RR:IT:VA 547197 KCC

Mr. Carl D. Cammarata
George R. Tuttle, PC
Three Embarcadero Center, Suite 1160
San Francisco, CA 94111

RE: Porsche Cars; American Tourist Delivery Program; transaction value; sale for export; Nissho Iwai American Corp.; Synergy Sport International, Ltd; ; clearly destined for U.S. at time of sale; HRL 544973; HRL 542310; HRL 546427; HRL 544973; contingency of diversion; HRL 542962

Dear Mr. Cammarata:

This is in response to your letter dated October 5, 1998, on behalf of Porsche Cars North America, Inc. (“PCNA”), concerning the appraisement of Porsche automobiles purchased under PCNA’s American Tourist Delivery Program (“Program”). We regret the delay in responding.


Porsche AG (“PAG”) is a German engineering company that designs and manufactures Porsche automobiles. PCNA is the U.S. distributor of the Porsche automobiles. It is our understanding that PAG and PCNA are related parties within the context of 19 U.S.C. §1401a(g).

Under the Program, a U.S. customer orders a vehicle from the Porsche authorized dealer in the U.S.. The dealer then places the order with PCNA, who places the order with PAG. PAG manufactures the vehicle specifically for the U.S. market to meet all U.S. requirements, including compliance with the statutes and regulations enforced by both the Department of Transportation (“DOT”) and Environmental Protection Agency (“EPA”).

PCNA purchases the vehicle from PAG at the same price as it would normally purchase its inventory of comparable vehicles from PAG. PCNA also pays for the vehicle at the same time and in the same manner as it would for its regular inventory. Title and risk of loss pass from PAG to PCNA after the vehicle passes the last factory inspection. Unlike regular transactions between PAG and PCNA, under the Program, instead of immediately delivering the vehicle to the exporting vehicle, the vehicle is delivered to the U.S. customer to temporarily operate. You indicate that the vehicle will be operated in Europe for no more than six months before the vehicle is returned to PAG for shipment to the U.S. However, the Program does not contain this limitation. The Programs only limitation is that the vehicle be returned within 12 months to qualify for free return shipment to the U.S. PCNA imports the vehicle, along with its normal inventory of vehicles into the U.S. for the U.S. customer. After entry through the port of Charleston, South Carolina, PCNA ships the vehicle to the U.S. customer, just as is done with its regular inventory. However, if the customer so desires, the customer may retrieve the vehicle at PCNA’s facility in Charleston rather than waiting for the vehicle to be shipped to the dealer.

In the “Other Terms” section of the Program, the following is stated:

[t]he intent of the [Program] is to provide bona fide retail customers a unique opportunity to drive their Porsche in Europe before shipment to the U.S., and to tour the Porsche production facilities. Porsche Cars N.A. reserves the right to terminate the dealership’s participation in the [Program] if there is abuse of this program. Abuse shall include, by way of example, but not as a limitation:

(A) Sales of cars to persons intending to resell the cars in Europe.

(B) Sales of cars to individuals who are European Citizens with the intent of only using the vehicles in Europe, who have no intentions of bringing the vehicle back to the U.S./Canada. *****


Whether the evidence submitted establishes that the transactions between PCNA and PAG involve goods which are destined for the United States such that a sale for exportation exists and appraisement should proceed under transactions value?


Merchandise imported into the U.S. is appraised in accordance with §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 merchandise when sold for exportation for the United States," plus certain enumerated additions. Thus, for imported merchandise to be appraised under transaction value, it must be the subject of a bona fide sale between the buyer and seller and it must be a sale for exportation to the U.S.

You have only provided us with a copy of the Program. You state that there are current transactions under the Program; however, you claim that, until your client receives this ruling, the vehicles will continue to be imported using transaction value based upon the higher value paid by the U.S. customer. Because the vehicles participating in the Program have not been imported using transaction value based upon the price paid by PCNA, as you propose, and this ruling request involves prospective shipments only, you claim that you are unable to provide any documentation demonstrating import transactions between PCNA and PAG under the Program.

You contend that a three-tiered distribution situation involving a U.S. purchaser, PCNA, the middleman, and PAG, the manufacturer, is in place. Thus two sales take place, one between the PAG and PCNA and the other between PCNA and the U.S. customer. You maintain that the bona fide sale for exportation takes place between the PAG and PCNA.

In Nissho Iwai American Corp. v. United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F.2d 505 (1992), and Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993), the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper dutiable value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman and a United States purchaser. In both cases, the middleman was the importer of record. In each case, the court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. Each court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm's length, free from any nonmarket influences, and involving goods clearly destined for the United States.

First we will examine whether the vehicles are destined for export to the United States at the time of the sale in order to be considered sold for exportation to the U.S. See, Headquarters Ruling Letter 544973 dated January 11, 1993, HRL 542310 dated May 22, 1981, and HRL 546427 dated December 19, 1996. You contend that the vehicles are destined for the United States at the time they are sold from PAG to PCNA pursuant to the Program. Pursuant to the “Other Terms” section of the Program, if the intention in purchasing the cars is to resell them to European customers for the ultimate use of the cars outside of the U.S., then this is considered an abuse of the Program and threatens the dealer’s or U.S. customer’s participation in the ‘Program. Also, you state that the automobiles must be built to the specifications embodied in the statutes and regulations enforced by the DOT and EPA. We agree that the vehicles are destined for export to the United States at the time of the sale.

Even though the vehicles are destined for export to the United States at the time of the sale from PAG to PCNA the issue of whether the vehicles retention overseas now rules out its appraisement under transaction value needs to be addressed. We have found that a delay in exportation will not cancel a sale for exportation where the merchandise was destined for export at the time of sale and there was no planned or real use overseas. See, HRL 544973 dated January 11, 1993, where we determined that transaction value was appropriate for footwear which, at the time of sale, was destined for the U.S. but was detained in a foreign warehouse for a period of time due to defects. However, in HRL 542962 dated December 29, 1982, we determined that a sale for exportation did not occur when a motorcycle was purchased in Japan for the purposes of being used for an extended period overseas before being imported.

In this case, it is clear that the vehicles are in fact used overseas. That is the intent of the Program. Although the intent of the parties is for the vehicles to be shipped to the U.S., it is also the intent of the parties for the vehicles to be used overseas before exportation. Although you state that that the vehicles will be exported within six months, we find nothing in the Program which establishes this limit. It is our understanding that the six month limit is necessary for the U.S. customer to receive his security deposit or Value Added Tax (“VA”) from Germany. If the U.S. customer is so inclined, he may maintain the vehicle in Europe for more than six months but forfeit his refund. Additionally, the only other time limit in the Program concerns the U.S. customers free shipment to the U.S. The U.S. customer must return the vehicle to the factory within twelve months of delivery to receive this benefit. Otherwise, the U.S. customer will have to pay for shipment to the U.S. There is no other time limits for shipment to the U.S. found in the Program. Moreover, the only penalty for non-compliance with the Program is the possible removal of PCNA from the Program. We find no penalty imposed on the U.S. customer if the vehicle is not exported to the U.S.

We find that there is a contingency of diversion of the vehicle so that the vehicle may not be exported to the U.S. We have held that where a contingency of diversion exists there can be no sale for exportation to the U.S. and, therefore, transaction value is an unacceptable method of appraisement. In HRL 546069 dated August 1, 1996, cheese intended for the United States market was first shipped through Holland and was placed in a bonded warehouse for inspection to ensure the cheese met contract specifications. If the cheese did not meet specifications, it could be sold in the European market. Given those facts Customs found that the evidence submitted did not establish that the cheese was destined for the United States market at the time of exportation. Similarly, in the instant matter, the fact that the vehicle is used in Europe for an unknown period of time and that little, if any, penalty exists for non export establishes a possible contingency of diversion. We, accordingly, find that the vehicle is not sold for exportation to the United States from PAG to PCNA.


Based on the evidence submitted, the transactions between PCNA and PAG do not involve goods which are destined for the United States such that a sale for exportation exists. Therefore, the price between PCNA and PAG is not an acceptable transaction value.


Thomas L. Lobred
Chief, Value Branch