OT:RR:CTF:VS H331224 AP
Center Director
Apparel, Footwear and Textiles CEE
U.S. Customs and Border Protection
555 Battery St., Room 433
San Francisco, CA 94111
Attn.: CBP Import Specialist Christopher Jeresko
RE: Internal advice; Footwear; Related Parties; Appraisement
Dear Center Director:
This is in response to your March 31, 2023 referral requesting internal advice concerning the appraisement of women boots imported by Burberry Wholesale Limited ("U.S. importer" or ""BBUS") from Italy. On November 9, 2023, our office met with the company and its counsel to discuss the company's method for appraising the footwear. Our decision follows.
FACTS:
In this multi-tier transaction, the U.S. importer BBUS purchased women boots from the middleman, Burberry Limited UK ("BBUK"), who is a related party. The middleman in turn purchased the merchandise from Maresca, an unrelated footwear producer and vendor in Italy.
According to the April 26, 2012 BBUK-BBUS (Wholesale Limited) Distribution Agreement, which the importer advises continues to be in effect, BBUS "shall be entitled to describe itself as Burberry's authorised distributor but shall not hold itself out as Burberry's or the Supplier's agent or as being entitled to bind Burberry or the Supplier in any way." The Distribution Agreement states that the middleman BBUK continues to own the trademark rights after the goods are sold to BBUS and has "the sole and exclusive rights and title of Burberry in and to the Burberry Intellectual Property." BBUS is responsible for "all freight charges, insurance, customs duties and other governmental fees incurred within the Selling Territory [the United States]" and "for payment of freight from the port of export to the point of importation," and the merchandise "will be shipped according to Free On Board ("FOB") terms." The product price invoiced to BBUS is equal to "an arm's length charge for manufacturing" of the products; "an arm's length charge of [x]% of their wholesale price in the [United States] for the [BBUK] Intellectual Property embedded in the Products, which have been benchmarked through reference to third-party comparables," "an arm's length charge for the sourcing and supply chain function of the Products at cost plus [x]%," and "all associated freight, logistic, and processing costs incurred in transporting the product to the relevant point of export."
According to BBUK's Vendor Manual, "Where FCA [Free Carrier] incoterms are used, the vendor is responsible for loading the container or truck organized by Burberry. Burberry [BBUK] will bear all costs and responsibility following this point."
The purchase order ("PO") report from the U.S. importer BBUS to the middleman BBUK reveals that BBUS ordered 1,167 pairs of boots (type, material, color specified), priced at $[x] per pair for a total price of $[x]. The planned "handover date" was January 5, 2022.
According to the June 16, 2021 PO from the middleman to the foreign vendor, the Incoterms for the first sale were Free Carrier-Suppliers Facility. The PO was for 1,167 pairs of black eco rubber boots, priced at [x] Euros (approximately $[x]) per pair for a total price of [x] Euros (approximately $[x]) to be delivered to BBUS in Vineland, NJ. The Ex-factory date was December 16, 2021. The PO states that risk and title in goods only pass to BBUK when the vendor delivers the goods to the delivery location specified on the order.
The December 28, 2021 invoice from the foreign vendor to the middleman indicates that the shipping destination was BBUS in Vineland, NJ, the consolidator was DSV Road SRL ("DSV"), the total invoiced price for 448 pairs of boots was [x] Euros (approximately $[x]), and the price per pair was [x] Euros (approximately $[x]). The Incoterms were FCA Cizzolo, Italy. On January 25, 2022, the middleman paid [x] Euros to the foreign producer.
The January 4, 2022 invoice from the middleman to the U.S. importer reveals that the Incoterms were Carriage and Insurance Paid to ("CIP") Landed New York, the payment terms were "within 30 days without deduction," and the price for 448 pairs of boots was $[x] (unit price $[x]). On February 21, 2022, the payment in the amount of $[x] ([x] GBP), made by the U.S. importer to the middleman, cleared.
The importer states that the correct Incoterms between the middleman and U.S. importer were FCA Supplier's Warehouse in Cizzolo, Italy, the same terms used in the "first sale" transaction between the foreign producer and the middleman, and that the Incoterm error on the invoice resulted from a system error, which was corrected in June 2022. The importer explains that the system error occurred "due to a failure properly to reprogram the company's enterprise data system error to reflect the fact that Burberry US had assumed responsibility for paying international freight charges. The use of the Incoterm 'CIP' implied that Burberry UK, the seller, was paying international freight and insurance charges. In fact, these charges were paid by Burberry US." The importer states that title to the merchandise transferred at the same time as the risk of loss.
According to the freight pick up confirmation, the consolidator DVS picked up 56 cartons (448 pairs) of boots and shipped them by air on January 4, 2022. The House Air Waybill from DSV lists the U.S. importer as a consignee and the foreign vendor as the shipper, departure from the airport in Milan, Italy on January 4, 2022, and arrival at John F. Kennedy ("JFK") airport in New York on January 9, 2022. The gross weight for the 56 cartons of boots was [x] kg and the gross weight was [x] kg. The consolidator DSV invoiced the U.S. importer BBUS for the air freight costs on February 7, 2022, and the U.S. importer paid on March 4, 2022.
The air freight arrival notice indicates that 56 cartons (448 pairs) of women boots were delivered to JFK airport in New York on January 9, 2022. On that date, the U.S. importer BBUS submitted an entry summary for 448 pairs of boots with "first sale" entry value of $[x] (1.1296/EUR; invoice value in Euros [x]). The remaining 719 boots listed on the purchase orders from the foreign vendor and the U.S. importer were entered into the United States under a separate entry on January 22, 2022.
While the U.S. importer BBUS paid for the transportation of the merchandise from Italy to the United States, the middleman BBUK held an insurable interest in the goods and insured them during the voyage to the United States. The Global Insurance Policy in effect when the entry was made, which was held and paid by BBUK, states that risk attaches to the goods during the products' voyage, "[i]ncluding all inland and/or domestic transits and transshipment by land, water or air, whether customary or otherwise and returned shipments" and "periods whilst held in storage in the ordinary course of transit" are covered by BBUK.
ISSUE:
Whether the merchandise may be appraised based on the "first sale" transaction value between the foreign vendor and the middleman BBUK.
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, codified at 19 U.S.C. 1401a. The primary method of appraisement is transaction value. Transaction value is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus certain statutorily enumerated additions under 19 U.S.C. 1401a(b)(1)(A)-(E). Unless there is a bona fide sale of merchandise for exportation to the United States, the transaction value method cannot be used.
The U.S. importer BBUS seeks to utilize the transaction value of the sale between the foreign vendor Maresca and the middlemen BBUK in the multi-tiered transaction described above. In Nissho Iwai Am. Corp. v United States, 982 F.2d 505 (Fed. Cir. 1992), the court reviewed the standard for determining transaction value in a multi-tiered transaction. The court case involved a foreign manufacturer, a middleman, and a U.S. purchaser. The court held that the price paid by the middleman to the foreign manufacturer was the proper basis for transaction value. The court stated that in order for the foreign manufacturer's price to be a valid transaction value, the transaction between the foreign manufacturer and the middleman needed to be a sale negotiated at "arm's length" that was free from any non-market influences, and involved goods clearly destined for exportation to the United States.
In accordance with the Nissho Iwai court decision and our own precedent, we presume that transaction value is based on the price paid by the importer. An importer may request appraisement based on the price paid by the middleman to the foreign manufacturer in situations where the middleman is not the importer. It is the importer's responsibility to show that the "first sale" price is acceptable under the standard set forth in Nissho Iwai. The U.S. importer must present sufficient evidence that the alleged sale was a bona fide "arm's length sale" and that it was "a sale for export to the United States" within the meaning of 19 U.S.C. 1401a.
In Treasury Decision ("T.D.") 96-87, dated January 2, 1997, the Customs Service, now U.S. Customs and Border Protection ("CBP"), advised that the importer must describe in detail the roles of the parties involved and must supply relevant documentation addressing each transaction that was involved in the exportation of the merchandise to the United States (e.g., the alleged sale between the importer and middleman, and the alleged sale between the middleman and the manufacturer). Relevant documents include, but are not limited to purchase orders, invoices, proof of payments, contracts, and any additional documents (i.e. correspondence) that establish how the parties deal with one another. CBP is looking for "a complete paper trail of the imported merchandise showing the structure of the entire transaction." If unable to do so, the sale between the middleman and the manufacturer cannot form the basis of transaction value.
First, we must determine if a bona fide "sale" occurred between the foreign vendor and the middleman. "Sale" means a transfer of property from one party to another for consideration. See VWP of Am., Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33 (1974). CBP will consider whether the purported buyer assumed the risk of loss for, and acquired title to, the imported merchandise. 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 Headquarters Ruling Letter ("HQ") 545705, dated Jan. 27, 1995.
In addition, CBP may examine whether the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HQ H005222, dated June 13, 2007. Pursuant to the CBP's Informed Compliance Publication, entitled "Bona Fide Sales and Sales for Exportation," CBP will consider whether the buyer provides or could provide instructions to the seller, is free to sell the transferred item at any price he or she desires, selects 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.
In this case, documents were submitted to show that the sale between the foreign vendor and middleman qualifies as a sale for export to the United States within the meaning of 19 U.S.C. 1401a(b). As the foreign vendor and middleman are unrelated, the sale between them is presumed to be at arm's length. In addition, the documentation shows that the footwear is clearly destined for the United States at the time of the sale between the foreign vendor and the middleman; as per the air waybill, the footwear was shipped by air from Milan and arrived directly at JFK Airport in New York. This leaves the question of whether the sale between the foreign vendor and the middlemen is a bona fide sale.
According to the Vendor Manual and the purchase order and invoice from the middleman to the foreign vendor, the Incoterms for the "first" sale between the foreign vendor and middleman are FCA-supplier's warehouse in Cizzolo, Italy. Thus, the risk of loss passed from the foreign vendor to the middleman when the consolidator DSV loaded the merchandise at the supplier's warehouse in Italy. The importer states that title to the merchandise passed at the same time as the risk of loss.
Pursuant to the BBUK-BBUS Distribution Agreement, which the importer advises remains in effect, the sale terms between the middleman and the U.S. importer are "FOB," which only applies to ocean or inland waterway transport. However, "FOB" does not apply to air. "CIP Landed New York," which the importer states was incorrectly listed on the invoice from the middleman, is clearly not the correct Incoterm because the middleman BBUK was not responsible for both the cargo insurance and the freight costs until the goods reached the place of destination. The submitted evidence reveals that the middleman held the cargo insurance and paid for it while the U.S. importer BBUS paid the transportation costs to New York. Under FCA-supplier's warehouse, which applies to all transport modes, the buyer collects the goods from the seller's location and the risk to the goods shifts from the seller to the buyer when the goods are loaded from the seller's location. Therefore, when the goods were picked up and loaded by the consolidator in Cizzolo, Italy, the risk of loss and title, under the flash transfer of title and risk, passed from the foreign vendor to the middleman and then from the middleman to the U.S. importer. There is no indication that BBUK was acting as an agent because BBUK was free to sell the transferred item at any price BBUK desired, could select the vendor, retained control over the intellectual property rights after the goods were sold to BBUS, and there is no indication BBUK had received commissions from BBUS or the foreign vendor.
Each case is assessed based upon the specific facts and evidence presented. Flash transfer of title and risk of loss by itself does not equate to a failure to show a bona fide sale. In HQ H016966, dated Dec. 17, 2007, CBP stated that, "[w]henever there is a purported series of sales, and the same terms of sale are used in both transactions, there is a concern that the middleman obtains risk of loss and title only momentarily or never at all, and thus has nothing to sell to the ultimate purchaser. In such situations the middleman may be a buying or selling agent rather than an independent buyer/seller and the sale will be said to occur between the party identified as the first seller and the ultimate U.S. purchaser." A simultaneous transfer of title does not equate to failure to show a bona fide sale but it may cause CBP to scrutinize a transaction more closely.
For instance, in HQ 545271, dated Mar. 4, 1994, the merchandise was appraised based on the "first sale" price. In that case, the manufacturers shipped the merchandise directly to the U.S. importer per the terms of the purchase orders between the middleman and the manufacturers. A review of the entire transaction and the documentary evidence led CBP to conclude there was a bona fide sale between the manufacturers and the middleman. However, in HQ H266540, dated Sept. 8, 2016, CBP concluded that a first-sale appraisement was not appropriate. In that matter, a U.S. company ordered merchandise from a related party who, in turn, ordered the merchandise from a foreign seller, which contracted with a Chinese supplier. The related party used a buying agent. Each transaction involved the same shipping terms, FOB Ningbo, China, and the documents were silent as to the passage of title and the risk of loss between the foreign seller and the middleman. The related party and the U.S. importer took title at the same time. CBP emphasized that the simultaneous transfer of title from the parties indicated a possible existence of an agency relationship and under such circumstances a first-sale appraisement cannot be used. See HQ H275755, dated Jan. 26, 2018 (reaching the same conclusion in another multi-tiered transaction).
A review of the documentation submitted here shows the flow of the ordering process from one party to the next, and the flow of the payment process follows a reasonable pattern. The role of the middleman has been adequately explained and there is no indicia of an agency relationship. We conclude that the importer has presented sufficient information to support making a claim for "first sale" appraisement of the subject footwear.
HOLDING:
Based on the presented information, the "first sale" transaction value appraisement may be utilized for the transaction between the foreign vendor and the middleman described above.
This decision should be mailed by your office to the importer, through its counsel, no later than 60 days from the date of this letter. On that date, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel and the public on the Customs Rulings Online Search System ("CROSS") at https://rulings.cbp.gov/home, or other methods of public distribution.
Sincerely,
Monika Brenner, Chief
Valuation and Special Programs Branch