HQ H270670
OT:RR:CTF:VS H270670 YAG
Ms. Mary-Anne Hardy
Consulting Manager
Russell A. Farrow Limited
5397 Eglinton Avenue West
Etobicoke, ON Canada M9C 5K6
RE: Price Actually Paid or Payable; Project Management and Testing Fees
Dear Ms. Hardy:
This is in response to your letter, dated October 22, 2015, in which you request a prospective ruling, on behalf of your client, ECONOPAC LIMITED (“Econopac”), concerning the dutiability of certain project management and testing fees, paid by the buyer, (hereinafter “the Cereal Company”), to an unrelated third party, Insight Promotions.
FACTS:
The Cereal Company, a U.S. buyer, purchases the merchandise (also referred to as premiums or toys) from its supplier overseas and engages an unrelated third party, Insight Promotions, located in the United States, to arrange the overwrapping of the merchandise, as well as to perform other project management and testing services. Insight Promotions contracts with Econopac to overwrap the merchandise. Therefore, the Cereal Company delivers the merchandise it purchases from its suppliers in China to Econopac in Canada. Econopac enters the merchandise in Canada under a Duty Deferral Order. After Econopac overwraps the merchandise, it imports the merchandise into the United States and ships the items directly to the Cereal Company. Econopac never holds title to the imported merchandise. Econopac invoices Insight Promotions for the costs and services performed. Moreover, Insight Promotions provides additional services to the Cereal Company, as follows:
Initial review and consultation of the premium (toy) design
Ongoing consultation on any changes required prior to premium production
Conference calls with premium vendor throughout the 8-12 month process
Testing at Insight Promotions’ workshop of “first-off” premiums from the premium vendor in China (done prior to starting the premium production)
Consultation with the Cereal Company concerning packaging (overwrapping) required
Management and oversight of the entire packaging process and the packaging supplier (Econopac)
Testing at Insight Promotions’ workshop of “first-off” packaging from Econopac
Final sign-off on premium design and packaging design
The Cereal Company fully reimburses Insight Promotions for these additional services. Upon importation of the merchandise into the United States, Econopac declares the value of imported goods, calculated as follows: (a) the price paid by the Cereal Company for the promotional item, plus; (b) the fee charged for the overwrapping service performed by Econopac, plus; (c) the additional product management and testing fees Insight Promotions invoices to the Cereal Company; and, (d) the amount paid for the plastic film overwrap Econopac purchases in the United States, which is declared on a separate line in accordance with Headquarters Ruling Letter (“HRL”) H261216, dated February 17, 2015. It is your argument that the additional payments made by the Cereal Company to Insight Promotions for the project management and testing fees should not constitute part of dutiable value of the imported merchandise, since this work/services are performed by Insight Promotions in the United States. Our ruling follows.
ISSUE:
Whether the payments, made by the buyer, the Cereal Company, to an unrelated third party, Insight Promotions, for the project management and testing services, are included in transaction value of the imported merchandise, as part of the price actually paid or payable.
LAW AND ANALYSIS:
We are assuming, for the purposes of this ruling, that transaction value is the appropriate basis of appraisement for the imported merchandise. Merchandise imported into the United States is appraised in accordance with section 402 of the TAA (19 U.S.C. §1401a). The preferred method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable.
The “price actually paid or payable” means the total payment (whether direct or indirect, and exclusive of any charges, costs, 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.” 19 U.S.C. §1401a(b)(4)(A).
U.S. Customs and Border Protection (“CBP”) has previously examined the question of whether payments made for testing and consulting services are part of the price actually paid or payable. In HRL 547033, dated June 25, 1998, a garment importer hired an independent overseas fabric consultant. The consultant's primary duties included acting as mill liaison for the importer and helping the importer ensure that woven fabric purchased by the garment manufacturers from the mills conformed to the importer's stringent quality specifications. One of the consultant's quality control functions was to assist with fabric testing. The importer paid the consultancy fees directly to the consultant. The ruling noted that as a general proposition, CBP considers fees paid to third parties, to the extent that they are similar to bona fide buying commissions, generally not to be part of the price actually paid or payable for the imported merchandise. CBP cautioned, however, that when inspection or consulting-type services are at issue and entail quality control along the lines of production related design or development, then the fees may be dutiable either as part of the price actually paid or payable, or as an assist. In HRL 547033, CBP found the consultancy fees to be neither assists nor part of the price actually paid or payable.
In comparing the case in question to HRL 547033, referenced above, we similarly conclude that the payments made for project management and testing services are not part of the price actually paid or payable for the imported merchandise. This is because the Cereal Company (the buyer of the imported merchandise, but not the importer of record) will make the project management and testing payments to an independent third-party company, Insight Promotions, located in the United States, not to the seller of the imported goods. Thus, the payments are not being made by the buyer to, or for the benefit of, the seller. Additionally, the project management and testing services performed by Insight Promotions do not amount to quality control along the lines of production expenses, related to design or development of the imported merchandise. See also HRL H212283, dated June 19, 2014. In this case, Insight Promotions simply examines the prototypes or representative samples of the imported merchandise (or premiums (toys)) and determines whether these items will work correctly in Insight Promotions’ equipment that will be stationed at the Cereal Company’s factory in the United States. In other words, Insight Promotions is not responsible for designing and producing the premiums and has no role in manufacturing imported merchandise in China.
HOLDING:
Based on the information provided, the payments for project management and testing services, performed by Insight Promotions, are not included in transaction value as part of the price actually paid or payable for the imported merchandise.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch