VAL R:IT:V 545659 er

Port Director
Philadelphia, PA

RE: Request for Internal Advice Concerning Printing Paper from []; Discounts.

Dear Sir:

This is in response to the former District Director's memorandum dated April 22, 1994, forwarding the request for internal advice submitted by the [company], dated April 14, 1994, concerning whether certain discounts may be considered in determining transaction value. Also submitted was a memorandum dated May 16, 1994, from the Chief, Special Merchandise Branch NIS Division of the New York Seaport. An additional submission dated March 8, 1995, was submitted by counsel on behalf of [company] and included a request for confidential treatment, pursuant to 5 U.S.C. 552a(b)(4) of the Freedom of Information Act ("FOIA"), regarding the information submitted to Customs in connection with the request for internal advice. Accordingly, should any demand under FOIA be made for this data, Customs will not disclose it under the exception stated above and Customs will notify [company] of such demand. Confidential information appearing in this response is bracketed and will be deleted from any published version. We regret the delay in responding.


[Company], the importer, is a wholly owned cooperative that was established to solicit orders for printing paper by several mills in [], each of which holds equal shares of [company]. The mills have established a series of wholly owned companies that handle the sale, shipment and administrative documentation for distribution of paper throughout the world. [Company] is the United States sales representative.

Both the District Director and [company] characterize [company's] role as that of a sales agent for the sellers (mills). [Company] solicits orders from unrelated purchasers in the United States on terms and conditions of sale established by the mills. The mills offer a range of discounted prices from the list prices, known as market, grade, quantity and merchant discounts. The mills do not accept direct orders from United States buyers. Copies of purchase orders from the U.S. customer to [company] were submitted as well as invoices and other documentation which reflect the agreed upon discounted prices.

The importer states that the discounts are either conditional or unconditional. A discount is unconditional when there are no specified purchasing obligations placed on the customer. A discount is conditional and monitored for performance compliance when a customer is to fulfill specified purchasing obligations.

Market, merchant and grade discounts are unconditional, whereas quantity discounts are conditional. A market discount is defined as the percentage deducted from the list price issued and is designed to be competitive within the market. A grade discount is issued in order to promote a new grade for a particular customer. Merchant discounts are awarded to paper brokers (United States buyers) who bring in new business. A quantity discount is issued to a customer who commits to purchasing a specified volume either initially or within a specified period of time.

Unconditional discounts are figured into the value declared at the time of entry and are reflected on the invoices presented to Customs. In some cases conditional discounts are either credited to the customer's account or paid to the customer at the end of the obligationary period, if the customer's performance is in keeping with the agreement. In such cases the discount is not reflected in the entered value because it is not credited to the customer's account or paid to the customer until after the time of entry. There is no claim made that the amounts refunded to the buyer or credited to the buyer's account after the time the merchandise is entered should be deducted to arrive at transaction value. In other cases a conditional discount is granted at the time of order placement because the order meets the size required for a quantity discount. In this instance, no amount is rebated and the discount is figured into the declared value at the time of entry and is reflected on the invoice presented to Customs.

[Company] states that there is no sale between the mills and [company] and [company] does not take title to the merchandise at any time. Title is transferred in the United States to the United States customer upon delivery to the customer's premises. All sales are at a delivered price to the American buyer's address. [company] pays each mill within 10 days from the date of shipment from [].

[Company] files entry and acts as importer of record for the imported merchandise. There is no invoice prepared in [] by the mills; instead, [company] prepares an invoice identifying the American buyer and the terms of delivery and payment. Entitlement to file entry is established by the bill of lading and/or the ship's manifest listing the shipper, [company] as the consignee and the United States buyer as the party to be notified. [Company] does not maintain an inventory.

The District Director states that transaction value should be determined on the basis of the price charged by the mills to the unrelated U.S. customers, with deductions for non-dutiable charges. You state that [company] is compensated through selling commissions paid by the mills to [company] for each sale. The selling commissions are included in the value declared to Customs. The price paid by the U.S. customer is the invoiced delivered price to the buyer's plant less amounts identified on the invoice for U.S. inland freight to the buyer's plant, Customs duties, and pier, warehousing, lading and storage charges incurred at the time of unloading from the vessel at the pier. Additionally, the invoices prepared by [company] identify amounts for the four different types of discounts.


Whether amounts identified and claimed as discounts which are declared at the time of entry and are reflected on the invoices presented to Customs may be considered in determining transaction value?


The primary method of valuing imported merchandise is transaction value. The transaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States, plus additions for packing costs, selling commissions incurred by the buyer, assists, royalties or license fees, and proceeds of any subsequent resale that accrue to the seller. 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)).

The term "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as "the total payment ... made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller." Section 152.103(a)(1) of the Customs Regulations (19 CFR 152.103(a)(1)) provides that the price actually paid or payable" ... will be considered without regard to its method of derivation. It may be the result of discounts, or negotiations, or may be arrived at by the application of a formula ..." (emphasis added). A discounted price must be agreed to and effected prior to importation for it to constitute the price actually paid or payable. See, Allied International v. United States, 16 Ct. Int'l Trade 545, 795 F.Supp. 449 (1992); HRL 544907, dated April 13, 1992; HRL 543302, dated November 1, 1984; HRL 543537, dated February 14, 1986; HRL 543662, dated January 7, 1986.

In order to establish that the discounts were agreed to before the time of entry, the importer, [company], must be able to furnish Customs with sufficient documentary evidence. As described above, three of the four types of discounts are "unconditional", meaning there are no specified purchasing obligations placed on the customer. Unconditional discounted prices are reflected on [company's] invoices to the U.S. customer and are declared at the time of entry.

Conditional discounts may occur either after merchandise is entered or at the time of order placement. In the former instance, the discount is either credited to the U.S. buyer's account or paid to the buyer after the buyer eventually satisfies the quantity criteria. Such discounts are not reflected in the entered value or on the invoices presented to Customs and may not be taken into consideration in determining transaction value. Conversely, in the other conditional discount situation, because the discount is agreed to before entry at the time of order placement, and because the discount is reflected both on the CF7501 and the invoices presented to Customs the conditional discount may be used to determine transaction value.

The Chief of the Special Merchandise Branch at the New York Seaport agrees that the documentation presented to Customs in conjunction with this request for internal advice does support a finding that the unconditional discounts and the conditional discounts agreed to at the time of order placement are agreed to before entry and should be figured into transaction value. However, it was suggested that we also obtain proof of payment from the U.S. customer and [company] to determine whether their remittances are consistent with the prices declared at the time of entry. The following information was submitted by counsel on behalf of [company] in response to our request for additional information. The documentation submitted concerns merchandise entered in Philadelphia in 1994. Document 1 is a copy of the CF7501 reflecting a declared value of [$] less [$] in non-dutiable charges to equal [$].

Document 2 is a copy of a check from the U.S. purchaser to [company] in the amount of [$]. The amount of the check reflects a [%] prompt payment discount which is neither reflected on the entry documentation nor claimed as a deduction from transaction value.

Documents 3 and 4 are commercial invoices to the U.S. purchaser prepared by [company], as agent on behalf of the seller. The gross amount of the first commercial invoice is [$]. From the gross price the company has deducted two amounts equal to [] and [$]. The first adjustment represents a market discount equal to [$] per short ton ("pst") of material, and the second is a [%] market discount, both of which were offered and taken by the buyer before the time of entry. The two discounts, in combination, reduce the invoice price to a net of [$]. The invoice also reflects the [%] prompt payment discount. Another commercial invoice from [company] to the U.S. purchaser was submitted reflecting a gross amount of [$] upon which market discounts are granted in exactly the same fashion as with the previously described invoice. The net price for this invoiced merchandise is [$].

Document 5 is a summary of the two, above-described invoices. This summary invoice totals [$] which is the sum of the net amounts of the two invoices (with a minor adjustment of less than $2 which is probably attributable to rounding in the calculation of each of the rebates). The summary invoice is used for Customs purposes because it specifies the deductions to arrive at the entered value; namely, international freight, insurance, customs duties and U.S. inland freight. The amount payable by the U.S. purchaser is reduced by [%], as indicated above, representing a prompt payment discount; thus, the price to the U.S. purchaser is [$].

Document 6 is a debit advice from [company] through a bank to the seller. The amount of the payment is the sum of eleven separate transactions, of which one represents the example transaction. This document records the amount [company] transmitted to the seller in connection with the subject example and corresponds to the amount appearing on the summary invoice less costs incurred by [company] in the U.S.

Document 7 is the calculation by which [company] determined its payment to the seller. Calculations begin with the duty paid delivered price the U.S. purchaser of [$] per short ton ("pst"). The calculation is adjusted for:

1. Market discount: [$ pst]; 2. Second market discount: [%]; 3. Pier charges: [$ pst]; 4. U.S. Inland freight: [$ pst]; 5. Customs brokerage fees: [$]; 6. Harbor maintenance and merchandise processing fees: [%]

These adjustments return the calculation to a CIF, U.S. port of entry price, which is [$]. From this amount the company makes the following further adjustments, to calculate the amount remitted to the seller:

7. A mill financing addition, calculated at [$] per metric ton; 8. A deduction for stock financing charge, calculated at [$] per metric ton; 9. A deduction for payment financing, calculated at [$] per metric ton; 10. A deduction for sales commission calculated at [$] per metric ton; and 11. A deduction for association management fee, calculated at [$] per metric ton.

These calculations result in an amount of [$] per metric ton to be remitted to the seller. This amount is consistent with the amount to be remitted to the seller as recorded on document 6.


The information and documentation submitted establish that the amounts identified and claimed as unconditional discounts which are reflected on the entry documentation and the invoices presented to Customs, are agreed to before the time of entry. Likewise, with respect to conditional discounts, when the customer has fulfilled the specified purchasing obligation at the time of entry no amount is rebated and the conditional discounted price reflected on the entry documentation and invoices is agreed to before the goods are entered. Accordingly, the conditional discounts which are taken at the time of entry and the unconditional discounts may be taken into consideration in determining the transaction value of the imported merchandise. In those instances where the customer has not yet fulfilled the specified purchasing obligation at the time of entry, the conditional discounts may not be taken into consideration in determining transaction value.


Acting Division Director
International Trade Compliance Division