HQ H275188
OT:RR:CTF:VS H275188 YAG
Ms. Mary-Anne Hardy
Consulting Manager
Russell A. Farrow Limited
5397 Eglinton Avenue West
Etobicoke, ON Canada M9C 5K6
RE: Transaction Value; Price Actually Paid or Payable; Overwrapping Service Fee
Dear Ms. Hardy:
This is in response to your letter, dated March 31, 2016, in which you request a prospective ruling, on behalf of your client, ECONOPAC LIMITED (“Econopac”), concerning the dutiability of certain overwrapping service fees, paid by an unrelated third party, Insight Promotions to Econopac.
FACTS:
As an example transaction, a Cereal Company, a U.S. buyer, purchases the merchandise (also referred to as premiums or toys) from its overseas supplier and engages an unrelated third party, Insight Promotions, located in the United States, to arrange the overwrapping of the merchandise with plastic wrap. Insight Promotions contracts with Econopac to overwrap the merchandise. The Cereal Company delivers the merchandise it purchases from its suppliers in China to Econopac in Canada. Econopac enters the merchandise in Canada under a Duty Deferral Order. After Econopac overwraps the merchandise, it imports the merchandise into the United States and ships the items directly to the Cereal Company. Econopac invoices Insight Promotions for the costs and services performed (including labor costs to wrap the imported merchandise), and Insight Promotions pays Econopac. Subsequently, Insight Promotions invoices the Cereal Company for all of the overwrapping services (in addition to certain project management and testing fees performed directly by Insight Promotions). Econopac never holds title to the imported merchandise. The Cereal Company fully reimburses Insight Promotions for these additional services, including the overwrapping services provided by Econopac.
Upon importation of the merchandise into the United States, Econopac declares the value of imported goods, calculated as follows: (a) the price paid by the Cereal Company for the promotional item; (b) the fee charged for the overwrapping service performed by Econopac, plus; (c) the amount paid for the plastic film overwrap Econopac purchases in the United States, which is stated to be of U.S. origin and declared on a separate line in accordance with Headquarters Ruling Letter (“HRL”) H261216, dated February 17, 2015. You seek CBP’s guidance as to whether the overwrapping service fee (labor costs) invoiced by Econopac to Insight Promotions should be part of the customs value declared to CBP. Our ruling follows.
ISSUE:
Whether the payments made for the overwrapping of the imported merchandise by Econopac in Canada are included in transaction value of the imported merchandise.
LAW AND ANALYSIS:
We are assuming, for the purposes of this ruling, that transaction value is the appropriate basis of appraisement for the imported merchandise. Merchandise imported into the United States is appraised in accordance with section 402 of the 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 enumerated additions thereto, including the packing costs incurred by the buyer with respect to the imported merchandise. 19 U.S.C. §1401a(b)(1). However, an addition for packing costs incurred by the buyer will be made only to the extent that the costs are not otherwise included in the price actually paid or payable.
In this case, the fee paid to Econopac by Insight Promotions for overwrapping services (for which Insight Promotions is later reimbursed by the buyer, the Cereal Company) is not included in the price actually paid or payable made by the Cereal Company to its suppliers in China, since it is not paid by the Cereal Company to the sellers of the imported merchandise or for the benefit of the sellers. Therefore, we must examine whether the overwrapping service fee is dutiable as an addition to the price actually paid or payable.
The term “packing costs” means the cost of all containers (exclusive of instruments of international traffic) and coverings of whatever nature and of packing, whether for labor or materials, used in placing merchandise in condition, packed ready for shipment to the United States. 19 CFR §152.102(e).
In HRL 542834, dated July 20, 1982 (TAA #49), we noted that the phrase “packed ready for shipment to the United States” was analogous to the merchandise being “in seaworthy condition.” Therefore, in that case services performed, which were incident to placing the merchandise in condition packed, ready for shipment to the United States, were held to be dutiable as “packing costs.” The costs incurred subsequent to the merchandise attaining that status were held to be not dutiable. See HRL 546690, dated June 18, 1997. However, in HRL 543026, dated March 17, 1983, certain expenses incurred for vacuum packing were held to be not part of the dutiable value of the imported merchandise because such took place subsequent to the merchandise being placed in condition, packed ready for shipment to the United States. See also HRL 543985, dated February 1, 1988; and HRL 546479, dated October 29, 1996.
In this case, the Cereal Company, or the buyer, ultimately incurs the cost for the overwrapping service, by reimbursing a third party, Insight Promotions, for its payments to Econopac with respect to overwrapping of the imported merchandise with the plastic wrap. Overwrapping service fees, paid to Econopac, which result in the merchandise (toys) being actually packed, are costs incurred in placing merchandise in condition, packed ready for shipment to the United States. Therefore, we conclude that overwrapping services (labor costs) provided by Econopac’s personnel with respect to covering the imported merchandise with the plastic wrap are “packing costs,” as defined in the CBP laws.
HOLDING:
Based on the information provided, the payments for overwrapping of the imported merchandise in plastic wrap, performed by Econopac in Canada, are to be included in the transaction value of the imported merchandise as an addition to the price actually paid or payable.
A copy of this ruling letter should be attached to the entry documents filed 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