Customs New ACE Entry Reconciliation Program. George Tuttle, III, Attorney Law Offices of George R. Tuttle

Customs New ACE Entry Reconciliation Program George Tuttle, III, Attorney Law Offices of George R. Tuttle geo@tuttlelaw.com

Why Entry Reconciliation? Legal obligation to file correct and accurate entries attaches at the time of filing What if you don t know if the value is accurate at time of filing (assists, additions, endof-year adjustments, etc.) Article qualifies for FTA for HTS 9802 / allowance? Tuttle Law Offices (c) 2017 2

Why Entry Reconciliation? Obligation to Report the Correct & Accurate Value Reasonable Care -- 19 U.S.C. 1484... parties qualifying as importer of record... shall, using reasonable care complete the entry... by filing with Customs Service the declared value, classification and rate of duty applicable to the merchandise,... necessary to enable the Customs Service to (i) properly assess duties on the merchandise (ii) collect accurate statistics with respect to the merchandise. 19 U.S.C. 1485(a)(2) & (3) An importer making an entry... must file a declaration under oath stating that "the prices set forth in the invoice are true... [and that] all other statements in the invoice... or in the entry itself, are true and correct. Tuttle Law Offices (c) 2017 3

Why Entry Reconciliation? Transaction value -- 19 U.S.C. 1401a(b)(1) "the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts equal to the value, apportioned as appropriate Commissions Royalties or license fees Assists Proceeds of a subsequent sale or use. Supplemental payments and the Generra Rule -- A rebuttable presumption that all payments made by a buyer to a seller, or a party related to a seller, are part of the price actually paid or payable. ("HQ") 545663 dated July 14, 1995. Generra Sportswear Co. v. United States, 8 CAFC 132, 905 F.2d 377 (1990) Tuttle Law Offices (c) 2017 4

What is Reconciliation? A process that allows importers to file entries using the best available information and electronically flag entry data elements that are estimated actual final information is submitted at a later date via Reconciliation Entry (type 09) can cover one or thousands of previously filed individual entries (only entry types 01-Consumption, 02-Quota/Visa Consumption, 06-FTZ Consumption) If an entry type 06 has AD/CVD merchandise, it cannot be flagged for reconciliation may file multiple reconciliations for the period each underlying entry summary may be covered by up to two separate Reconciliations Tuttle Law Offices (c) 2017 5

What Can Be Reconciled? Reconciliation is the exclusive means for reconciling postsummary adjustments to: Dutiable value HTSUS Heading 9802 value (An importer may not reconcile 9802 when the merchandise was entered during the period without claiming the 9802 provision) FTA s such as NAFTA, Chile, CAFTA-DR, Colombia TPA, Korea, Oman, Panama and Peru). Limited classification issues (Pending administrative ruling (including preclassification rulings), Protest, Pending court action Other options ( known vs. unknown errors) Post Summary Corrections (PSC) Prior Disclosure Working with vendor to capture accurate value info on invoices at time of entry Extension of liquidation ( 159.12 for proper appraisement or classification of the merchandise) Tuttle Law Offices (c) 2017 6

Common situations requiring Reconciliation Standard Cost / Computed Value / Maquiladora operations / Tolling contracts (Shelter Operations) Related Party Transfer Pricing Adjustments Imports into a Vendor Managed Inventory (VMI) warehouse (value at time of removal changes) Assists that are not quantifiable at time of entry (including foreign research, development, design, etc.) Supplemental Payments to foreign vendors (tooling, mold, equipment, or other) Proceeds paid to foreign vendors (e.g. 1% of net sales are remitted to vendor after entry) Material acquisition charges or surcharges that are not known at time of entry (spot buy charges, precious metal surcharges based on a market rate [e.g., LME - London Metals Exchange], etc.) Product rework or testing charges Other post entry price adjustments to the value declared to Customs at time of entry Tuttle Law Offices (c) 2017 7

https://www.cbp.gov/trade/automated/news/recon

Customs Reconciliation Guide the new ACE Reconciliation Handbook was published on CBP.gov on September 1, 2016. The handbook can be found at: cbp.gov/document/guides/ace-reconciliationprototype-guide. Provides rules and desktop instructions Reconciliation entry is processed and will liquidate just like an entry The following entry types are eligible for reconciliation under this prototype: Entry type 01: Free and dutiable formal consumption entries. Entry type 02: Quota/Visa consumption entries. Entry type 06: Foreign Trade Zone (FTZ) consumption entries Tuttle Law Offices (c) 2017 12

ACE RECONCILIATION How to Participate Effective Feb. 2018 new participants will no longer submit applications to CBP Headquarters All importers will be eligible for participation All new and existing participants must have a valid, active Reconciliation Bond Rider on file in order to participate in ACE Reconciliation and flag underlying entry summaries Importer account profiles will be switched to Yes to indicate eligibility for participation in ACE if there is a bond rider on file A change in surety companies covering an importer s entries will require separate Reconciliations for each surety bond Tuttle Law Offices (c) 2017 14

ACE RECONCILIATION Filing Locations Effective Feb 2018 importers may file Reconciliation Entries at any Port of Entry Reconciliation Entries will be processed by Center of Excellence and Expertise (Centers) personnel Entry Data Reports ITRAC Reports will be eliminated but Masterfile Extract and the Liquidation Extract are still available for a fee ACE Reports are available to track entries flagged for Reconciliation Tuttle Law Offices (c) 2017 15

Flagging: Entry Recon flagging Identifies unknown information (i.e., valuation, FTA, 9802) Transfers liability to a Reconciliation Entry Elements that are flagged are withheld from liquidation Permits normal liquidation of the remainder of the entry summary A filer may flag entries via an individual entry flag or a blanket flag Individual entry flagging-- The entry filer flags a specific entry on the header record of an entry summary at the time of filing Blanket Flagging -- A flag is added by to all entries for all ports made under the recon-filer s importer of record number. Tuttle Law Offices (c) 2017 17

ACE RECONCILIATION Effective Feb 2018, CBP will no longer blanket flag entry summaries for Reconciliation Filers may blanket flag using their own software, if available Time Period For Filing Recon Entries Participants in Recon program have up to 21 months from the flagged entry date to file the recon. NAFTA/FTA claims limit is 12 months from date of Importation Failure to file a timely reconciliation will result in the assessment of a liquidated damages. Tuttle Law Offices (c) 2017 18

Types of Reconciliations The Aggregate Reconciliation will include a list of all underlying entries but will not require the revenue adjustment to be broken down by entry. The importer waives any refunds, including claims for drawback, on the Aggregate Reconciliation increase. When increases and decreases between entries result at the end of the reconciliation period, the importer can exercise one of the following filing options: File an Entry-by-Entry Reconciliation to account for both the increases and decreases. Submit two separate Reconciliations: an Aggregate Reconciliation for entries with no change or revenue increase and an Entry-by-Entry Reconciliation for entries with increase or decrease in revenue. File an Aggregate Reconciliation to account for the increases, report the decreases on a separate section of the summarized line item spreadsheet, and waive the refunds resulting from the decreases. Tuttle Law Offices (c) 2017 20

Types of Reconciliations Filing Aggregate for Decreases An importer may choose to file an Aggregate Reconciliation for decreases (or downward adjustments) if the resulting refund of duties, taxes, and fees claimed are waived, thereby releasing CBP from liability. Although both increases and decreases may be reported on an Aggregate Reconciliation, they must be reported separately because of the prohibition against netting. Downward adjustments of the affected duties and/or fees will be reported only on the summarized line item data and may not be included on the header file of the EDI transmission. The downward adjustments are reported but not included in the calculation of the aggregate reconciled adjustment At the time of filing the Reconciliation entry, the filer must click the checkbox and acknowledge the following statement: Tuttle Law Offices (c) 2017 21

Types of Reconciliations Statement for Filing Aggregate Reconciliations Entries for Decreases The tariff items shown below are items for which the reconciliation adjustment resulted in a decrease of duties, taxes, and/or fees. On this Aggregate Reconciliation, we hereby declare these changes and acknowledge that we waive any claims for a refund of any monies due us as a result of these changes, release CBP of any liability for the refund, and certify that the changes shown below are not included elsewhere in the Reconciliation or netted against increases. Tuttle Law Offices (c) 2017 22

How do I reconcile Entries? Records needed ACE Flagged entry report (or itrac if still available) CBP liquidation Report Financial Records for assists / additions (royalties, RP uplifts, etc.) Determine whether reconciliation issue affects all or only some products from supplier(s)? Which entry / invoice line items require adjustment Common CBP audit finding is that all lines were adjusted when only certain lines require adjustment. Tuttle Law Offices (c) 2017 23

How do I reconcile Entries? Where to start? (Blanket Flagging example) Obtain ACE report -- Sort entries by supplier create separate files or worksheets for each supplier Obtain detailed information from Finance, AP or Tax regarding payments, adjustments, royalties, assists, etc. If vendor or supplier has no change group in single file for nochange recon entry Use EXCEL to create association file (may be aggregate or entryby-entry) Use access to create Summarized Line Item Data Spreadsheet file Tuttle Law Offices (c) 2017 24

How do I reconcile Entries? Reconciliation is to be used to group entries together for a common outstanding issue. Entries flagged for reconciliation that have the same outstanding information should be grouped on one Reconciliation Example, entries flagged awaiting finalization of assist information should be grouped on one Reconciliation when the assist information is provided. Grouping by issue rather than by date can be done as long as the filing deadline for any entry is not exceeded. Entries filed in Puerto Rico or the Virgin Islands must be addressed on separate Reconciliations. Tuttle Law Offices (c) 2017 26

How do I reconcile Entries? Entries with changes (up or down changes) Determine if value changes affect all products from supplier or only specific products if value change affect all products the overall adjustment is prorated against the original imports from supplier if value change affects only specific products, adjustment is prorated against only those imports from supplier (example: royalty or license fee assist, etc.) Example, if the product classified under HTS 7704.10.2050 had an assist of $3,800 that applied only to that product, the $3,800 increase in value should only be added to that line, not prorated among all three products. if an assist were applicable to product 1, product 2, and product 3, and applicable to different shares of the total imported volume, a weighted proration based on the respective volumes may be a more appropriate method. Tuttle Law Offices (c) 2017 27

How do I reconcile Entries? Entries with changes (up or down changes) Will need to expand supplier HTS entry line item report to include invoice line ( part or sty # ) data Use EXCEL to allocate value change to individual invoice items Roll up individual invoice items into HTS entry line with new value (up or down) with resulting change to duty/ fees Use EXCEL to create association file (may be aggregate or entryby-entry) Use access to create Line Item Data Spreadsheet file Tuttle Law Offices (c) 2017 28

ACE RECONCILIATION Submitted Data: True No-Change/No-Change Entries With ACE, Filers will no longer required to submit hard copies of Reconciliation packages No more CDs, No more Excel Spreadsheets All submissions will be electronic via Electronic Data Interchange (EDI) Transmission Association File must be submitted using EDI Tuttle Law Offices (c) 2017 29

ACE RECONCILIATION Submitted Data: Entry-by-Entry (current) and Change (new) Just as with No-Change Reconciliations, filers will no longer be required to submit hard copies of Reconciliation packages No more CDs, No more Excel Spreadsheets All submissions will be electronic via Electronic Data Interchange (EDI) Transmission Association File and Line Item Data must be submitted using EDI In addition, the required declaration statements must also be submitted using EDI for FTA Reconciliations Tuttle Law Offices (c) 2017 30

ACE RECONCILIATION Values/Duties/Taxes/Fees Only Reconciled Amounts must be transmitted It is no longer necessary to transmit original amounts on the association file Reconciled amounts must be transmitted for the Line Item Data Tuttle Law Offices (c) 2017 31

The Recon Entry The Header File The Header Sheet The Reconciliation header provides general information about the recon, including: Reconciliation entry number Not needed in ACE Type of Reconciliation Issues on Reconciliation Grand totals for duties and fees reconciled Interest Tuttle Law Offices (c) 2017 33

Aggregate Reconciliations The Recon Entry Consolidates all entries covered by the Reconciliation without identifying individual entry adjustments Applies generally to those situations that involve only an increase The Association file only requires a list of underlying entries and not the revenue adjustment broken down by entry. Importer waives any refunds through the reconciliation filing process for aggregate recon. Tuttle Law Offices (c) 2017 34

The Recon Entry -- The Association File The major difference between Aggregate and Entry-by-Entry Reconciliation is the structure of the association file The association file for both Entry-by Entry and Aggregate Reconciliations contains a list of underlying entry numbers (without reference to any HTS classifications) and ports of entry, which are grouped together on the Reconciliation. For Entry-by-Entry Reconciliations, the association file will show monetary amounts with changes applied to each entry summary: The actual amount of fees (broken out by recon class code), duties, and taxes, deposited on the underlying entry summary. [Not required for ACE association file but still needed to compute reconciled amounts] The reconciled amount of fees, duties, and taxes that should have been paid for each of the underlying entries. Tuttle Law Offices (c) 2017 35

The Recon Entry-- Line Item Data Spreadsheet The third element of the Reconciliation must show, at a macro level, all substantive changes reported in the Reconciliation. The data must be presented in a standard format (See example) The data elements are the same for both Entry-by-Entry and Aggregate Reconciliations Data must be submitted via EDI transmission Each combination of HTS, country of origin, special program indicator (SPI), and calendar year of release will require a separate line. Tuttle Law Offices (c) 2017 36

The Recon Entry-- Line Item Data Spreadsheet The summarized line item data spreadsheet captures adjustments that have an effect on reportable data elements declared throughout the reconciliation period without reference to the underlying entry numbers Data must be clearly broken out by calendar year of release even if the reconciliation covers a fiscal period that overlaps two calendar years. Each spreadsheet line is to show the original and reconciled data [Not required for ACE LIDSS but still needed to compute reconciled amounts] Changes may be broken out into separate lines on the spreadsheet to accommodate the importer s accounting structure. For example, an importer using two separate suppliers for the same product may opt to report the adjustments on two separate spreadsheet lines. Tuttle Law Offices (c) 2017 37

The No Change Recon Entry If no reportable data elements are being made to any of the underlying entry summaries, filers may wish to take advantage of the aggregate no-change method of reconciliation This type of reconciliation does not require any duty, tax, or fee information to be transmitted with the header, and no spreadsheet is required. Allows for a less problematic CBP acceptance of the reconciliation and less work on the part of the filer. If there are no reconciled adjustments to any products and thus no need to file the spreadsheet, the importer must make the following note in the remarks section of the header record: Spreadsheet is not provided because there are no adjustments to reportable data elements in this Reconciliation. Tuttle Law Offices (c) 2017 39

What if I need More Time? Extensions are rarely allowed on Reconciliation filing deadlines. However, under certain circumstances the Port will grant a Request for an Extension and Withhold Liquidation If elements still remain unknown when the Reconciliation is due, importer must submit a timely-filed Reconciliation with best available information or no changes Requests are governed by 19 CFR 159.12(a)(ii). Submit written request explaining why liquidation of the Reconciliation should be withheld and for how long If the importer justifies good cause on why the extension should be granted, CBP will grant extension for non-fta matters. When ready, CBP will unseat the recon liquidation and allow importer to refile with the new information Tuttle Law Offices (c) 2017 40

Liquidation Liquidation and Rejection After CBP has reviewed the Reconciliation and decided to liquidate, the liquidation will take place within two weeks. This two week time frame applies, whether or not the Reconciliation is liquidated with changes. Rejection If a Reconciliation entry is rejected prior to the twelve/twenty one-month deadline, the importer has the remainder of the twelve/twenty one months or 30 days to resubmit, whichever is greater. If the deadline has expired, the importer has only 30 days to resubmit the rejected Reconciliation. If additional documents are required, CBP will request them via a CBP Form 28, and the importer will again have 30 days to provide the requested documentation. Once the additional documentation is received, CBP will review the submission within 90 days Tuttle Law Offices (c) 2017 41

Payments/Refunds/ Interest Any additional duties, taxes, and fees owed by the importer must be deposited via check or ACH at the time of filing the Reconciliation. Refunds that result from a Reconciliation will be issued by CBP within thirty days of the Reconciliation s liquidation. Payments must include all interest due When calculating underpayments of duties, taxes, and fees, the interest rate that was in effect at the time the duties were due for deposit must be used. For Entry-by-Entry Reconciliations, the importer must calculate the interest amount due for each entry summary and report these adjustments on the association file. For Aggregate Reconciliations, the importer must calculate the total amount of interest due using the midpoint of the period covered to the filing date of the Aggregate Reconciliation Tuttle Law Offices (c) 2017 42

Taxes and Fees For Entry-by-Entry Reconciliations, all taxes and fees on each entry summary must be adjusted to show the correct amount for that entry summary. On Aggregate Reconciliations, since monetary changes to individual entry summaries are not reported, adjustments to taxes and fees are reported on the summarized line item data spreadsheet CBP will use the following formula to set the maximum MPF due on an Aggregate Reconciliation: ($485 x number of entries covered by the Reconciliation that were subject to the MPF) minus the amount of MPF already paid on those same entries when original entry summary was filed Tuttle Law Offices (c) 2017 43

Reconciliation Records! You can t prove what you don t keep! Source records from finance: documenting assist values and/or supplemental payments Royalty or license fee payments Transfer price adjustment amounts, etc. Records identifying what products or suppliers adjustments relate to Reports & worksheets on method of allocation of adjustments to products, entry lines or entries Roll-up worksheets Tuttle Law Offices (c) 2017 44

Reconciliation Procedures EXAMPLES OF RED FLAGS No Recon Internal Controls Importer lacks knowledge of Recon requirements. EXAMPLES OF BEST PRACTICES Reconciliation Internal controls are written, accurate and complete Importer attends Recon seminars Importer maintains software application that tracks underlying entry information and ensures all underlying entry adjustments are supported. Exhibit 5T - Reconciliation - Technical Information for Pre-Assessment Survey (TIPS) Reviews red flags and best practices Tuttle Law Offices (c) 2017 45

Reconciliation Procedures (Best Practices) Recommended Procedures for your Reconciliation Program How to identify Annual Value Adjustments (i.e., Purchasing or G/L review) Using ITRAC/ACE data check/ verify that all required Entry Line Items are being flagged. (Vendor/HTS codes(?)) How to Verify that all Flagged Entries are identified for the Reconciliation(s) How to Create the Association File How to Create the Line Data Spreadsheet (LDS) How to Create the Header File How to Review and Monitor your Reconciliation Tuttle Law Offices (c) 2017 46

NAFTA/ FTA Recon Rules A 520(d) Reconciliation must be filed within twelve (12) months of the date of importation of the oldest entry summary flagged grouped on the Reconciliation. Generally, NAFTA/FTA issues may not be combined with other issues on the same Reconciliation. NAFTA/FTA requires its own Reconciliation. Only one NAFTA/FTA Reconciliation may be filed for a given entry summary (however a 2 nd recon for other issues) Reconciliations for post importation refund claims under 1520(d) can cover an entire Reconciliation period As with traditional 520(d) claims, NAFTA Recon requires that merchandise for which the claim will be made must be entered without the NAFTA eligible designator; However, entries of such merchandise must be flagged for the FTA reconciliation. Duties on imported merchandise must be paid at the time of summary in order to be eligible for a retroactive 520(d) claim. If the importer has flagged entries for NAFTA / FTAs and determines later that the products did not qualify, a Reconciliation need not be filed, and no liquidated damages claims will be issued. Tuttle Law Offices (c) 2017 47

NAFTA/ FTA Recon Rules Statements Required for FTA Reconciliations Written notices containing the required statements applicable for all 520(d) NAFTA claims must appear on the Reconciliation of NAFTA eligibility. notices are to be blanket statements pertaining to the entire Reconciliation as an entry, so one copy per Reconciliation will suffice. The statements may be provided as a text box within the spreadsheet or on paper submitted with the Reconciliation header/cover sheet. Importer must be in possession of a valid certificate of origin when making the NAFTA/ FTA recon. Presentation of the NAFTA/FTA certificate to CBP is waived, but the filer must retain this document and provide it to CBP upon request. Major benefit to 520(d) Reconciliation is that the importer will receive one refund check per Reconciliation rather than receiving individual checks for each corresponding entry Tuttle Law Offices (c) 2017 48

Recon and Drawback Drawback claims will not accepted on any entry which has been flagged for reconciliation until the Reconciliation is filed. Entry-by-entry Reconciliation you have full drawback privileges on both the estimated duties paid at the time of summary AND any increased adjustment resulting from the Reconciliation, once the Reconciliation is filed with duties/taxes/fees deposited. Aggregate Reconciliation you have drawback privileges on all underlying entries upon filing of the Reconciliation. You can never claim drawback on the additional amount you tender with the Reconciliation. For example, if the entered value on the underlying entry if $1,000, and the overall Reconciliation increase adjustment is $10,000, once the Reconciliation is filed, only the $1,000 is eligible for drawback. Tuttle Law Offices (c) 2017 49