VAL CO:R:C:V 544690 ML

District Director
San Francisco, CA 94111

RE: Dutiability of Bonuses Paid For Early Delivery of Imported Merchandise; Protest No. XXXXX

Dear Sir:

This protest was filed against your appraisement decision in the liquidation of various entries made by Mitsubishi Heavy Industries America, Inc., (hereinafter referred to as the "importer"), the importer of electrical generating equipment. The merchandise was manufactured in Japan by Mitsubishi Heavy Industries, (hereinafter referred to as the "seller"). The merchandise was appraised pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)).


According to the submission, the imported merchandise consisted of heavy generating equipment. Counsel for the importer stated that the purchase contract specified amounts to be paid for turbine generators, a spare rotor, and various options. The amounts to be paid were invoiced and paid to the seller for the merchandise. Additional payments relating to delivery timing and procedures after the merchandise was manufactured were separately billed and were made to the seller in connection with an advanced delivery schedule.


Whether the manufacturer's performance bonuses are part of the "price actually paid or payable" for the imported merchandise appraised under transaction value.


The primary method of appraisement is transaction value. Transaction value is defined as the "price actually paid or payable for the merchandise when sold for exportation to the United States", plus certain enumerated additions. This is more specifically defined in section 402(b)(4)(A) of the TAA, as the following:

The term "price actually paid or payable" means the 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.

The protestant argues that the bonus payments involved on the entries in question hinge on the importer's arranging timely ocean and inland carriage, as opposed to the ability of the manufacturer to complete the products early. The importer argues that the additional payments made in connection with the advanced delivery schedule were separately stated specific amounts relating to delivery timing occurring after manufacture, were separately billed taking into consideration events occurring after exportation, and were not part of the intrinsic value of the merchandise. Counsel argues such expenses are more reasonably related to construction and erection costs occurring in the United States after exportation of the merchandise, which, although paid to the foreign seller, are not part of transaction value. Accordingly, these payments, counsel concludes, should not be added to the invoice amounts.

In Headquarters Ruling Letter (HRL) 543183, dated July 17, 1984, Customs addressed the issue of bonus payments paid by the importer to the seller for merchandise that exceeded a contractually agreed upon performance level. In that case, the parties agreed in the contract, that if the merchandise performed above a specified level of efficiency, the buyer would pay an additional amount or "bonus" to the manufacturer for the merchandise. Customs held with respect to the dutiability of the bonus amounts paid by the buyer to the seller, according to the agreement between the parties, the bonuses were part of the total payment for the imported merchandise and included in the "price actually paid or payable", consistent with section 402(b)(4)(A) of the TAA.

In the instant case, the importer has submitted no documentation to substantiate its claim. The importer stated only that the additional payments it made related to the delivery of the imported merchandise. Therefore, based on the information available to us, we conclude that the bonus payments made by the buyer to the seller were part of the "price actually paid or payable" for the imported merchandise and dutiable under transaction value.


In accordance with the above, the documentary evidence presented does not support the importer's claim that the bonuses paid by the importer to the seller do not form part of the "price actually paid or payable" for the merchandise when sold for exportation to the United States, as set forth in section 402(b)(4)(A) of the TAA.

Accordingly, you are hereby directed to deny the protest. A copy of this decision should be attached to Form 19, Notice of Action, to be sent to the protestant


John Durant, Director