The truth is that many businesses feel overwhelmed when they learn about the existence of Duty Recovery. They may realize the potential cost savings, but often don’t know where to start, or how to navigate the complex waters of the CBSA. Even worse, some employees feel that bringing the concept of Duty Recovery to light in their company, may shine an unfavourable glow in their direction for missing the opportunity in the first place. Ultimately what these employees need to understand is that the recognition for finding cost savings and improvement of the bottom line will far outweigh any ‘what if’ scenarios. Given the tough economic climate we are currently facing, it’s important now more than ever, to reduce expenses and to protect jobs.

Getting Your Money off the Table

The math involved is relatively simple and straight forward. Recovering duty and paying less duty in the future, increases margins. Increased margins demonstrate a more profitable company that is a better competitor in the market. Therefore, Duty Recovery is advisable for companies that wish to increase margins and profitability.  Unlike the poker player getting bluffed into leaving money on the table, there are easy solutions for companies looking to win the pot. So what’s the first step on the road to a better bottom line?  As previously mentioned, unless the company has the benefit of a Duty Recovery expert on staff, the easiest solution is to hire a Duty Recovery specialist to walk them through it. Recovery specialists can analyze and review import transaction records to discover a variety of opportunities ranging from lower duty costs and misclassified items to oversights from keying slips.

Compliance and Recovery champions should look for a Duty Recovery Specialist that doesn’t charge an upfront fee for the service. There are Recovery Specialists that work on a contingency basis, so that importers only have to pay if refunds are discovered. Ensuring that Duty Recovery is a self-funding project is the best example of “not leaving any money on the table,” and that’s something you can bet on.

MSR eCustoms has been delivering automated and integrated international trade solutions for over 30 years, with a focus on export regulations, customs compliance, tariff management and import/export documentation. MSR eCustoms offers brokerage services and other customs consulting services, including support for managing domestic and international customs processes. For companies who want to maintain their competitive edge, the smart choice is to integrate MSR eCustoms' suite of trade applications, including web-based solutions, into their existing IT infrastructure.