OT:RR:CTF:VS H287078 EE
Scott Hoffman
Trans American CHB, Inc.
North American Service Center
4902 North America Drive
Buffalo, NY 14224
RE: Valuation of components imported in split shipments
Dear Mr. Hoffman:
This is in response to your letter, dated May 16, 2017, on behalf of your client, Teknion Limited (“Teknion”), in which you request a ruling concerning the valuation of various components of a product transported in split shipments.
FACTS:
You state that Teknion is a non-resident importer of record, headquartered in Ontario, Canada. Teknion designs, manufactures, and markets workplace interiors. Its products include office systems, furnishings, soft seating, ergonomic accessories, and architectural products. Teknion sales to the United States from Canada are exclusively through its related party, Teknion LLC, located in Mt. Laurel, NJ. You state that the transaction value of products imported into the United States is based on the transfer price between Teknion and Teknion LLC. The transfer pricing methodology used in the transfer pricing documentation is based on the Transaction Net Margin Method (“TNMM”). You state that the title from the seller passes to the buyer at the dock in Canada (FOB Dock).
Teknion receives large customer purchase orders which, using an algorithm, are split into as many 53’ truckload shipments as required. However, when the algorithm is incorrect, and there’s more product than can physically fit within a single trailer (split shipment), Teknion will backorder the remaining product. This process is repeatable through the declaration on shipping documentation of the content in any given trailer.
Teknion does not ship all products assembled. Teknion refers to the knocked down components as child items. To illustrate, when a customer orders a table (1 top and 4 legs), Teknion will package the top (child A) separately from the legs (child B); the assembly of these children will occur at the customer’s site. A split shipment, in this case, involves child A & B shipping in two different conveyances, for the one table sold; however, the table is priced and invoiced to Teknion LLC as one item.
In order to value the two children for the purpose of presenting a commercial invoice for each separate conveyance, Teknion proposes a prorated formula which ascertains a net unit value for each individual child item, which will, when all child item values are aggregated, account for the total contract price paid from the buyer to the seller for the parent saleable item. You provided the following example:
Shipment 1:
Seq#
Child
Ratio
Order quantity
Shipped quantity
Backorder quantity
Net unit price
Charged value
Declared value
1.01
Top
1
5
5
0
$50.00
$250.00
$250.00
1.02
Legs
4
20
10
10
$12.50
$125.00
$125.00
$375.00
$375.00
Shipment 2:
Seq#
Child
Ratio
Remaining quantity
Shipped quantity
Backorder quantity
Net unit price
Charged value
Declared value
1.02
Legs
4
10
10
0
$12.50
$125.00
$125.00
$125.00
$125.00
Total declared value of child items from shipments 1 and 2:
Seq#
Parent
Ratio
Order quantity
Shipped quantity
Backorder quantity
Net unit price
Charged value
Declared value
1.0
Table
1
5
5
0
$100
$500.00
$500.00
$500.00
$500.00
ISSUE:
Whether the presented formula is acceptable for allocating the payment amongst the split shipments.
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised 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 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. 19 U.S.C. § 1401a(b)(1). If, for any reason, sufficient information is not available with respect to the additions to the price actually paid or payable, the transaction value of the imported merchandise is treated as one that cannot be determined. 19 U.S.C. § 1401a(b)(1).
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).
Transaction value is an acceptable basis of appraisement only if, inter alia, the buyer and seller are not related, or if related, the circumstances of sale indicate that the relationship does not influence the price actually paid or payable, or the transaction value of the merchandise closely approximates certain “test values,” i.e., previously accepted values of identical or similar merchandise. See 19 U.S.C. § 1401a(b)(2)(B). You state that the seller, Teknion, and the buyer, Teknion LLC, are related. You have not asked us to consider the acceptability of the related party price. As such, we will assume, for the purposes of this ruling, that Teknion can demonstrate the acceptability of the related party price as necessary. 19 U.S.C. § 1401a(b)(2)(B). We also assume that there is a bona fide sale between Teknion and Teknion LLC.
As previously noted, Teknion does not ship its products assembled. Further, the knocked down components, which Teknion refers to as “child items” may be shipped separately even though the assembled product is invoiced to Teknion LLC as one item. The merchandise is not all imported at the same time, rather they are imported in split shipments. You propose a prorated formula which ascertains a net unit value for each individual component, which will, when all of the components are aggregated, account for the total contract price paid from the Teknion LLC to Teknion for the assembled product for each shipment. In accordance with HQ 547313, dated July 19, 1999, which addressed a similar split shipment transaction, we find that your formula is considered an acceptable apportionment method for the split shipments, assuming its results are verifiable and in accordance with generally accepted accounting principles.
HOLDING:
Based on the facts presented, and the assumptions set forth above, the value of shipments of individual knocked down components may be apportioned using the submitted prorated formula.
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 CBP 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.
Sincerely,
Robert Dinerstein, Acting Chief
Valuation & Special Programs Branch