Case study: an in-depth audit review pays off

When a major oil and gas production company found itself being subject to a Canada Border Services Agency (CBSA) audit, they called Cole International’s Audit Response Unit (ARU) right away.

Incorrect codes lead to increased duty

The overall problem, as the audit revealed, was that incorrect Harmonized System (HS) codes had been applied to the downhole components (parts used to facilitate the production of oil and gas) by their previous customs broker. The codes were an area of interest to the CBSA—one that could potentially come with an extensive duty to our client. As a result of the audit, the CBSA issued an undesirable decision regarding HS classification and our customer was going to be subject to duties on additional goods in the future.

ARU to the rescue

Once alerted to the issue by our client, our ARU team immediately got to work. One of our audit specialists focused on gathering all the relevant facts required to support the case, ensuring a streamlined submission process. All requested transactions were procured and provided to the CBSA, along with descriptive literature. From here, the CBSA issued a final verification report.

Not thrilled with the final verification report, our ARU specialist was able to negotiate a re-opening of the verification report – something that is not standard practice for the CBSA. Our team requested that the CBSA accept new arguments regarding the determined HS classification for our client’s goods. We also requested that any collection of additional duty be delayed until all arguments had been considered.

The process of helping our client in this case consisted of doing a comprehensive review of approximately 86 high-value import transactions. During the review, approximately 28 transactions for potential recovery of customs duties were also identified. At the end of the review process, in our opinion, the HS determination by the CBSA was incorrect. Our ARU prepared a detailed rebuttal to the verification report, submitting nearly 40 adjustments to correct import transactions and correct the HS determination in question.

Upon further review, the CBSA agreed with our rebuttal and reversed their original decision. They issued a second verification report reverting back to the original HS classification and eliminating the additional duties.

Not yet fully satisfied, one of Cole International’s ARU specialists knew there were still opportunities to be found for our client by doing a thorough review of past, present and current customs legislation. We performed this review and as expected, identified new opportunities for our client. We presented additional arguments regarding the original HS classification. The investigation even revealed an unprecedented opportunity for the use of a third—and previously undetermined—classification.

Armed with these new findings, our ARU specialist presented arguments against the decision made by the CBSA and a rebuttal to the second verification report was filed, arguing for the use of the newly identified HS classification. After this, the CBSA issued their third and final report agreeing to all arguments presented.

An unprecedented decision

Ultimately, the CBSA decision was overturned in favour of re-classifying the downhole components with a new and different HS. Our customer was delighted with the result, as they were able to both recover the customs duty paid out and prevent incurring any additional customs duties in the future.

Beyond these results, our client’s import profile with the CBSA was also positively influenced, resulting in lower levels of audit and enforcement, and increased cooperation between the CBSA and our client—something that will significantly enhance their import process.

Keep us on speed-dial

Our dedicated Audit Response Unit is staffed by professionals who keep current on verification trends and have decades of experience managing customs verifications. They understand the potential risks and costs to a business facing an audit—and work with you to both avoid being audited and to respond effectively if an audit does happen. Connect with us today to learn more.