OT:RR:CTF:VS H249150 YAG
Assistant Port Director of Trade
Port of Blaine, Washington
U.S. Customs and Border Protection
9901 Pacific Highway
Blaine, WA 98230
RE: Internal Advice; Bona Fide Sale; Sale for Export
Dear Assistant Port Director of Trade:
This is in response to your internal advice request, dated January 7, 2014, concerning the valuation of wearing apparel imported at the Port of Blaine, Washington from Canada.
FACTS:
Aritzia LP (“ALP”) is a Canadian women’s fashion boutique company, headquartered in Vancouver, British Columbia. United States of Aritzia, Inc. (“AUS”) imports wearing apparel from Canada into the United States. ALP and AUS are related parties, as defined in 19 U.S.C. §1401a(g), with shared administrative services for both companies being provided in Canada by ALP. In fact, both companies share the same office, as referenced in multiple documents provided for U.S. Customs and Border Protection’s (“CBP”) review. The information presented also indicates that AUS was incorporated in Delaware, but it has no actual corporate presence in the United States. ALP and AUS share personnel in Canada, and all general and administrative functions are performed by ALP. It is not known if AUS pays ALP a service fee for performing these general and administrative functions. ALP states that the agreement between these parties is that of a supplier and distributor. There is no sale/distributor/vendor agreement provided for our review.
It is stated that AUS sells the wearing apparel online directly to U.S. customers. In addition to the online sales, AUS distributes the imported merchandise out of the company’s third party warehouse, located in Sumner, Washington, to thirteen (13) Aritzia stores in Chicago, New York City, San Francisco, Santa Clara, Seattle, Dallas, Portland, and New Jersey. This internal advice pertains only to the online sales from ALP/AUS to the U.S. customers.
While filing entry documents in order to obtain U.S. customs clearance of the imported merchandise, ALP provided an invoice (dated the date of arrival of the wearing apparel into the United States), in which the company declared that the merchandise was being appraised under the transaction value method of appraisement, based on the bona fide sale for exportation between the related parties, ALP and AUS. The declared value was based on the following calculation: FOB to ALP + .10 freight (factory in China to Canada) + .12% (Insurance) + 17% (profit) + 5% (profit to make market value). According to ALP, this value is the same as the value declared for the merchandise imported for the company’s inventory (stored at a third party warehouse) and sold through Aritzia’s 13 stores in the United States. Further, the invoice provided to CBP also identified ALP as the exporter/shipper and UPS as a consignee, with AUS as the ultimate consignee on the entry.
On April 9, 2013, a shipment of wearing apparel was examined by CBP officers at the Port of Blaine, prior to entering the United States. CBP discovered that the goods were packaged and boxed ready to ship to each individual online customer in the United States, with an order confirmation invoice listing the retail price paid by the internet customer. The order confirmation invoices identified the customer, the merchandise purchased, and the purchase price paid by the online customer prior to the importation of the merchandise into the United States. The goods were not shipped to Aritzia’s stores or a warehouse. The goods were shipped to the UPS hub in Auburn, Washington, and U.S. customers that purchased the goods online were identified as ultimate consignees. Subsequently, on May 8, 2013, CBP issued a CBP Form 28 (Request for Information) to AUS, requesting an explanation of the bona fide sale and information substantiating a bona fide sale for export between ALP and AUS.
In response to CBP Form 28, ALP stated that the company sources its inventory from multiple suppliers in China (and as some documents show, Vietnam). ALP sends its purchase orders to the suppliers of the wearing apparel, and the suppliers fulfill the orders and subsequently ship the wearing apparel and their invoices to ALP. All goods are warehoused in Canada until sold online to the U.S. and Canadian customers. According to ALP, when the U.S. customer places an order online on the U.S. portal of aritzia.com, the U.S. customer pays for the goods online using their credit card, and AUS receives the payment. AUS sends an order confirmation to the U.S. customer and forwards an intercompany order to ALP. ALP states that ALP fulfills the intercompany order on behalf of AUS, and title of goods transfers to AUS. ALP states that terms of sale between ALP and AUS are FCA Aritzia LP Burnaby, BC Canada Distribution Center. ALP generates a commercial invoice, prepares the consolidated bill of lading and passes the goods to the United Postal Service (“UPS”) for shipment into United States. Once the goods clear U.S. Customs, UPS delivers the goods, along with the invoice to the U.S. customers. Once AUS gets a proof of delivery from the UPS, it records the sale to the U.S. customer. ALP invoices AUS at the end of each month for all merchandise sold to AUS and records an intercompany sale. AUS forwards the payment to ALP by check.
To substantiate these facts, ALP provided the following documents to CBP: (1) invoices and packing lists from foreign suppliers to ALP and the supporting bill of ladings (forwarder’s cargo receipts) for the shipment of goods to Canada as well as Canada Customs invoices and coding forms; (2) accounting documentation/computer print-outs to support the sale from ALP to AUS and AUS to U.S. customers (these documents include the invoices to U.S. online customers); (3) commercial invoice from ALP to AUS; (4) bank statement from Wells Fargo (U.S. account with Canadian mailing address), supporting the payment of online sales from U.S. customers to AUS; and, (5) copy of AUS’ U.S. Corporate Income Tax Return to support the declaration of profit reported in the United States (without supporting worksheets).
ALP claims that the appropriate bona fide sale for exportation is between ALP and AUS. ALP believes that the documents provided to CBP clearly depict the online customers in the United States going to the AUS website, much in the same way as they would walk into an AUS retail store and make a purchase. The company claims that at no time during the ordering process do these customers interact with ALP. ALP also states that it is almost impossible for the U.S. customers to order the goods from the Canadian website, since the website automatically routes customers to either the U.S. portion of the site or the Canadian portion of the site, depending on the customers’ location. The Port, on the other hand, believes that the bona fide sale for exportation is the actual sale between ALP and the U.S. customer. Our decision follows.
ISSUE(S):
Whether there is a bona fide sale for exportation to the United States between ALP and AUS and/or between ALP and ultimate U.S. customers?
LAW AND ANALYSIS:
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). When transaction value cannot be applied, then the appraised value is determined based on the other valuation methods in the order specified in 19 U.S.C. §1401a(a).
In order to use transaction value, there must be a bona fide sale for exportation to the United States. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed.Cir. 1999), the Court of Appeals for the Federal Circuit found that the term “sold” for purposes of 19 U.S.C. §1401a(b)(1) means a transfer of title from one party to another for consideration (citing J.L. Wood vs. United States, 62 CCPA, 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). Several factors are relied on to determine whether a bona fide sale exists. See Headquarters Ruling Letter (“HRL”) 546067, dated Oct. 31, 1996. No single factor is decisive in determining whether a bona fide sale has occurred. See HRL 548239, dated June 5, 2003. CBP will consider such factors as whether the purported buyer assumed the risk of loss for, and acquired title to, the imported merchandise. In addition, CBP may examine whether the purported buyer paid for the goods, and whether, in general, the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HRL H005222, dated June 13, 2007.
Finally, pursuant to CBP’s Informed Compliance Publication, entitled “Bona Fide Sales and Sales for Exportation,” CBP will consider whether the buyer provided or could provide instructions to the seller, was free to sell the transferred item at any price he or she desired, selected or could select its own downstream customers without consulting with the seller, and could order the imported merchandise and have it delivered for its own inventory.
Evidence to establish that consideration has passed includes payment by check, bank transfer, or payment by any other commercially acceptable means. Payment must be made for the imported merchandise at issue; a general transfer of money from one corporate entity to another, which cannot be linked to a specific import transaction, does not demonstrate passage of consideration. See HRL 545705, dated January 27, 1995.
In the instant case, AUS is declaring values for the imported wearing apparel based on the transaction value of alleged sales with its related seller, ALP. Considering all information and documents presented in this case, CBP cannot conclude that there is a bona fide sale for export between ALP in Canada and AUS because the parties do not function as buyer and seller. In its response to CBP’s request for information, ALP stated that the terms of sale between ALP and AUS are FCA (Free Carrier) Aritzia LP Burnaby, BC Canada Distribution Center. Nevertheless, the documents provided to CBP for review fail to specify the specific terms of sale agreed to by the parties. Consequently, there is no evidence provided to show when the parties actually agree that title and risk of loss would pass from ALP to AUS and from AUS to its online customers in the United States. See HRL H006576, dated December 19, 2007. Moreover, there is no evidence of payment for the imported merchandise at issue between ALP and AUS.
Despite its statement that the parties act as a supplier and distributor and/or buyer/seller, there are no purchase orders, contracts, or financial records between ALP and AUS provided for our consideration in order to substantiate a buyer/seller relationship. What ALP (not AUS) actually provided were some documents for our review concerning the transaction between AUS and the U.S. customers as well as the documents showing payments from ALP to its suppliers in China (and Vietnam) and the U.S. customers to AUS for the merchandise ordered online. Also, a commercial invoice, dated on the date of arrival of the merchandise into the United States, between ALP and AUS was provided to CBP; however, this invoice was not substantiated by CBP’s examination of the company’s shipments at the Port of Blaine, which contained the merchandise purchased by individual U.S. customers, which included invoices issued to the U.S. customers by ALP. The fact that it is ALP, not AUS, which actually issues the invoices to the U.S. customers, follows from ALP’s own statement in response to CBP Form 28, in which ALP represented that “ALP generates a commercial invoice, prepares the consolidated bill of lading and passes the goods to UPS. UPS delivers the goods, along with the invoice, to the customers, once the goods clear U.S. customs.” One must infer that ALP prepares the invoice found in the shipments of the wearing apparel delivered to the U.S. customers.
AUS’ lack of independence from ALP is further evidenced by the fact that both companies occupy the same offices in Canada and share administrative services (we have no information as to whether AUS actually pays anything to ALP for the services provided) and personnel (according to ALP’s representations to the Port, administration of both companies is done by the same people, and AUS has no administrative offices in the United States). See HRL H023094, dated July 22, 2010. In fact, ALP’s Canadian address appears on all of the documents submitted for our review, with the names of the companies (Aritzia LP or United States of Aritzia, Inc.) being used interchangeably. AUS has a U.S. bank account with Wells Fargo; however, it also lists the offices of ALP as its address. AUS provided a copy of its U.S. Corporate Income Tax Return to support the declaration of profit reported in the United States; however, it once again listed ALP’s office as its address. Further, without supporting worksheets, it is impossible to establish that the income reported includes the online sales. It is also unclear as to whether ALP and AUS share accounting books and records or whether the books are kept separately for both companies.
Furthermore, the Terms of Use, referenced on ALP and AUS websites are identical (with the exception of the arbitration clause), with the laws of the Province of British Columbia, Canada and applicable federal laws of Canada governing all transactions in Canada and the United States. ALP provides customer service and contact information for both websites (Canada and United States). Additionally, the records indicate that if the U.S. customers want to return the merchandise purchased online, the UPS-owned Mail Innovations and Trade Direct consolidates returns and ships the merchandise back to ALP, not AUS. ALP also pays for shipment of the merchandise from Canada, as evidenced by ALP’s account number, stated on UPS’ consolidated bill of lading. Thus, ALP/AUS operates exclusively out of Canada, with the private P.O. Box in Delaware being the only presence AUS has in the United States. Since, Aritzia’s entire operation is situated in Canada and ALP and AUS do not function as a buyer and seller, we believe that the sales between Aritzia and the U.S. customers in the United States constitute bona fide sales for exportation to the United States.
HOLDING:
Based on the totality of information presented, we find that the transactions between ALP and AUS cannot be used to appraise the imported merchandise. The merchandise should be appraised based on bona fide sales for exportation from ALP to the U.S. customers.
This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to CPB personnel, and to the public on the CPB Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Please do not hesitate to contact us at (202) 325-0042 if you have any questions or concerns.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch