OT:RR:CTF:VS H26429 RSD
Lewis E. Leibowitz, Esq.
Anne M. Wittmann, Esq.
Hogan Lovells US LLP
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004
RE: Request for Ruling concerning Nissho Iwai; First Sale; Bona Fide Sale; Sale for Exportation to the United States; Multi-tier Transactions
Dear Mr. Leibowitz and Ms. Wittmann:
This is in response to your letter of September 13, 2013, submitted on behalf of your client requesting a ruling pertaining to the valuation of merchandise imported into the United States via a multi-tiered transaction with a manufacturer located in Asia. You have requested that certain information submitted in connection with the Company, including the company’s name, be treated as confidential. Inasmuch as the request conforms to the requirements of 19 CFR §177.2(b)(7), your request for confidentiality is approved. The information contained within brackets and all attachments to the ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this decision.
FACTS:
The requester (hereinafter “The Company”) is a global enterprise primarily engaged in selling fashion jewelry and accessories in Europe and internationally. The Company is based overseas and is a leading supplier of fashion jewelry and accessories. It has a total of 12,500 sales areas and operates in 35 different countries. In addition, it has approximately 4,500 employees. The Company has a related affiliated company based in the United States. Neither the Company nor its U.S. affiliate is related to any of the foreign jewelry manufacturers, which are located in the Asia.
The Company will import merchandise classified as “imitation jewelry” under the Harmonized Tariff Schedules of the United States (HTSUS) into the United States. The U.S. affiliate imports merchandise into the United States produced by the various Asian manufacturers. The Company determines the quantities of jewelry and accessories to be ordered and places the orders for the merchandise with the Asian manufacturers. The Company negotiates the prices for the merchandise directly with the foreign manufacturers. You further state that the U.S. affiliate does not participate in any of the negotiations with the jewelry manufacturers. Under the Customs and Border (CBP) Regulations, the U.S. affiliate qualifies as an importer of record with the right to make entry in the United States.
In your request, you have included several exhibits consisting of pro forma documents, as examples of the documents that will be generated in future transactions. The first exhibit is a commercial invoice dated March 25, 2013, which indicates that the transaction involved a shipper/exporter based in China. The invoice further shows that the Company purchased 8100 pieces from the Chinese shipper. The Company is designated as the consignee with an address located in a European country. The shipping date is shown as March 19th, 2013. In box 9 of the invoice, the place of arrival was specified as Long Beach, California (USA), with an expected arrival date of April 19, 2013. Memphis, Tennessee was shown as the final destination for the merchandise. The invoice indicates that the shipping incoterm for the transaction is “FOB” (Chinese City).
The second exhibit is a through bill of lading indicating that a shipment of merchandise was sent from China to the Company in the United States. The third exhibit is a packing list which corresponds to the commercial invoice in Exhibit 1, in terms of the number of pieces that were shipped. The fourth exhibit is a purchase order between the Company and the Chinese manufacturer. The same parties are shown on both the commercial invoice in Exhibit 1 and the purchase order in Exhibit 4. The quantity and price of the merchandise ordered is identical to the amounts shown on the commercial invoice in Exhibit 1. In addition, the shipping terms on the purchase order is designated as FOB (City of Shipment in China). The date of the purchase order is February 6, 2013.
The fifth exhibit is an invoice from the Company to its U.S. affiliate. The quantity of pieces indicated on the invoice is identical to the number of pieces shown on the purchase order in Exhibit 4 and the commercial invoice of Exhibit 1. The term of delivery shown on the invoice is “DAP Memphis”. Exhibits 6, 7, and 8 are CBP documents including the entry summary from the relevant transaction.
The ninth exhibit is a payment advice from the Company to the Asian manufacturer of the merchandise. The tenth exhibit is a confirmation of a wire transfer from the U.S. affiliate to the Company for the same amount in Euros that is shown on the invoice between the Company and the U.S. affiliate in Exhibit 5.
ISSUE:
Whether the appraisement of the imported merchandise under transaction value may be based on the “first sale” transaction between the Company and the overseas manufacturer?
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 certain statutory additions. 19 U.S.C. § 1401a(b)(1).
In Nissho Iwai American Corp. v. United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F. 2d 505 (Fed. Cir. 1992), the Court of Appeals for the Federal Circuit reviewed the standard for determining transaction value when there is more than one sale which may be considered as being for exportation to the United States. The case involved a foreign manufacturer, a middleman, and a United States purchaser. The court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. The 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 non-market influences, and involving goods clearly destined for the United States. See also, Synergy Sport International, Ltd. v. United States (Ct. of Int’l Trade, 1993).
In accordance with the Nissho Iwai decision and our own precedent, we presume that transaction value is based on the price paid by the importer. In further keeping with the court’s holding, we note that 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. However, it is the importer’s responsibility to show that the "first sale" price is acceptable under the standard set forth in Nissho Iwai. That is, the 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 Customs and Border Protection (CBP)) advised that the importer must provide a description of 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. The documents may include, but are not limited to purchase orders, invoices, proof of payment, contracts, and any additional documents (e.g. correspondence) that establishes how the parties deal with one another. The objective is to provide CBP with "a complete paper trail of the imported merchandise showing the structure of the entire transaction." T.D. 96-87 further provides that the importer must also inform CBP of any statutory additions and their amounts. If unable to do so, the sale between the middleman and the manufacturer cannot form the basis of transaction value. T.D. 96-87 states as follows:
In order for an importer to rebut the presumption “[that the price paid by the importer is the basis of transaction value]”, certain information and documentation must be provided. Specifically, the requestor must describe in detail the roles of all the various parties and furnish relevant documents pertaining to each transaction that was involved in the exportation of the merchandise to the United States. If there is more than one possible sale for exportation, information and documentation about each of them should be provided. Relevant documents include, purchase orders, invoices, proof of payment, contracts and any additional documents (e.g. correspondence), which demonstrate how the parties dealt with one another and which support the claim that the merchandise was clearly destined to the United States. If any of these documents do not exist, or exist but are not available, the ruling request should so provide. What we are looking for is a complete paper trail of the imported merchandise showing the structure of the entire transaction
In summary, the public should be aware that CBP presumes that transaction value is based on the price paid by the importer and in order to rebut this presumption and prove that transaction value should be based on some other price, complete details of all the relevant transactions and documentation (including purchase orders, invoices, evidence of payment, contracts and other relevant documents) must be provided, including the relationship of the parties and sufficient information regarding the statutory additions.
Bona Fide Sale
First, we must determine if indeed a “sale” will occur. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit found that the term “sold” for purposes of 19 U.S.C. § 1401a(b)(1) means a transfer of title from one party to another for consideration, (citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). No single factor is decisive in determining whether a bona fide sale has occurred. See Headquarters Ruling Letter (“HQ”) 548239, dated June 5, 2003. CBP will consider such factors as to 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 HQ 545705, dated January 27, 1995.
In addition, CBP may examine whether the purported buyer paid for the goods, and whether, in general, 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.
Finally, 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.
A determination of when title and risk of loss pass from the seller to the buyer in a particular transaction depends on whether the applicable contract is a "shipment" or "destination" contract.... FOB point of shipment contracts and all CIF and C&F contracts are "shipment" contracts, while FOB place of destination contracts are "destination" contracts.... Unless otherwise agreed by the parties, title and risk of loss pass from the seller to the buyer in "shipment" contracts when the merchandise is delivered to the carrier for shipment, and in "destination" contracts when the merchandise is delivered to the named destination. The question of whether the proposed transactions involved in the ruling request are shipment contracts or destination contracts depends on the shipment terms specified in the documentation.
In this case, under an FOB sale, the risk of loss transfers when the goods pass the ship’s rail. See HQ H097035 dated November 15, 2011. In this regard, the sample submitted documentation, including the commercial invoice and the purchase order, between the Company and the jewelry manufacturer shows that a “FOB (Port of Exportation)” term of sale will be used in the transactions between the Company and the Chinese manufacturer. An FOB port of export term of sale means that risk of loss transfers from the seller to the buyer upon lading on the outgoing carrier. In the absence of a written instruction to the contrary, it is commonly accepted that title passes simultaneously with assumption of risk of loss. In this case, the Company would assume title and risk of loss from the point that the jewelry is loaded on board the vessel in the Chinese city. Finally, the payment advice statement in Exhibit 9 indicates that payment or consideration will be made or anticipated from the Company to the Chinese manufacturer. The documentation submitted thus supports the existence of a bona fide sale for the imported merchandise between the Company and the Chinese manufacturer.
Clearly Destined for Export to the United States
The next issue that must be considered in this case is whether the evidence presented demonstrates that the merchandise is clearly destined for export the United States at the time it was sold to the middleman. As noted in HQ 547382, dated February 14, 2002, our prior rulings indicate that CBP hesitates to find a sale for export where merchandise is not shipped directly to the United States. In this case, we note that the commercial invoice in Exhibit 1 indicates that the place of arrival for the merchandise is Long Beach, California (USA). The invoice further indicates that the merchandise’s final destination is Memphis, Tennessee in the United States. There is further documentation in the form of through bill of lading showing that the merchandise will be shipped from China to Memphis, Tennessee. Additionally, the purchase order and packing list further confirm that the merchandise will be shipped from China to Memphis, Tennessee. The purchase order also indicates that this merchandise is to be sold only in the U.S. and the “Final destination of the merchandise is within the U.S. including Puerto Rico”. The transaction documents provide no indication that the merchandise could be diverted from the United States. You also state that the products will be packed, priced and labeled in accordance with U.S. laws governing these matters. The labels will further indicate that the merchandise will be sold in U.S. dollars and labeled in accordance with U.S. laws. We also note that the documents presented offer a complete paper trail of the imported merchandise showing the structure of the transactions between manufacturer and the middleman, and the middleman and the U.S. importer. The description of the products, quantities of the products shipped, price, and further details regarding the merchandise contained in the documents presented correspond with each other and are consistent with each other. Consequently based on the information submitted, we find that the merchandise will be clearly destined to the United States when it is sold to the middleman.
Arm’s Length Transactions
According to the decision in Nissho Iwai, in order for a transaction to be viable for transaction value purposes, it must be a sale negotiated at arm’s length, free from any non-market influences. You state that no member of the Company’s group is related to the foreign manufacturers and the U.S. affiliate does not participate in any negotiations with the foreign manufacturers. There is a presumption that a transaction will meet this standard if the buyer and seller are unrelated. See T.D. 96-87, supra. Since the buyer in the first sale, is unrelated to the manufacturer/vendors of the imported merchandise, absent evidence to the contrary, it is presumed that the transaction is at “arm’s length”. See HQ 545474 dated August 25, 1995. Although in this case, the importer and middleman are related parties, there is no evidence to indicate that their relationship affects the price that the Company paid the Chinese based manufacturer for the merchandise in the transaction between these parties. Thus, we find that the U.S. importer does not control or influence in any manner the negotiations or prices that the Company pays to purchase the foreign merchandise.
Statutory Additions
The final element that must be established in order to rebut the presumption that the price actually paid or payable by the importer to the middleman is the transaction value involves the statutory additions to the price that are set forth in 19 U.S.C. §1401a (b)(1). Section 1401a (b)(1) provides that amounts equal to the following must be added to the price actually paid or payable:
the packing costs incurred by the buyer with respect to the imported merchandise; any selling commissions incurred by the buyer with respect to the imported merchandise; the value, apportioned as appropriate, of any assist;
any royalty or license fee related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States; and
the proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.
CBP must be provided sufficient information to confirm, as between the Company and the manufacturer, that there are no statutory additions or, alternatively, must be advised of the nature and amount of the statutory additions that must be added to the price actually paid or payable. See, for example, HQ 548494 dated January 26, 2005. In this case, you have not advised that there are statutory additions that must be made to the price actually paid or payable between the Company and the Chinese manufacturer. Consequently, in accordance with the Nissho Iwai, based on the documents presented, we find that the imported merchandise will be appraised using transaction value based on the price that the Company may pay the Chinese manufacturer.
HOLDING:
The information presented in this case indicates that the sale between the Chinese manufacturer and middleman (Company) will constitute a bona fide sale conducted at arm’s length and that the merchandise will be clearly destined for export to the United States at the time the middleman purchases, or contracts to purchase, the merchandise. Therefore, we find that the price paid between the manufacturer and middleman may serve as the basis of apprisement under transaction value for the imported merchandise.
Section 177.9(b)(1), U.S. Customs and Border Protection Regulations (19 CFR 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 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,
Monika R. Brenner, Chief
Valuation and Special Programs Branch