VAL-2 OT:RR:IT:VA H133042 RSD
Gregory Watts
Damco Customs Services, Inc.
680 Knox Street, Suite 200
Torrance, California 90502
RE: Currency Conversion for the Cost of Non-Dutiable Origin handling and coordinating Charges Invoiced in a Foreign Currency; Foreign Exchange Rates
Dear Mr. Watts:
This is in response to your letter of November 10, 2010, requesting a ruling regarding the use of a “market based” currency conversion for various non-dutiable handling and coordinating charges invoiced in a foreign currency.
FACTS:
Damco Customs Services is a Customs Broker which acts as an agent for a number of well established importers. You state in your letter that you have obtained several Customs and Border Protection (CBP) Headquarters ruling letters which allow for the deduction of certain origin charges from the FOB commercial invoice price, as being charges incident to the international journey of the merchandise to the United States. Under a program that you have developed, your affiliated forwarding office will bill the foreign vendor directly for charges associated with the handling and coordinating of the freight for movement to the United States. According to the CBP Headquarters rulings, the charges will be allowed to be deducted from the FOB commercial invoice price at entry.
Your foreign affiliate offices will invoice the charges of handling and coordinating the freight, usually in the currency of the country from which the imported merchandise is shipped. The price of the actual merchandise will be shown on the invoice in U.S. dollars. In order to deduct the origin handling and coordination charges from the commercial invoice price, the origin handling and coordination charges must be converted into U.S. dollars. You ask if it is acceptable to use “market based” currency conversion rates to convert these origin handling and coordination charges into U.S. dollars for all foreign currencies. You have not described what is meant by the term “market based” rate, but you want to use the market rate even if a currency conversion rate has been established by the United States government.
You indicate that it is your intention to obtain the currency conversion rates from a single “market based” source for all transactions regardless if the foreign currency has a rate which is published by U.S. CBP. You propose to convert the origin handling and coordination charges billed to the vendor, and then deduct the converted U.S. Dollar amount from the commercial invoice price in accordance with previously established CBP Headquarters rulings.
You point out that the Federal Reserve Bank of New York’s web site announced on October 2, 2007, that it will no longer publish its rates due to the “availability of alternative market-based sources for these rates.”
ISSUE:
Whether a “market based rate” may be used for the currency conversion of various non-dutiable handling and coordinating charges invoiced in a foreign currency?
LAW AND ANALYSIS:
For purposes of this ruling we assume that transaction value is the proper basis of appraisement. Pursuant to Section 402(b)(1) of the Trade Agreements Act of 1979 (“TAA,” codified at 19 U.S.C. 1401a), the transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States.” Please be advised that in this decision, we are not making any affirmation regarding the dutability of the handling and origin fees that you mention in your ruling request.
Section 152.1(c), Customs and Border Protection (“CBP”) Regulations (19 C.F.R. 152.1(c)) provides that the date of exportation or time of exportation referred to in section 402 of the TAA, “means the actual date the merchandise finally leaves the country of exportation for the United States.” Moreover, section 159.32, CBP Regulations (19 C.F.R. 159.32) provides that “the date of exportation for currency conversion shall be fixed in accordance with § 152.1(c) of this chapter.”
The conversion of foreign currency for Customs purposes must be made in accordance with the provisions of 31 U.S.C. § 5151. This section states that CBP is to use the rate of exchange determined and certified by the Federal Reserve Bank of New York. These certified rates are based on the New York market buying rates for the foreign currencies involved.
In the case of widely used currencies, rates of exchange are certified each day. The rates certified on the first business day of each calendar quarter are used throughout the quarter except on days when fluctuations of five percent or more occur, in which case the actual certified rates for those days are used. For infrequently used currencies, the Federal Reserve Bank of New York certifies rates of exchanges upon request by CBP. The rates certified are only for the currencies and date requested. For CBP purposes, the date of exportation of the goods is the date used to determine the applicable certified rate of exchange. This remains true even though a different rate may have been used for payment of the goods. Information as to the applicable rate of exchange in converting currency for customs purposes in the case of a given shipment may be obtained from a CBP port director.
CBP has consistently held that currency conversion rates that are agreed to by the parties prior to the exportation of the merchandise constitute valid formulas for purposes of transaction value. See HQ 544725 dated April 24, 1992. We believe that the same principle may apply to the cost of services that are listed separately from the price of the goods shown on the invoice. If the parties agree to a currency conversion rate for the cost of non-dutiable charges prior to exportation, the currency conversions agreed to by the parties may be used to determine the actual cost in U.S. dollars of those services that may be deducted from the invoice price. However, if the parties do not agree to a currency conversion rate prior to exportation, then the conversion foreign currency must follow the requirements set forth in 19 CFR Part 159.31 et seq.
You point out that the Federal Reserve Bank of New York’s web site announced on October 2, 2007, that it will no longer publish its rates. However, on the CBP web site, CBP still publishes the conversion rates for the most frequently used currencies on a daily basis. As a courtesy on the CBP web site, there is also a link to the web site “X-rates.com” which provides updates on currency conversions. CBP does not have authority to approve currency conversion rates on other than the currency conversion rates that are determined by the Federal Reserve Bank of New York. Moreover, we note that there may be variances in foreign exchange rates, and CBP has no means to verify the accuracy of a so called “market” currency exchange rate provided by a private party such as a private bank. Therefore, CBP cannot approve the use of “market rates” for currency conversions of the charges for handling and coordinating invoiced in a foreign currency.
HOLDING:
A “market rate” may not be used for the currency conversion in determining the actual cost in U.S. Dollars of various non-dutiable handling and coordinating charges invoiced in a foreign currency. Conversions of foreign currency must be in done in accordance with the provisions of 31 U.S.C. 5151, based on the conversions rates determined and certified by the Federal Reserve Bank of New York. Foreign exchange rates may be obtained from the CBP web site on a daily basis for the most frequently used currencies or from the applicable CBP port director for infrequently used currencies.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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