Analyst Insight: Businesses with a footprint in Canada are grappling with economic uncertainty, Canada Border Services Agency’s proposed amendments to the Valuation for Duty Regulations, and the intricacies of adapting their systems and business practices to align with CBSA Assessment and Revenue Management (CARM). Against this backdrop, cost efficiency is top of mind for importers — and with an estimated 80%-90% of Canadian companies overpaying duties or missing out on available refunds, capitalizing on duty recovery is a smart strategy. 

Many importers overpay Customs duties without realizing it. For companies that regularly bring in large volumes of goods or operate in an industry subject to high duty rates, missing the opportunity to recover funds can be a costly mistake. 

The fundamental nature of duty recovery seems straightforward at first glance, but the process requires both deep visibility into Canadian Customs classifications and the expertise to interpret tariff codes to importers’ benefit. Notably, 95% of overpayments incurred is not due to importer error, but rather the result of companies not using the optimal tariff code for goods. 

It's important to note that the tariff classification rulings in Canada and the U.S. function differently. In the U.S., if the duty charged on a specific Harmonized System (HS) code decreases from 8% to 0% as a result of the Customs ruling, the ruling is made public for all companies to benefit from the reduction in tariffs. 

In Canada, however, tariff codes are more open to interpretation — based on nuances of an individual product — and changes to a tariff code executed by way of a customs ruling may remain private. Unlike in the U.S., not all Canadian Customs rulings are made available in the public domain.

This key difference between how the U.S. and Canada publish tariff reclassification rulings means it’s possible for two companies to import the exact same product into Canada but pay different duty amounts. For those importers privy to reclassification opportunities, duty-recovery practices create a distinct competitive advantage on landed costs, which translates to higher margins and a healthy bottom line.

The role of Customs consulting teams is to assist clients in identifying duty recovery opportunities by addressing key areas such as tariff reengineering, end-use of imported goods, valuation (including transfer pricing and discounts), application of free trade agreements, and duty drawback. In Canada, duty recovery claims can help companies recover overpayments up to four years retroactively. And with more than half of Canadian businesses overpaying their import duties by 10%-15% every year, duty recovery opportunities can yield a substantial refund.

Recapturing overpayments through tariff classification adjustments delivers immediate and ongoing bottom-line results, as well as these competitive advantages:

• Paying less duty reduces operational costs;
• Refunds impact the bottom line directly;
• Lowering or eliminating duty going forward boosts future profitability;
• Private reclassification information increases competitive advantage against businesses operating without that specialized knowledge;
• Refunds going back four years are available for duty overpayments in Canada, and
• Duty-recovery consultants manage the duty-recovery process from start to finish.

Outlook: In light of the shifting CBSA regulatory landscape and the federal government’s anticipated increase of Customs import duties to approximately $7.7 billion by 2027-2028, businesses in 2024 should be focused on optimizing their Customs operations to protect profit margins. Duty-recovery programs underpin this cost-saving competitive strategy, helping importers avoid duty overpayment in the near- and long-term, while strengthening trade compliance practices. 

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