RR:IT:VA 546316 er
U.S. Customs Serivce
RE: Reconsideration of IA 55/95 (HRL 546192 dated November 9, 1993); bona fide sale; sale for exportation.
Dear Port Director:
This is in response to a request for reconsideration of the above-referenced matter. The request is dated March 20, 1996, and was submitted by a broker on behalf of his client, Delaware Importers Inc. Additionally, the broker has advised that the only information which its client considers confidential is pricing information; accordingly, such information has been omitted from the facts presented in the reconsideration.
The facts in HRL 546192 are as follows. Three parties were involved in the sale of Absolute Vodka: Delaware Importer, Inc., the U.S. purchaser/importer of record/ultimate consignee; The House of Seagram, the U.S. supplier; and V&S Vin & Spirit AB of Sweden, the foreign seller. The shipping terms are CIF. Title and risk of loss pass from the foreign seller at the port of lading, Ahus, Sweden, to the U.S. supplier and then to the U.S. purchaser. According to the U.S. supplier, pursuant to the CIF shipping terms, insurance is arranged in Sweden obligating the U.S. purchaser to make any claims that arise from the shipment of the merchandise.
Various documentation was submitted with the original request for internal advice: Customs Form (CF) 7501; Entry Summary, showing the U.S. purchaser as the importer of record; and two invoices from the foreign seller and the U.S. supplier. One invoice from the foreign seller to the U.S. supplier shows that the merchandise was shipped directly to the U.S. purchaser. The shipping terms were listed as “CIF (INCOTERMS-90)” with delivery from Ahus, Sweden. Payment for the imported merchandise is due within 60 days. The invoice notes that the shipping mark is the House of Seagram in New York. The other invoice is from the U.S. supplier to the importer. This invoice states that the merchandise will be direct-shipped to the importer. The invoice also reflects that payment is due in 30 days and will be debited from the importer’s bank account by the U.S. supplier’s “reach program”.
According to the importer, the supplier remits payment to the foreign seller only for the amount listed on the foreign seller’s invoice. The importer claims that the price actually paid or payable for the imported merchandise is based on the sale between the foreign seller and the U.S. supplier. The importer explains that in this industry, it is common practice for the foreign supplier to ship the merchandise directly to the U.S. supplier’s customer, i.e., the importer. The importer further provides that this represents nothing more than a transfer from the U.S. supplier to the importer of the obligation to make entry and pay the applicable duty and fees. Thus, the U.S. supplier avoids the necessity to make entry and then transfer the imported merchandise to the importer.
After reviewing the facts and documents submitted in connection with the original internal advice request, Customs concluded in HRL 546192 that the imported merchandise should be appraised under transaction value based on the price actually paid or payable by the importer, and not that paid by the U.S. supplier. Customs based its decision on the fact that (1) title and risk of loss passed from the foreign seller to the U.S. supplier, then immediately thereafter from the U.S. supplier to the importer; (2) the goods were shipped from Sweden directly to the U.S. purchaser; and (3) because no information or documentation (i.e., purchase orders, evidence of payment, etc.) was submitted which supported a finding of a bona fide sale between the foreign seller and the U.S. supplier. Accordingly, Customs determined that based on the evidence presented the only sale was between the foreign seller and the U.S. customer.
The request for reconsideration included additional documentation, including an invoice from the foreign seller, the purchase order confirmation payment document which bears the same invoice number and a copy of the settlement register showing payment by the U.S. supplier to the foreign seller.
Because this request for reconsideration includes information and documentation not previously considered in conjunction with the original request for internal advice, the requirements with respect to publication, as set forth under 19 U.S.C. 1625, are inapplicable.
Whether based on the additional evidence submitted the transaction between the foreign seller and the U.S. supplier may form the basis of appraisement under transaction value?
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the U.S. is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a). Section 402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States”, plus amounts for certain enumerated additions, including selling commissions incurred by the buyer. 19 U.S.C. 1401a(b)(1).
As set forth above in the facts, Customs concluded in HRL 546192 (February 23, 1996) that the price actually paid or payable by the U.S. importer formed the basis of appraisement under transaction value for the imported merchandise. Customs decision was based on a transfer of property/ownership analysis. At that time no other information was presented which would enable Customs to examine whether the transaction between the U.S. supplier and the foreign seller constituted a bona fide sale. As stated in HRL 546192:
... [T]here are several factors which may indicate that a bona fide sale exists between a potential buyer and seller. In addition to the transfer of property or ownership analysis, Customs may examine whether the potential buyer paid for the goods, and whether the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller... Other information, if available should be considered together with the transfer of property or ownership analysis.
Submitted with the request for reconsideration was additional documentation, including an invoice from the foreign seller, the purchase order confirmation payment document which bears the same invoice number and a copy of the settlement register showing payment by the U.S. supplier to the foreign seller. The additional documentation supports the importer’s claim that a bona fide sale took place between the U.S. supplier and the foreign seller and that the amount of the payment remitted to the foreign seller is consistent with the amount invoiced by the foreign seller to the U.S. supplier. While the information submitted with the reconsideration did not address the other aspects of the sale transactions, i.e. whether the potential buyer: provides (or could provide) instructions to the seller; was free to sell the items at any price he or she desired; selected (or could select) his or her own customers without consulting the seller; and, could order the imported merchandise and have it delivered for his or her own inventory, we will assume that if asked to address these factors, the importer will be able to provide information which supports the existence of a bona fide sale between the foreign seller and the U.S. supplier.
Additionally, Customs advises the importer that in the future, if requested, the importer must be able to present to Customs, at the time of entry or shortly thereafter, documentation which supports the merits of the two-tiered sales transaction, namely: purchase orders from the importer to the U.S. supplier and from the U.S. supplier to the foreign seller; invoices between the same parties which track the purchase order numbers; and proof of payment between the respective parties. The information on these documents must be in conformity with the purported roles of the various parties, i.e. the foreign seller is identified as the vendor, the U.S. supplier is the buyer from the foreign seller and the U.S. supplier resells the merchandise to the importer.
Having determined (based on the assumptions noted above) that a bona fide sale exists between the U.S. supplier and the foreign seller, it is now necessary to determine whether that sale constitutes a sale for exportation upon which transaction value may be based. In Nissho Iwai American Corp. V. United States, 786 F. Supp. 1002 (CIT 1992) rev’d 982 F.2d 505 (Fed. Cir.) 1992 and Synergy Sport International, Ltd. V. United States, Slip Op. 93-5 (Ct. Int’l Trade, decided January 12 1993), the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper dutiable value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman, and a U.S. purchaser. In both instances the middleman was the importer of record. Both courts held that the manufacturer’s price, rather than the middleman’s price, was valid as long as the transaction between the manufacturer and the middleman fell within the statutory provision for valuation. The courts explained that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at “arm’s length” free from any nonmarket influences and involving goods “clearly destined for export to the United States.”
In the instant situation, the middleman is the U.S. supplier. The U.S. supplier and the foreign seller are not related parties within the meaning of 19 U.S.C. 1401a(g); accordingly, we will assume that the sales between these two parties are independent, arm’s length transactions. Should any of the parties become related, Customs advises the importer that the “arm’s length” aspect of the Nissho Iwai criterion will be more closely scrutinized, i.e., Customs may require information regarding the “circumstances of the sale” or “test values” as described under 19 U.S.C. 1401a(b)(2)(B). Also see, “Transfer Pricing; Related Party Transactions”, 58 FR 5445 dated January 21, 1993.
With regard to whether the goods are clearly destined for the U.S., the documentation submitted including the invoices, purchase order confirmation statement, and shipping marks on the merchandise, supports the conclusion that at the time the orders are placed with the foreign seller, the goods are destined for the U.S. As noted above, Customs assumes that in the future if asked, in addition to the invoices, purchase order confirmation statement and proof of payment, the importer will also be able to present Customs with purchase orders between the importer and U.S. supplier and between the U.S. supplier and the foreign seller which are tracked by the invoices between the same parties. Under these conditions, Customs is satisfied that the sale between the foreign seller and the U.S. supplier is a sale for exportation to the U.S. within the meaning of section 402(b)(1) of the TAA.
Based on the additional documentation presented and subject to the importer’s ability to provide additional documentation, if requested, Customs finds that a bona fide sale occurs between the foreign seller and the U.S. supplier. As the sale constitutes a sale for exportation upon which transaction value may be based, the merchandise should be appraised based on the price actually paid or payable by the U.S. supplier to the foreign seller.
Acting Director, International
Trade Compliance Division