Tax & Accounting Blog

The Challenge of Linking Internal Company Import Records to Customs Declarations

ONESOURCE April 28, 2015

Let’s face it, people make mistakes.  Or maybe more appropriately, “stuff happens”.  Not only do things go wrong (both human and software programming errors) forcing a company to try and figure out how their internal records match what was declared to the government, but a decision by Customs itself (changing its mind on a classification) can force a research effort that can be onerous depending on the tools or processes in place.  That is why as part of their normal import processes, importers should seek to build data sets that create the ties between their product records and import declaration line items.

Assuming a company has some type of ERP (Enterprise Resource Planning) software that contains import purchases, those electronic records are likely broken down by an internal product ID or SKU (stock keeping unit).  Import declarations made to CBP, however, are rolled up (typically by the Customs Broker) by tariff number and country of origin.

Unless a company has one product ID only per harmonized tariff number per country of origin (unlikely), or asks its broker to enter separate declaration line items for each product ID and provide an electronic data file back (probably for a charge), the difficult task of figuring out how to accurately amend an import declaration can lead to:

  • Ignoring the problem or opportunity because it is too difficult to figure out.
  • Hiring temp workers or tying up already strapped internal resources to try and manually make the correlation.

As an example of an internal problem, consider the situation where a Procurement department gives the OK to a supplier (possibly a related party) to substitute part numbers on an emergency basis in order to meet customer commitments.  What if the substituted product was different enough to where it required a different tariff number, but the substitution was not discovered by the trade compliance team until the end of an accounting period?

Alternatively, the internal problem may cause a valuation issue.  Imagine the discovery of dutiable assists that are related to multiple product ID’s but not related to all products from a particular supplier. Imagine the issue not being uncovered for a year or more.

What about companies that are free from internal mistakes (do not laugh) and never need to verify what has been declared to CBP?  There could be a need based on a CBP decision and through no fault of the importer.

Take for instance the recent General Notice in the Customs Bulletin dated April 8, 2015, where CBP proposes to revoke a classification ruling for a “LumiKNIFE™ hobby knife set with LED light” which was originally issued in August of 2006.  Without getting into the details, the gist of the matter is that the hobby knife has an interchangeable blade and cannot be considered, therefore, to having a “fixed blade”.  In this case, the change in duty rate is actually favorable to the importer.  It goes from being a compound rate of 4¢ each plus 6.1% of value to 3¢ each plus 5.4% of value.

We do not know what kind of import volume there has been for this product, but if an importer wanted to file a protest for unliquidated or recently liquidated entries in order to seek a duty refund, they would have to be able to prove that the tariff numbers on the entry summaries tie back to the product ID’s for the LumiKNIFE.  Depending on the import systems and processes of an importer, this task can be significant if not overwhelming.

Here are some options to consider:

  • If the IT resources are available and a company is comfortable doing the “rollup” that a broker normally does when building tariff number line items from an invoice, the importer can perform the rollup themselves, save a before and after rollup copy of the data before sending it to the broker, and associate both copies with the CBP entry number received back from the broker.  This could also reduce broker fees as an added benefit depending on the relationship.
  • As mentioned above, an importer can mandate that their broker submit 7501 line items by product ID and send data files representing the 7501 line items back the importer with the product ID as part of the record.  This could increase broker fees depending on the relationship.
  • A highly integrated GTM (Global Trade Management) system can help tremendously, but it depends on the Trade Compliance function being considered a vital part of the supply chain within the company and included in major ERP projects.

The overall point is that companies and their Trade Compliance teams should not settle for systems that leave them at a disadvantage when trying to prove to the government the connection between their internal records of import transactions and the legally binding declarations made on the company’s behalf.

To learn more about import or export, visit our ONESOURCE Global Trade page