OT:RR:CTF:VS H215556 EE
Donovan Folkes
Toys“R”Us, Inc.
One Geoffrey Way
Wayne, NJ 07470
RE: Transaction value; discounts
Dear Mr. Folkes:
This is in response to your letter, dated March 7, 2012, in which request a ruling concerning the deduction of certain discounts from the price actually paid or payable for merchandise imported by Toys“R”Us, Inc. (“Toys“R”Us”).
FACTS:
You state that Toys“R”Us imports merchandise from unrelated foreign sellers located in China. Toys“R”Us negotiates discount agreements with the foreign sellers. The participation in the discount programs is optional. You state that Toys“R”Us and the sellers agree to a specific percentage discount from the seller’s price of the merchandise in advance of importation. The actual amount that Toys“R”Us will pay each seller is the seller’s price minus the specific discounts. The discounted amount will be reflected on the invoice from the seller to Toys“R”Us.
You provided documentation from five sample transactions for illustrative purposes. The documentation consists of commercial invoices issued by the sellers to Toys“R”Us, credit allowance agreements between Toys“R”Us and the sellers, wire transfer statements from Toys“R”Us to the sellers, and a spreadsheet which contains the list of the sellers and the applicable discount types agreed to with Toys“R”Us.
The invoices issued by the foreign sellers to Toys“R”Us list the merchandise, the quantity, the unit price, the total price, the percentage amount of the discount, and the discounted price of the merchandise. The credit allowance agreements between Toys“R”Us and the sellers set forth the type of allowance, allowance date, the percentage amount of the discount, and effective dates of allowance. The discounts specified on the credit allowance agreements include the following:
Return Goods Damage Allowance: provided as an alternative to requiring the importer to seek refunds on defective merchandise after importation in the event that a particular product is found to be damaged or defective.
Advertising Allowance: covers various in-store product support services, such as cleaning and straightening product displays.
New Store Allowance: allowance received from vendor for the merchandise that is purchased to stock a new store that opens.
Volume Allowance: allowance received from the seller based on the amount of merchandise purchased from the seller.
Markdown: allowance received from the seller to cover a permanent retail price reduction of the merchandise.
Temporary Price Reduction: allowance received from the seller to cover the reduction of the retail price of the merchandise for a specific timeframe.
ISSUE:
Whether certain discounts, as reflected on the invoices between Toys“R”Us and its foreign sellers, should be taken into account in determining the price actually paid or payable for the imported merchandise.
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised for customs purposes 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 primary 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 amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. 19 U.S.C. §1401a(b)(1).
The term “price actually paid or payable” is defined as:
[T]he 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.
19 U.S.C. § 1401a(b)(4)(A).
U.S. Customs and Border Protection (“CBP”) Regulations provide that in determining transaction value, the price actually paid or payable “will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula . . .” 19 C.F.R. § 152.103(a)(1). The CBP Regulations further cite the following example:
A seller offers merchandise at $100, less a two percent discount for cash. A buyer remits $98 cash, taking advantage of the cash discount. The transaction value is $98, the price actually paid or payable. 19 CFR §152.103(a)(1), Example 5.
Furthermore, the word “payable” refers to a situation in which the price has been agreed, but actual payment has not been made at the time of importation.
CBP has consistently enumerated three criteria in determining whether a discount or price adjustment should be considered part of the transaction value of imported merchandise. See Headquarters Ruling Letter (“HQ”) H133044, dated March 9, 2011. First, the discount or price adjustment must be agreed on prior to the importation of the merchandise. See Allied International v. United States, 795 F. Supp. 449 (CIT 1992) (importer required to affirmatively show that there was a pre-importation agreement for the claimed discount). See also HQ H048152, dated April 30, 2009 (discount should be included in determining the price actually paid or payable for the imported merchandise since it was agreed to before the merchandise was imported into the U.S.); and HQ W563462, dated October 11, 2006 (discounted prices, which were agreed to prior to importation and applied unconditionally, constitute the price actually paid or payable for the imported merchandise).
The second criterion is that the importer must be able to furnish CBP with sufficient documentary evidence to support the existence of the discount and establish that it was agreed to before the time of entry. See HQ 547144, dated November 20, 1998 (appraised value may reflect discount when supplier’s invoice indicated total price, 5% reduction and the discounted price).
The third criterion requires that the discount or price adjustment be unconditional, or if conditional all the conditions must be met prior to importation. This criterion was discussed in HQ 545659, dated October 25, 1995, in which CBP determined that a discount is unconditional when there were no specified purchasing obligations placed on the customer. In that case, CBP held that unconditional discounts, which were reflected on the invoices and entry documentation presented to CBP, could be factored into the declared value of the merchandise. CBP also concluded that, if a conditional discount is agreed to before entry at the time of order placement, the specified purchasing obligation was fulfilled at the time of entry, and the discount is reflected both on the entry documentation presented to CBP and the invoices presented to CBP, the conditional discount may be used to determine transaction value.
In the instant case, the credit allowance agreements you submitted list the type of allowance, allowance date, the percentage amount of the discount. The commercial invoices issued from the vendors to Toys“R”Us indicate the total price of the goods, the amount of the discounts, and the discounted price. We note that the total discount amounts listed on the commercial invoices correspond to those on the credit allowance agreements. The copies of the wire transfer statements you submitted further show that the payment by Toys“R”Us made to the sellers included the discounts. These documents indicate that Toys“R”Us and the sellers agreed to the discount amounts reflected on the documents and are sufficient to support the existence of the discounts.
You state that the merchandise is usually imported approximately one to two months after the date listed on the invoice. Accordingly, we find that the discounts are agreed upon prior to the importation of the merchandise. In support of the assertion that the discounts in this case are unconditional, you state in your submission, dated July 11, 2012, that the discounts are unconditional and that there are no purchasing obligations placed on Toys“R”Us in order to receive the discounts. Accordingly, we find that the discounts under consideration are unconditional.
Based on the information submitted, we find that the specified discounts may be taken into account in determining the price actually paid or payable of the imported merchandise, since these discounts are effected prior to the date of importation.
HOLDING:
Based on the information submitted, the specified discounts, which Toys“R”Us and the foreign sellers agreed upon prior to the importation of the merchandise, may be taken into account in determining the price actually paid or payable for the imported merchandise.
Please note that 19 C.F.R. § 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 Customs Service 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.”
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch