Mr. Jerry Storey
3543 Simpson Ferry Road
Camp Hill, Pennsylvania 17011
RE: Ruling request regarding the dutiability of a discount provided to the buyer from one of
Dear Mr. Storey:
This is in response to your ruling request, with attachments, dated August 11, 1998 and the
addendum dated August 18, 1998, regarding the dutiability of a discount provided to you by one
of your sellers. In accordance with 19 CFR 177, this ruling is applicable with respect to
Venator Group (Venator) has a division of retail stores called Afterthoughts' that primarily sells
accessories and jewelry. Venator purchases goods for these stores from a supplier in Korea
called Na Rae Corporation (Na Rae).
Venator decided to remodel all of its Afterthoughts stores. Upon learning of the remodeling, Na
Rae agreed to give Venator a five percent (5%) discount on all purchases up to a total
contribution of $45,000 (In a telephone conversation on August 11, 1998, with a member of my
staff, you indicated that similar agreements exist with a number of other vendors). You submitted
a letter from the president of Na Rae, dated March 4, 1998, to Woolworth Overseas Corp., which
states that Na Rae "will make a contribution to Afterthoughts USA in the amount of $50,000 for
your stores' renovation. As a first step, tomorrow I will issue a Banker's cheque in the amount
of $5,000 which is 10% of the total amount." You indicate that Na Rae forwarded $5,000 to
Woolworth Overseas Corporation. In a letter dated August 13, 1998 to Afterthoughts, Na Rae
indicated that the invoice had been reduced by five percent (5%), and that deduction would
continue on every future invoice until a contribution of $45,000 dollars had been reached.
You submitted a copy of a commercial invoice dated August 8, 1998, from Na Rae Corp., to
F.W. Woolworth Corp., for an order of costume jewelry. The invoice shows a total price, the 5%
deduction and the discounted price. You also submitted a copy of the purchase order for the
merchandise showing a ship date of March 4, 1998. No entry documents were submitted.
You claim that the reason for the deduction is Na Rae wants to partner with Venator during the
remodeling in the hopes that the remodeled stores will attract more customers, boost sales, and
generate increased orders for the company.
In determining transaction value, whether the price actually paid or payable is based on the
LAW AND ANALYSIS:
The preferred method of appraisement is transaction value. Transaction Value is defined in
402, Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C.
1401a), as the price actually paid or payable for the merchandise when sold for exportation to the
United States, plus amounts for items specifically enumerated in 402(b)(1) of the TAA.
The term"price actually paid or payable" is defined in 402(b)(4)(A) as:
"...the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the
international shipment of the merchandise from the country of exportation to the place of
importation in the United States) made, or to be made, for imported merchandise by the
buyer to, or for the benefit of the seller."
Section 152.103(a)(1) of the Customs Regulations (19 CFR 152.103(a)(1)) provides that the
price actually paid or payable ". . . will be considered without regard to its method or derivation.
It may be the result of discounts or negotiations, or may be arrived at by the application of a
formula . . ." A discounted price must be agreed to and in effect prior to the importation for it to
constitute the price actually paid or payable. See, Allied International v. United States, 16 Ct.
Int'l Trade 545, 795 F. Supp. 449 (1992); Headquarters Ruling Letter (HRL) 545659 dated
October 25, 1995; HRL 544907 dated April 13, 1992; HRL 543302 dated November 1, 1984;
HRL 543537 dated February 14, 1986; and HRL 543662 dated January 7, 1986. In order to
establish that the discounts were agreed to before the time of entry, the importer must be able to
furnish Customs with sufficient documentary evidence. HRL 545659, dated October 23, 1995.
In that case Customs ruled that an unconditional discount figured into the value declared at the
time of entry and reflected on the invoice presented to Customs may be taken into account in
determining transaction value.
Based on the facts presented and information currently available, it appears that the discount was
unconditional and was not taken in satisfaction of a debt owed by the seller. In addition, it
appears that the discount was agreed to and in effect prior to the importation of the merchandise,
as outlined in the Addendum to ruling request. However, without reviewing the import
documents, no definite determination can be made.
Based on the facts presented and the submitted documents, the 5% discount described above is
not included in the price actually paid or payable of the merchandise described in the invoice if it
is reflected on the invoice presented to Customs upon importation. This ruling is applicable only
with regard to transactions involving the same merchandise and like facts.
Thomas L. Lobred