tax perspectives for exporters indirect taxation and duty drawback - kay biscopink, elliott davis...

© 2012 Elliott Davis, PLLC © 2012 Elliott Davis, LLC

Going Global: Partnering for International Growth

“Tax Perspectives for Exporters: Indirect Taxation and Duty Drawback”

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Export Ready

Kay Biscopink Shareholder International Tax Chair January 25, 2012

© 2012 Elliott Davis, PLLC © 2012 Elliott Davis, LLC 2

This material was used by Elliott Davis during an oral presentation; it is not

a complete record of the discussion. This presentation is for informational

purposes and does not contain or convey specific advice. It should not be

used or relied upon in regard to any particular situation or circumstances

without first consulting the appropriate advisor. No part of the presentation

may be circulated, quoted, or reproduced for distribution without prior

written approval from Elliott Davis.


Indirect Taxes

• Indirect taxation includes customs duties, value added taxes, sales tax, etc. Duty drawbacks and free trade zones are techniques to minimize indirect taxation and maximize cash flow.

• Regular Duties, internal revenue taxes paid upon import and fees (merchandise processing fees and harbor maintenance) are all drawback eligible

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Indirect Taxes

• How your product is warehoused locally, and where the title is passed has a significant impact on cash flow and foreign tax credit utilization

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Drawback is a refund of monies – customs duties, certain internal revenue taxes and other fees collected at importation

To be paid the imported merchandise must be exported or destroyed under Customs and Border Protection (CBP) supervision after importation.

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Duty Drawback


Three Primary Types of Drawback

• Manufacturing Drawback

• Unused-Merchandise Drawback

• Rejected-Merchandise Drawback

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Duty Drawback


Imported Merchandise designated for use in Manufacturing

• Exported or Destroyed

• Manufactured within Three Years of Receipt

• Exported or Destroyed within Five Years of Importation

• Available on Commercially Interchangeable Merchandise

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Manufacturing Drawback


Example:

US Manufacturer imports prunes and uses them to produce prune juice, which is subsequently exported. Upon export of the juice the US exporter receives a refund of the 14% duty associated with the prunes used to make the juice.

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Manufacturing Drawback


Unused –Merchandise Drawback

• Imported Merchandise

• Exported or Destroyed without Undergoing any Manufacturing

• Never used in the US

• Exported within Three Years of Importation

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Unused-Merchandise Drawback


Example:

European Sunglass Manufacturer imports frames to a US distribution center. The center ships within the US and to Canada and Mexico. Upon export the US importer can request a drawback refund of the regular duty and any other fees (merchandise processing and harbor maintenance fees) incurred upon the initial importation.

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Unused-Merchandise Drawback


• Does not Conform to Sample or Specifications

• Shipped without the Consignee’s Consent

• Defective at Time of Importation

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Rejected-Merchandise Drawback


• Drawback is a Function of Matching Exports to Corresponding Imports

• A Company Can Match Exports and Imports of Like Materials

• Substitution

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Substitution


• Refund of 99% of Customs Duties

• Accelerated Payment (30 to 45 days) Available

• Period of Three Years From the Date of Export to File Claim

• Multiple Party Drawbacks (Exporter has first right)

• Consolidated Filings

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Drawback Benefits


Foreign-Trade Zones are secure areas legally outside the customs territory of the US

Purpose: To attract and promote international trade and commerce

Subzones are special-purpose facilities for companies that cannot operate effectively at public zone sites

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Foreign-Trade Zones


Foreign-Trade Zone

• Zones are usually located in or near CBP ports of entry

• CBP is responsible for activitating foreign-trade zones, controlling dutiable merchandise moving in and out, protecting and collecting revenue and other administration.

• Foreign or domestic merchandise may enter these areas without a formal customs entry or the payment of customs duties or government excise taxes and without a thorough examination.

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• Merchandise lawfully brought into the zones may be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, tested, repaired, sampled, salvaged, relabeled, destroyed, processed, graded, cleaned, mixed with foreign or domestic merchandise or otherwise manipulated or manufactured

• Savings in shipping charges, duty and taxes may result from such operations as shipping unassembled or disassembled furniture, machinery, etc. to the zone and assembling or reassembling it there.

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Permissible Activities Within the Zone


• Generally, merchandise is exempt from payment of duty even if it is: – Manipulated

– Used in a manufacturing process

– Inspected

– Combined with other domestic or foreign materials

– Displayed for sale

– Re-exported

– Spoiled or damaged goods or waste materials may be disposed of or re-exported without payment of duty.

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Foreign Trade Zones


Foreign – Trade Zones

• If the final product is exported from the United States, no custom duty is levied. If the final product is imported into the U.S., duty and excise taxes are due at the time of transfer from the foreign trade zone and formal entry is made into the U.S. Duty is paid on the product itself or its imported parts, whichever is lower

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Foreign Trade Zones

Businesses save on personal property and sales and use taxes since

state and local governments generally do not impose such taxes on items in

the FTZ. Additional savings on interest, labor and shipping costs may

also result.


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Source : Thrive in North Carolina http://thrivenc.com/incentives/financial/other-cost-saving-programs/foreign-trade-zones

Foreign-Trade Zones in North Carolina

http://thrivenc.com/incentives/financial/other-cost-saving-programs/foreign-trade-zones












Going Global: Partnering for International Growth

Export Ready

Questions?

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Kay Biscopink Shareholder International Tax Chair January 25, 2012 [email protected]

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