OT:RR:CTF:VS H218255 YAG
Acting Area Port Director
U.S. Customs and Border Protection
Port of Chicago
5600 Pearl Street
Rosemont, IL 60018
Re: Internal Advice Request; Discounts; Price Actually Paid or Payable
Dear Acting Area Port Director:
This is in response to your request for internal advice, dated April 24, 2012, regarding the deduction of warranty and competitive discounts for the imported automotive radiators, imported by Spectra Premium (USA) Corp. (“Spectra”), from the price actually paid or payable.
FACTS:
Spectra imports automotive radiators from its unrelated supplier, Fruitage International Co., LTD (“Fruitage”), located in Taiwan. In reviewing one of Spectra’s entries, U.S. Customs and Border Protection (“CBP”) noticed that the pro forma invoice and the subsequent detailed invoices issued by Fruitage to Spectra on November 11, 2011 indicate 4% warranty and 1.5% competitive discounts provided by Fruitage to Spectra. The warranty and competitive discounts are factored into the value declared at the time of entry. The imported merchandise was shipped from Taiwan on November 16, 2011 and entered into the United States on December 5, 2011. The invoice shows two discounts to be taken, and the payment is made on the net invoice price (or discounted price).
According to Spectra, the warranty discount is provided to Spectra in case there are any defective products for which Spectra would credit its customers in the United States from its own account. The warranty discount is a fixed percentage which is applied to facilitate calculations between the importer and the supplier. The competitive discount of 1.5% is used to keep old customers and encourage new customers.
Spectra does not have any written contracts with Fruitage for the sale of the imported merchandise or for the warranty or competitive discounts. The importer provided copies of purchase orders, dated August 31, 2011 and a check, dated January 11, 2012, that had been sent as payment for the goods to support the importer’s contention that the discounts were agreed to prior to the importation.
On December 21, 2011, CBP issued CBP Form 28, requesting additional information with respect to the imported merchandise and the discounts in question. After multiple telephone conversations with the importer and the receipt of the importer’s statement, dated February 6, 2012, in response to CBP’s request for information, the Port of Chicago issued CBP Form 29, Notice of Action, dated February 13, 2012, disregarding the discounts for the purposes of transaction value. On March 5, 2012, the importer, through its counsel, disagreed with the proposed action regarding the discounts.
The Port argues that pursuant to 19 U.S.C. §1401a(b)(4)(B), the warranty and competitive rebates should be disregarded in determining transaction value of the imported merchandise. According to the Port, while the percentage rate of the warranty discount was agreed to prior to the importation, the importer confirmed that the fixed percentage has been implemented to facilitate calculations between the supplier and importer based upon experience in determining the rate of warranty claim. Thus, since the warranty claim in this case was not the result of damage to the goods at importation, it is the Port’s position that the merchandise should be appraised in the condition as imported without any regard to the warranty discount. With respect to the competitive discount, the Port argues that while a competitive discount may have been agreed to prior to importation, there has been insufficient documentation provided which would support the contention that the discount was effected prior to importation. In the Port’s view, without a substantiating written agreement defining the terms of the competitive discount, the importer failed to provide sufficient information in order for CBP to consider the deduction of the competitive discounts.
Counsel for the importer claims that if the invoice with the discounts reflects the price paid or payable, the invoice must be accepted as transaction value. According to the importer’s counsel, rather than a rebate occurring after the time of importation, the price that was firmly established at the time of importation, as evidenced by invoices, and is reflected in the payment to the vendor. Finally, it is counsel’s position that the existence of or lack of an agreement between the parties covering a long range period of time is immaterial in determining the transaction value of the merchandise.
ISSUE(S):
Whether the warranty and competitive discounts, as reflected in the invoices between Spectra and its foreign seller, 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. See 19 U.S.C. §1401a(b)(1). The term “price actually paid or payable” is more specifically defined in section 402(b)(4)(A) of the TAA as the “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 …) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller.” The CBP Regulations further 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 CFR §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.
On the other hand, the Statement of Administrative Action states that changes in price actually paid or payable which are arrived at subsequent to the time of importation shall not be taken into account in determining a transaction value. This would apply to renegotiation, deferred quantity discounts, or rebates. Moreover, 19 U.S.C. §1401a(b)(4)(B) states that “any rebate, or other decrease in, the price actually paid or payable that is made or otherwise affected between the buyer and the seller after the date of the importation of the merchandise into the United States shall be disregarded in determining the transaction value.”
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 (“HRL”) 563419, dated May 4, 2006. 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 HRL 964192, dated February 15, 2002 (discounted price constituted the price actually paid for the imported footwear because the discounts were agreed to and effected prior to importation); and HRL 547019, dated March 31, 2000 (discounted price, which was based on established criteria from a price list and was agreed to prior to importation, constituted 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 HRL 547144, dated November 20, 1998. See also HRL 545659, dated October 25, 1995 (unconditional discount factored into the value declared at the time of entry and reflected on the invoice presented to CBP, may be taken into account in determining transaction value).
The third criterion requires that the discount or price adjustment be unconditional, or if conditional all the conditions must be met prior to importation. We articulated this criterion in HRL 545659, supra, in which we determined that a discount is unconditional when there are no specified purchasing obligations placed on the customer. In that case, we held that with respect to both the unconditional and conditional discounts that are indicated on the invoice at the time of entry when no amount is rebated, these discounts are taken into consideration in determining transaction value. In those instances where the customer has not yet fulfilled the specified purchasing obligation at the time of entry, the conditional discounts are not taken into consideration in determining transaction value. Id.
In HRL H048152, dated April 30, 2009, the invoices and the proof of payments shown on the Debit Advices from the buyer to the vendors indicated that the parties agreed to a one percent discount. Because the invoices were dated earlier than the CF 28 and before the merchandise was shipped to the United States, CBP found that the one percent discount was agreed to before the merchandise was imported into the United States, and should be included in determining the price actually paid or payable of the imported merchandise. Therefore, CBP concluded that so long as the invoices reflected a discount, that discount was included in determining the transaction value of the imported merchandise.
Additionally, in HRL 544371, dated June 11, 1990, the importer and its related party manufacturer have agreed to a .75 percent discount that was given on every shipment to cover any defective merchandise. This discount was deducted from the FOB Hong Kong value of the merchandise that was reflected on the commercial invoice. CBP ruled that because the invoice price reflected the discount, this discount may be taken into account in determining the transaction value of the imported merchandise. Both HRL H048152 and HRL 544371 found that the invoices (dated earlier than the CF 28 and before the merchandise was shipped to the United States) and the proof of payments from the buyer to the vendors were sufficient to show that the parties agreed to a discount. Thus, no further written agreements were necessary.
In this case, the importer states that there are no written contracts with the supplier for the sale of the imported merchandise or for the warranty and competitive discounts. Nonetheless, we note that both discounts are shown on the supplier’s invoices that the importer submitted. The invoices submitted by the importer are dated earlier than the CF 28, issued by the Port, and prior to the shipment and entry of the imported merchandise into the United States. The invoices indicating both warranty and competitive discounts were dated on November 11, 2011. The imported merchandise was shipped from Taiwan on November 16, 2011 and entered into the United States on December 5, 2011. On the other hand, the CF 28 was issued on December 21, 2011. A check, dated January 11, 2012 that had been sent as payment for the goods further shows that the electronic payment the importer made to the supplier included both warranty and competitive discounts. Thus, not only do the commercial invoices include the discounts, the amount paid by the importer to its supplier reflects these discounts. Additionally, as referenced above, 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; therefore, the fact that the actual payment, which evidenced the discount was remitted after the request for further information from the Port, does not change our analysis. Thus, the warranty and competitive discounts in question are not the rebates as referenced in 19 U.S.C. §1401a(b)(4)(B).
Moreover, we find that both warranty and competitive discounts are unconditional because there are no specified purchasing obligations placed on the importer in order to receive these discounts. The competitive discount is provided to the importer so that the importer can keep old customers and encourage new customers. The warranty discount, agreed to by the parties prior to the importation, is provided in case there are defective products for which Spectra would credit its customers. The warranty discount is a fixed percentage, and the importer receives it regardless of whether it has actual defective merchandise or not. Thus, the warranty discount at issue is different from a defective merchandise allowance contemplated by 19 CFR §158.12; therefore, it is unconditional in nature. Accordingly, based on the documentation submitted, we find that the warranty and competitive 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:
It has been sufficiently documented that Spectra and its foreign supplier agreed to the warranty and competitive discounts prior to the importation of the merchandise. Therefore, these discounts should be taken into account in determining the price actually paid or payable for the imported merchandise.
This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to CPB personnel, and to the public on the CPB Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Please do not hesitate to contact us at (202) 325-0042 if you have any questions or concerns.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch