Customs Duty Drawback

Duty Drawback

When imported goods subject to duties, taxes and fees, are either exported or destroyed, then the duty drawback statutes can sometimes allow for the refund of such monies to a valid claimant.

Specifically, section 313 of the Tariff Act of 1930, as amended (19 U.S.C. 1313), authorizes U.S. Customs and Border Protection (CBP) to refund duties, taxes, and fees under certain circumstances. This can include a refunds of internal revenue tax paid on domestic alcohol, as prescribed in 19 U.S.C. 1313(d)). This can also include refunds of other types of tariffs, such as for example section 301 duties imposed on products from China.

Drawback Modernization

In 2015, changes to the drawback regulations were passed under the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA). The TFTEA liberalized the merchandise substitution standard, simplified the recordkeeping requirements, extended and standardized timelines for claims, and mandated the electronic filing of claims.

After some delay, Customs final regulations under the new drawback statutes were published in a final rule effective as of December 17, 2018. 

Pending excise tax issues

These regulations prohibited the filing of substitution drawback claims against internal revenue excise taxes (where no excise tax was paid upon the substituted merchandise or where the substituted merchandise is the subject of a different claim for refund or drawback of tax). That issue is currently under litigation.

Impacted companies should consider positive actions that preserve their right to such drawback refunds prior to the expiry of claim and protests deadlines.

Liabilities for Drawback Claims (Penalties and Litigation)

Drawback claims are a legal privilege, not a right, and are therefore subject to strict compliance with regulations administered by CBP.  See, e.g., 19 U.S.C. 1313(l).

Drawback claims frequently filed in a manner that provides for monetary payments prior to the ultimate review and validation of the claims. If such a claim is disallowed, CBP often takes additional penalty action against the claimant for negligence, gross negligence or fraud in the preparation and submission of those refund claims.

Additionally, the filing of a false drawback claims can constitute a violation under the False Claims Act, and therefore a company might be subject to costly claims given a litigation complaint filed by a qui tam relator (i.e., whistleblower).

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