Eric Ma
Kuehne + Nagel
1000 – 900 Howe Street
Vancouver, BC V6Z 2M4

Re: Dutiability of Interest Charges

Dear Mr. Ma:

This is in response to your letter, dated July 18, 2018, on behalf of your client, Discover Energy Corp. (“Discover”), in which you request a ruling concerning the proper treatment of interest charges paid by Discover to its vendor, Posco Daewoo Corp. (“Posco”).


Discover imports batteries from its vendor, Posco, located in Korea. You state that Discover and Posco have reached an agreement on a certain interest charge which is a surcharge of extending the payment term to 120 days from the shipment on board date. The interest charge is a percentage of the product cost and is varied by the London Interbank Offered Rate (“LIBOR”). You claim that interest charge, which is identified separately from the price actually paid or payable for the merchandise on the commercial invoice, should not be dutiable. You provided a memo from Posco and a sample commercial invoice issued by Posco to Discover.


Is the interest charge paid by Discover to Posco dutiable as part of the price actually paid or payable for the imported merchandise?


Merchandise imported into the United States is appraised for customs purposes in accordance with Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. § 1401a). The primary 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. See 19 U.S.C. § 1401a(b)(1). The applicability of transaction value is not at issue here, and we will assume that it is the correct basis for appraising the merchandise involved.

The term “price actually paid or payable” is defined as:

[T]he 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.

19 U.S.C. § 1401a(b)(4)(A).

T.D. 85-111 (along with a “Statement of Clarification,” 54 Fed. Reg. 29973 (July 17, 1989)) sets forth the requirements for the exclusion of interest charges from the price actually paid or payable. T.D. 85-111 states that interest payments should not be considered part of the dutiable value of merchandise if:

The interest charges are identified separately from the price actually paid or payable for the goods;

The financing arrangement in question was made in writing;

Where required by Customs, the buyer can demonstrate that

The goods undergoing appraisement are actually sold at the price declared as the price actually paid or payable, and The claimed rate of interest does not exceed the level for such transaction prevailing in the country where, and at the time, when the financing was provided.

As previously noted, you provided us with a sample commercial invoice from Posco to Discover. The commercial invoice lists the merchandise, model number, quantity, unit price, and the total price. There is a separate line showing an amount in dollars for the interest charge. As such, the vendor’s invoice denotes a separate interest charge from the price actually paid or payable for the goods. However, the requirement that the financing agreement must be in writing has not been satisfied. The memo, dated July 10, 2018, signed by the director of Posco and presumably addressed to CBP merely indicates that a sales contract would be made with Discover for the sale of automotive batteries from the Republic of Korea. The memo states that the vendor is Posco, the manufacturer is Discover Mixtech Manufacturing, and the sales term is FAS Korean Seaport. The letter further indicates that Posco would invoice Discover on the product cost of the battery plus an interest charge, which is a surcharge for extending the payment terms to 120 days from shipment on board date. The memo states that the interest charge is a percentage of the product cost. As of the date of the memo, the rate would be 2.6% of the product cost and would be varied by the LIBOR. While the memo signed by Posco outlines the terms, conditions and rate of interest alleged to constitute the financing understanding, there is no written confirmation indicating that Discover agreed to the proposed financing terms. Since we have not been provided a valid written financing agreement between the parties, we find that the interest charges should be included in the appraised value of the imported merchandise. See HQ H235895, dated August 22, 2014.


Since there is no valid written financing agreement between Posco and Discover, the interest charges are dutiable.

Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”

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.


Monika R. Brenner, Chief
Valuation and Special Programs Branch