OT:RR:CTF:VS H246654 GaK
Mr. Elon A. Pollack
Stein Shostak Shostak Pollack & O’Hara, LLP
865 South Figueroa Street Suite 1388
Los Angeles, CA 90017
RE: Multi-tiered Transaction; Sale for Exportation; First-sale
Dear Mr. Pollack:
This is in response to your letter, dated September 20, 2013, made on behalf of your client, East Global Trading Ltd. (“East Global”). You requested a prospective ruling concerning the valuation of imported apparel where East Global will act as a middleman in a multi-tiered transaction.
FACTS:
The prospective transaction is a three-tiered transaction involving a foreign manufacturer, Zhejiang Amp Kinghonest Import/Export Co., Ltd. (“manufacturer”), East Global, and a United States purchaser, Turn On Products, Inc. d/b/a Almost Famous/Younique (“purchaser”). You state that none of the parties in this transaction are “related” within the meaning of the term in 19 U.S.C. § 1401a(g)(1).
In this transaction, the purchaser will place an order with East Global and East Global will then source the production to the manufacturer. In your request, you included the following pro forma documents that will be generated in future transactions:
Purchase order from the U.S. purchaser to East Global for 3,402 pieces of apparel priced at [******]
Purchase order from East Global to the manufacturer for 3,402 pieces of apparel priced at [******]
Sales Confirmation from the manufacturer to East Global
Invoice and packing list from the manufacturer to East Global
Bill of Lading
Bank of China telegraphic transfer application form from the manufacturer, requesting payment of [******]from East Global
Invoice from East Global to the U.S. purchaser for [******]
Bank of China customer advice addressed to East Global informing them of payment to the manufacturer
An e-mail from Bank of China informing East Global that they received payment of [******] from the U.S. purchaser
Bank of China customer credit advice addressed to East Global acknowledging the bank charges of $7.70 for remitting amount of [******]
Bank of China express transfer application form from East Global, requesting a transfer of [******] to the benefit of Global Sky Horse International Forwarding Co. Ltd. (“Global Sky Horse”)
ISSUE:
Whether the appraisement of the imported merchandise under transaction value may be based on the “first sale” transaction between East Global and the 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. FAS point of shipment 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 transaction involved in the ruling request are shipment contracts or destination contracts depends on the shipment terms specified in the documentation.
In this case, the sample submitted documentation, including the sales confirmation and commercial invoices, between the manufacturer and East Global show that a “FAS Shanghai” term of sale will be used in the transactions between the manufacturer and East Global. An FAS port of export term of sale means that risk of loss transfers from the seller to the buyer when the goods are placed alongside the ship nominated by the buyer. See Incoterms 2010, 80 (2010). Here, East Global would assume title and risk of loss from the point that the goods are placed alongside the ship in Shanghai. Finally, the invoice and bank documents indicate that the manufacturer requested payment from East Global and East Global received confirmation of withdrawal from its bank. The documentation submitted supports the existence of a bona fide sale for the imported merchandise between East Global and the 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 to 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 purchase order from East Global to the manufacturer indicates that the place of arrival for the merchandise is Los Angeles, USA. The purchase order further indicates that the factory must comply with the “U.S. Federal Trade Commission regulations concerning manufacturer registration, fiber content labeling and care labeling,” “U.S. standards on size labeling,” and “United States health and safety laws and regulations, including but not limited to The Flammable Fabrics Act and The Consumer Product Safety Improvement Act.” Furthermore, the bill of lading shows that the merchandise will be shipped from Shanghai to Long Beach, California. The transaction documents provide no indication that the merchandise could be diverted from the United States. Based on the information submitted, we find that the merchandise will be clearly destined to the United States when it is sold to East Global.
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 one in this transaction is related as defined in 19 U.S.C. § 1401a(g)(1). 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. Thus, we find that the purchaser does not control or influence in any manner the negotiations or prices that the East Global pays to purchase the merchandise from the manufacturer.
We note that while the documents presented demonstrate the general structure of the transactions between the parties, it does not provide for a complete paper trail. The description of the products, quantities of the products shipped, price, and most of the payment and shipping details regarding the transaction correspond with each other and are consistent with each other. However, the provided documents do not fully cover the purchaser’s payment to East Global. You only provided paperwork for the $7.70 bank charge for remitting the purchaser’s payment to East Global, but not for the $20.00 bank charge for sending the purchaser’s payment to East Global. In addition, since this is a FAS sales contract East Global was responsible for making arrangements for shipping. You stated that East Global contracted with Global Sky to prepare the carrier’s ocean bill of lading and provided a copy of East Global’s request to send [******] to Global Sky Horse, who you claim is the carrier’s agent. In order to complete the paper trail of the imported merchandise, CBP would require paperwork to prove that the payment to Global Sky Horse was for the transaction at issue and Global Sky was actually paid for arranging the shipment of the merchandise.
HOLDING:
The information presented in this case indicates that the sale between the manufacturer and East Global 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. Provided that East Global will be able to complete the paper trail by providing paperwork for the entire bank charge and shipping arrangements, we find that the price paid between the manufacturer and middleman may serve as the basis of appraisement under transaction value 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.”
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 & Special Programs Branch