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Explainer: What is the difference between a refund and a drawback?

Posted by Customs Consulting Department on May 12, 2021 8:45:00 AM

 

Drawbacks and duty deferral

Canada

In Canada, duty deferral is a CBSA program offering relief to Canadian businesses from payment of duties on imported goods that meet certain criteria. Duty deferral comprises of three options, one of those options is the Duty Drawback Program.

Duty Drawback is an incentive program for Canadian manufacturers who produce goods for export purposes using imported components. Goods that have been imported then subsequently exported may qualify for Duty Drawback when the imported goods are:Logistics_Technology_69800193_s

  1. Exported in the same condition in which they were imported
  2. Further processed then exported
  3. Placed on display or demonstrated
  4. Used for development or production then exported
  5. Surplus or obsolete goods disposed of in Canada

Read more about CBSA’s duty deferral program here.

Refer to the D memoranda on duty deferral programs from CBSA.

USA

In the U.S., a drawback is the refund of certain duties, internal revenue taxes, and certain fees. This money is collected when the goods are imported and refunded when the merchandise is exported or destroyed. A drawback entry for CBP is known as Entry Type 47.

Read more about CBP Drawbacks here.

Drawbacks under CUSMA/USMCA

There are no changes to existing drawback conditions or processes under the new trade agreement between Canada, the USA, and Mexico (CUSMA/USMCA). The lesser of two duties rule is still there and explained in Article 2.5: Drawback and Duty Deferral Programs of the Agreement

USA: Read more about drawback and duty deferral program under USMCA here.

Canada: Refer to memorandum D7-4-3 from CBSA here. (Please note, NAFTA is still referred to in this document. CBSA should be changing the language to reflect CUSMA shortly.)

Refunds

Refunds are a result of an overpayment of duty for various reasons. 

One example is not taking advantage of a Free Trade Agreement (FTA) at the time of final accounting to Customs. If a valid FTA certificate is obtained after accounting the goods to Customs, a refund can take place to recover any duties paid on goods in which you now have a valid FTA certificate.

Another example where a refund may be appropriate is should you find that your goods were not within quality standards or your goods were short shipped, your vendor might issue a credit to you to correct these situations. This credit invoice would result in the value of your goods being lowered, and therefore a duty refund would be in order.

Also, if you divert your goods to a duty-free end-use, then a refund is possible with the proper end-use certificates.

CBP offers the opportunity to received refunds via direct deposit if you sign up for their ACH programRefunds from CBSA must be requested using the B2 Customs adjustment request.

Think you may be eligible for either a refund or a drawback? Reach out to our Customs team today. We’re ready to help.

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