Why Your Company Might Need to Recalculate Drawback Claims

The new ruling: entry summary line level calculations

The key takeaway from CBP's ruling is this: Merchandise Processing Fees must be calculated and apportioned at the entry summary line level for all drawback claims, regardless of whether they're direct identification or substitution claims. This might sound like a minor technicality, but it could have financial implications for companies that have been calculating their drawback claims differently.

Understanding the impact: a hypothetical scenario

Let's consider a hypothetical scenario to understand the impact of the new regulation:

Imagine a company, TechImport Inc., that imports various electronic components. They have been calculating their MPF (Merchandise Processing Fee) drawback for direct identification claims based on the invoice line level. Let's take a look at one of their import entry lines and see how the eligible drawback differs before and after the regulation change.

Suppose that the total value of the entry line is $100,000, and the MPF paid of the entry line is $485. There are two invoice lines in the entry line:

• Invoice line 1 (processors): 100 units, value of goods is $80,000
• Invoice line 2 (memory chips): 40 units, value of goods is $20,000

Before the new ruling: invoice line level calculation (incorrect)

When filing for a drawback on the processors, TechImport Inc. calculated the MPF eligible for drawback by proportioning it based on the invoice goods value:

($80,000 / $100,000) * $485 = $388

After the new ruling: entry summary line level calculation (correct)

With the new ruling, the MPF eligible for drawback should be proportioned by quantity:

(100 / (100 + 40)) * $485 = $346.42

In this simple example, the MPF eligible for drawback is different. Real-world scenarios are often more complex, with multiple entry summary lines and invoice lines (part numbers), which could lead to larger discrepancies.

The impact: why companies need to recalculate

1. Potential over or under refunds: Companies that have been calculating at the invoice line level for direct identification claims might have inadvertently claimed more MPF drawback than they were entitled to, especially in cases with multiple entry summary lines and varying MPF caps.
2. Compliance: Companies that don't adjust their calculations to align with this ruling risk non-compliance, which could lead to penalties or delayed refunds.
3. Historical Claims: While the ruling doesn't explicitly mention retroactive application, prudent companies might want to review past claims to ensure compliance and potentially file corrections if necessary.

Next steps for importers and exporters

1. Review Current Practices: Assess how your company has been calculating MPF drawback, particularly for direct identification claims.
2. Update Systems: Ensure that your drawback calculation systems or processes are updated to apportion MPFs at the entry summary line level for all claim types.
3. Train Staff: Educate your trade compliance team on the new ruling and its implications.
4. Audit Past Claims: Consider reviewing recent drawback claims to identify any potential discrepancies.
5. Consult Experts: If you're unsure about the impact on your specific situation, consider consulting with a drawback specialist.

Simplify your recalculations with Pax AI

Recalculating your drawback claims in light of this new ruling might seem daunting, but there's good news. Pax AI can help you recalculate your claims in just a few clicks, saving you time and ensuring accuracy. For a free consultation on this matter and to learn how Pax AI can streamline your drawback claim process, please contact founders@paxai.com.