OT:RR:CTF:VS H357218 AP
[X]
S. Manager
[X]
[X]
[X]
[X]
[X]
RE: Dutiability of License Fees for Software as a Service in Imported Vehicles
Dear Mr. [X]:
This is in response to your ruling request dated November 7, 2025, which you submitted
on behalf of [X] (the “foreign manufacturer” and “requester”) with respect to the dutiability of
license fees for software as a service (“SAAS”) in vehicles imported into the United States from
[X] (“Country A”).
The requester has asked that certain information submitted in connection with this ruling
be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R.
§ 177.2(b)(7), the request for confidentiality is approved. The information contained within
brackets in italics in this ruling or in the attachments to the ruling request, forwarded to our
office, will not be released to the public and will be withheld from published versions of this
ruling.
FACTS:
The U.S. importer, [X], purchases finished vehicles from the foreign manufacturer, [X],
for sale to its authorized dealers in the United States. The finished vehicles are classified in
heading 8703, Harmonized Tariff Schedule of the United States (“HTSUS”). Each vehicle
utilizes a connected car navigation cockpit (“CCNC”) located in the central dashboard to
perform functions such as checking traffic information on maps and providing destination
guidance and voice recognition. The SAAS component of the CCNC receives and uses data in
real-time from a cloud server via the vehicle’s wireless communication. The SAAS content
includes: (1) server-based route guidance and real-time information services; (2) traffic
information and server-local search; (3) weather; (4) sports; (5) parking lot information;
(6) generative artificial intelligence; and (7) Google search Applications Programming Interfaces
(“API”) content. The SAAS content will be provided on a subscription basis from a cloud
environment via the vehicle’s wireless communication. The SAAS can be used immediately
through a web browser or application without an installation process. The SAAS content will be
provided to the U.S. consumer via a server, typically as a subscription for 10 years for [X]
vehicles and 5 years for [X] vehicles. After this initial subscription period, consumers may
extend the service on a yearly basis. The distribution agreement between the foreign
manufacturer and the U.S. importer for the imported vehicles does not contain any provisions
regarding license fees for the SAAS.
[X], a Country A-based affiliate (“Country A affiliate”) specializing in software and
information technology for the foreign manufacturer has individually executed license
agreements with U.S.-based SAAS content providers (“CPs”). The U.S. importer, the foreign
manufacturer, and the Country A affiliate are all related parties. In its capacity as a licensee, the
Country A affiliate is granted the non-exclusive and non-transferable right to use the content
provided by the CPs in vehicles imported into the United States from Country A. The license
agreements with the CPs do not contain a condition stating that the finished vehicle distribution
agreement can be terminated if the license fees are not paid. The Country A affiliate pays the
license fees quarterly or as otherwise stipulated by the agreements with the CPs.
The Country A affiliate is considering entering into a license agreement for the provision
of the SAAS content with the U.S. importer. The U.S. importer will pay license fees for the use
of the SAAS to the Country A affiliate who will then pay licensee fees to the CPs. The U.S.
importer is seeking this ruling to determine the dutiability of the license fees paid by the U.S.
importer to the CPs via the Country A affiliate. Under the contemplated structure, the U.S.
importer will be granted the right to store, upload, install, execute, or display the software,
including the SAAS license, on the imported vehicles. This right will be non-transferable, non-
exclusive, and non-sublicensable. The U.S. importer will pay the license fees to the Company A
affiliate as a lump sum at the time when the imported vehicles are sold locally to U.S. consumers
after importation. The U.S. importer will recognize the SAAS license fees paid to the Country A
affiliate as Selling, General, and Administrative Expenses. The Country A affiliate will pay the
license fees to the CPs in the United States except for server-based route guidance and real-time
information services. 1
ISSUES:
1. Whether the license fees that will be paid by the U.S. importer to the Country A affiliate,
which then pays the CPs for SAAS, are part of the price actually paid or payable for the
finished vehicles imported into the United States from the foreign manufacturer.
2. Whether the license fees should be included in the transaction value of the imported
merchandise as either license fees or proceeds of subsequent resale under 19 U.S.C.
§§ 1401a(b)(1)(D) and (E).
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With respect to server-based route guidance and real-time information services, the Country A affiliate will not pay
a separate license fee to the CPs because it will process and refine the content received from the CPs through a
Model Context Protocol (“MCP”) cloud server before providing the service.
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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”) and
codified at 19 U.S.C. § 1401a. The preferred method of appraisement under the TAA is
transaction value, defined as “the price actually paid or payable for the merchandise when sold
for exportation to the United States,” plus certain enumerated additions, including “any royalty
or license fee related to the imported merchandise that the buyer is required to pay, directly or
indirectly, as a condition of the sale of the imported merchandise for exportation to the United
States; and the proceeds of any subsequent resale, disposal, or use of the imported merchandise
that accrue, directly or indirectly, to the seller.” 19 U.S.C. §§ 1401a(b)(1)(D) and (E). These
additions apply only if they are not already included in the price actually paid or payable for the
merchandise.
In order for imported merchandise to be appraised under the transaction value method,
there must be a bona fide sale between a buyer and seller, and the sale must be a sale for
exportation to the United States. Pursuant to 19 U.S.C. § 1401a(b)(2)(A)(iv), transaction value is
acceptable only where the buyer and seller are not related, or where related, the relationship does
not influence the price actually paid or payable. In the instant matter, the buyer/U.S. importer is
related to the foreign seller/manufacturer. No information regarding the acceptability of the
transaction value has been submitted. Thus, for purposes of this ruling, we assume that
transaction value is the appropriate method of appraisement and the applicable requirements with
respect to the bona fide sale and sale for export between the related parties are satisfied. No
ruling is being issued in regard to these issues.
1. Whether the license fees that will be paid by the U.S. importer to the Country A affiliate,
which then pays the CPs for SAAS, are part of the price actually paid or payable for the
finished vehicles imported into the United States from the foreign manufacturer.
The “price actually paid or payable” means the total payment (whether direct or indirect,
and exclusive of any charges, costs, 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). It is
U.S. Customs and Border Protection’s (“CBP”) position that payments made by the buyer to a
party related to the seller are indirect payments made to, or for the benefit of, the seller. All such
payments are included in transaction value unless it is established that they are made in exchange
for something other than the imported goods. See Generra Sportswear Co. v. United States, 905
F.2d. 377 (Fed. Cir. 1990); Chrysler Corp. v. United States, 17 CIT 1049 (1993).
Here, the license fees are not part of the price actually paid or payable for the vehicles.
The license fees will be a post-importation payment made for additional software as a service
intended for specific customers who wish to use the SAAS. The license fees will be a separate
payment made by the U.S. importer to the U.S. CPs via the Country A affiliate for the right to
use the software content so that the consumers who purchase the vehicles in the United States are
able to utilize the content services post-importation. The license fees will not be paid to the
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foreign manufacturer/seller of the imported merchandise and will not be for the benefit of the
foreign manufacturer/seller.
2. Whether the license fees should be included in the transaction value of the imported
merchandise as either license fees or proceeds of subsequent resale under 19 U.S.C.
§§ 1401a(b)(1)(D) and (E).
A license fee may be added to the price actually paid or payable for the merchandise as
either a license fee, pursuant to 19 U.S.C. § 1401a(b)(1)(D), or as a proceed of a subsequent
resale, disposal, or use of the imported merchandise, pursuant to 19 U.S.C. § 1401a(b)(1)(E), if it
is not included in the price actually paid or payable for the merchandise.
Under 19 U.S.C. § 1401a(b)(1)(D), an addition to the price actually paid or payable is
made for any royalty or license fee “related to the imported merchandise that the buyer is
required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for
exportation to the United States.” CBP has established a three-part test for determining the
dutiability of royalty or license fees. This test appears in the General Notice, Dutiability of
Royalty Payments, Vol. 27, No. 6 Cust. B. & Dec. at 1 (Feb. 10,1993) (“Hasbro II ruling”)
(incorporating these questions in Headquarters Ruling Letter (“HQ”) 544436, dated Feb. 4,
1991). The test consists of the following questions: (1) was the imported merchandise
manufactured under patent; (2) was the license fee involved in the production or sale of the
imported merchandise; and (3) could the importer buy the product without paying the fee.
Question three goes to the heart of whether the payment is considered to be a condition of sale.
Affirmative answers to questions one and two, and a negative answer to question three, suggest
that the payments are dutiable. Negative answers to questions one and two and an affirmative
answer to question three suggest that the payments are non-dutiable.
In HQ W563562, dated Nov. 20, 2008, CBP concluded that payments made for a royalty
for specialized software sold to the customer after the importation of machine tools were not an
addition to the price paid or payable of the imported machine tools.
Here, based on the information provided, we conclude that the answer to the first
question is no. The license fees for the SAAS do not involve patents and have nothing to do with
patents used to manufacture the imported vehicles.
The response to the second questions is also no. The license fees are not involved in the
production of the imported vehicles and are paid for the SAAS after importation of the vehicles.
The license fees are paid by the importer, via the Country A affiliate, to the CPs in the United
States as consideration for content use. The distribution agreement between the foreign
manufacturer and the U.S. importer for the vehicles does not contain any provisions regarding
the license fees for the SAAS.
The answer to the third question goes to the heart of whether a payment is considered a
condition of sale. License fees are a condition of sale when they are paid on each and every
importation and are inextricably intertwined with the imported merchandise. If the payments are
optional and not inextricably intertwined with the imported merchandise or are paid solely for
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the exclusive right to manufacture and sell in a designated area, they do not constitute additions
to the price actually paid or payable under 19 U.S.C. § 1401a(b)(1)(D). The finished vehicles
may be purchased without paying the license fees for SAAS. The payment of the license fees
relates to the SAAS, not to the sale of the imported vehicles. The payment of the license fees is
optional and is not necessary for the purchase of the imported vehicles. A U.S. consumer, who
wishes to use the SAAS, can have it free of charge for the first five or ten years. If a consumer
does not wish to continue using the SAAS after the initial free period expires, the SAAS use is
terminated. Therefore, the license fees will be paid to the third-party CPs in the United States as
consideration for content use and not as a condition of sale for the imported vehicles.
As the license fees are not dutiable under 19 U.S.C. § 1401a(b)(1)(D), we need to
determine if they are dutiable as proceeds pursuant to 19 U.S.C. § 1401a(b)(1)(E), which
provides that “the proceeds of any subsequent resale, disposal or use of the imported
merchandise that accrue, directly or indirectly, to the seller,” are to be added to the price actually
paid or payable for the imported merchandise.
With regard to proceeds, the Statement of Administrative Action (“SAA”) states:
Additions for the value of any part of the proceeds of any subsequent resale,
disposal, or use of the imported merchandise that accrues directly or indirectly to
the seller, do not extend to the flow of dividends or other payments from the buyer
to the seller that do not directly relate to the imported merchandise. Whether an
addition will be made must be determined on a case-by-case basis depending on
the facts of each individual transaction.
SAA, H.R. Doc. No. 153, Pt. II, 96th Cong., 1st Sess. (1979), reprinted in Department of the
Treasury, Customs Valuation under the Trade Agreements Act of 1979 at 49 (1981).
CBP has ruled that in order for proceeds of a subsequent resale to be dutiable, they must
pertain to the resale of the imported merchandise and accrue directly or indirectly to the benefit
of the seller. See HQ 545035, dated Aug. 23, 1995. The subject license fees are payments for
SAAS content, which is provided on a subscription basis from a cloud environment via the
vehicle’s wireless communication. The payments will be made to the Country A affiliate and the
CPs in the United States post-importation and do not pertain to a subsequent resale of the
imported vehicles. Therefore, the license fees are not dutiable as proceeds pursuant to 19 U.S.C.
§ 1401a(b)(1)(E).
HOLDING:
We find that the instant license fees as described are not dutiable as part of the price
actually paid or payable for the imported vehicles, nor are they additions to value as license fees,
pursuant to 19 U.S.C § 1401a(b)(1)(D), or proceeds, pursuant to 19 U.S.C. § 1401a(b)(1)(E).
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
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complete in every material respect. The application of a ruling letter by [CBP] 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 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 and Special Programs Branch
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