VAL CO:R:C:V 544421 VLB
Nancy J. Wollin, Esquire
Sandler, Travis & Rosenberg, P.A.
Rivergate Plaza
444 Brickell Avenue
Miami, Florida 33131-2470
RE: Applicability of Transaction Value to an Assembly Operation
and Dutiability of Assists
Dear Ms. Wollin:
This is in response to your letter dated November 21, 1989,
requesting a ruling on a proposed arrangement involving your
client, -----------------, a British Virgin Islands corporation.
FACTS:
You state that the British Virgin Islands corporation
(hereinafter referred to as the "importer") will act as importer
of record for garments imported into the U.S. under the "9802
(807) program". The garments will be assembled in several
factories located in Haiti and the Dominican Republic from U.S.
components provided by the importer and/or the importer's U.S.
company.
You further explain that the importer is related to some of
the assemblers as defined in section 402(g) of the Tariff Act of
1930, as amended by the Trade Agreements Act 1979 (19 U.S.C.
1401a(g); TAA). Notwithstanding this fact, you state that the
importer proposes that the garments will be appraised under
transaction value.
The importer plans to arrange for warehousing and
distribution of the imported merchandise in the U.S. You
indicate that the purpose of these activities will be to
facilitate the storage and transportation of both component parts
to be used in the assembly operations as well as the imported
assembled garments. You state that any warehousing and
distribution services performed by the importer that are
incidental to the transportation of the "807" components to the
place of manufacture will be included in the value of the
imported merchandise as an assist. We assume that the importer
will be able to identify, if requested, those costs or charges
that relate to the component parts.
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You further explain that the importer will employ managerial
personnel who will serve as plant managers and quality control
supervisors. These people will supervise the factory operations
to insure that the importer's specifications are being complied
with and that the factories operate efficiently. In addition,
the importer will also provide a supervisor engineer who will
provide secondary supervision and training for mechanics and
their direct supervisors. Finally, the importer will provide
trainers for on-line assembly personnel.
The salaries for these management personnel will be paid by
the importer and will be reflected on the importer's books. You
indicate that the importer may also provide automobiles and
housing for these personnel, who will be citizens and
domiciliaries of the countries where the factories are located.
Lastly, you explain that the importer may also provide
equipment, supplies, and services to the assembly plants
including emergency generators, power transformers, air
conditioning equipment, telephone and telecopier equipment,
office supplies, kitchen equipment and supplies, the services of
a cook, infirmary supplies and doctor services, accounting
services, and legal services. The expense of each of these items
will be reflected on the importer's books.
ISSUES:
1) Whether the British Virgin Islands corporation can act
as the importer of record for the prospective transactions.
2) Whether the sales price between the foreign
manufacturers and the importer for the imported merchandise is an
acceptable transaction value.
3) Whether the items that the importer is supplying to the
manufacturers are to be included in the dutiable value of the
imported merchandise.
LAW AND ANALYSIS:
The first issue involves whether a foreign corporation may
enter merchandise into the U.S. Under 19 U.S.C. section 1484,
only the owner or purchaser of the imported merchandise, or
alternatively, a licensed customshouse broker appointed by the
owner, purchaser, or consignee of the merchandise can serve as an
importer of record.
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In addition, under 19 CFR 141.18 a nonresident corporation
cannot enter merchandise for consumption unless it a) has a
resident agent in the State where the port of entry is located
who is authorized to accept service of process against such
corporation; and b) files a bond on Customs Form 301, containing
the bond conditions set forth in 19 CFR 113.62, having a resident
corporate surety to secure the payment of any increased and
additional duties which may be found due.
You state that the British Virgin Islands corporation will
fulfill the requirements set forth in 19 CFR 141.18. Assuming
that the corporation does meet these requirements as well as the
importer of record requirements set forth in 19 U.S.C. section
1484, then the corporation can act as importer of record in the
prospective transactions.
The second issue involves the applicability of transaction
value. As you know, transaction value, the preferred method of
appraisement is defined in section 402(b)(1) of the Tariff Act of
1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C.
1401a(b); TAA) as the "price actually paid or payable for the
merchandise" plus five enumerated statutory additions.
One of the statutory additions is "the value , apportioned
as appropriate, of any assist. . . ." The term "assist" is
defined in section 402(h) of the TAA as follows:
any of the following if supplied directly or
indirectly, and free of charge or at reduced cost, by
the buyer of imported merchandise for use in connection
with the production or the sale for export to the
United States of the merchandise:
(i) Materials, components, parts, and similar
items incorporated in the imported
merchandise.
(ii) Tools, dies, molds, and similar items
used in the production of the imported
merchandise.
(iii) Merchandise consumed in the production
of the imported merchandise.
(iv) Engineering, development, artwork,
design work, and plans and sketches that are
undertaken elsewhere than in the United
States and are necessary for the production
of the imported merchandise.
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You have stated that in the related party transactions,
"the importer will be prepared to 'provide information showing
that the price is adequate to ensure recovery of all costs plus a
profit that is equal to the firm's overall profit realized over a
representative period of time in sales of merchandise of the same
class or kind' in order to demonstrate that the price has not
been influenced."
The determination that the price actually paid or payable is
not influenced by the relationship between a related buyer and
seller is made on a case-by-case basis. For purposes of this
ruling, we are assuming that transaction value is the applicable
appraisement method for both the related and unrelated party
transactions. However, when the importations begin, the Customs
Import Specialist reviewing the entries can request proof that
the proposed transaction values in the related party transactions
are acceptable under one of the statutory tests.
The third issue involves whether the services, personnel,
and articles that the importer will furnish free of charge to the
manufacturer are assists. Specifically, as stated previously,
the importer will employ plant managers, quality control
supervisors and a supervisory engineer to supervise the factory
operations and to provide secondary supervision and training,
respectively. The importer will pay these individuals' salaries,
and the payments will be carried on the importer's books.
You contend that the services rendered by the described
personnel do not fall within one of the assist categories.
Therefore, the services do not constitute dutiable assists. You
reference Headquarters Letter Ruling (HRL) 542122 (cited as TAA
#4), dated September 4, 1980, to support your position that the
management services are not dutiable assists.
Generally, Customs has held that management services are not
considered to be assists. See, HRL 543992, dated September 10,
1987 and HRL 543820, dated December 22, 1986. The services that
the importer's employees are providing to the manufacturers are
analogous to the services described in these rulings. Based on
those rulings, we hold that the salaries for the importer's
described management and supervisory personnel are not assists
within the meaning of section 402(h)(1)(A) of the TAA.
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Finally, you state that the importer will be providing
additional enumerated services to the manufacturers as well as
specified supplies and equipment.
Customs held in HRL 542122 (TAA #4) that accounting services
and legal services are not assists under section 402(h)(1)(A) of
the TAA. As a result, in the present case, these services will
not be includable in the transaction value of the imported
merchandise. Moreover, the cooking and medical services also do
not fall under one of the four categories of assists. Thus,
these services are also not includable in the transaction value
of the imported merchandise.
Further, you cite HRL 542302 (TAA #18), dated February 27,
1981, to support your contention that the enumerated equipment
does not constitute an assist. In TAA #18, Customs held that
telephone switching equipment, emergency generators, air
conditioning equipment, and power transformers were not used in
the production of the imported merchandise. Therefore, the
equipment was not considered to be an assist.
The equipment that you have described appears to be the same
type of non-production equipment discussed in TAA #18. Based on
TAA #18, we hold that the non-production equipment that you
delineated is not included within the definition of an assist;
and the value of the equipment should not be included in the
transaction value of the imported merchandise.
HOLDINGS:
1) The British Virgin Islands corporation may serve as
importer of record for the proposed transactions if it meets the
requirements set out in 19 U.S.C. section 1484 and 19 CFR 141.18.
2) Transaction value appears to be the proper method of
appraisement for the unrelated transactions. However, in the
related party transactions the Customs Import Specialist
reviewing the entries must make the determination on whether the
proposed transaction values are acceptable under one of the
statutory tests.
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3) The enumerated services and equipment appear to be non-
production types of items. Therefore, the services and equipment
would not fall under one of the four categories of assists.
Sincerely,
John Durant, Director,
Commercial Rulings Division