VAL CO:R:C:V 544659 ML
District Director
San Francisco, Ca
RE: Internal Advice Request Regarding the Sale For
Exportation Between Related Parties
Dear Sir:
This is in response to a memorandum, dated February 12,
1991, regarding file VAL-1-SF:COII(RK) forwarded from your
office. The merchandise was appraised under section 402(b) of
the Tariff Act of 1930, as amended by the Trade Agreements Act of
1979, (TAA; 19 U.S.C. 1401(b)).
FACTS:
According to the submission, the merchandise was sold by
Fujitsu Limited, located in Japan, (hereinafter referred to as
the "manufacturer"). The manufacturer is a related party to
Fujitsu America Inc., a California corporation, (hereinafter
referred to as the "importer"), and Amdahl Corp., which has it's
principal place of business in California, (hereinafter referred
to as "AC"), as that term is defined in section 402(g) of the
TAA. The manufacturer and AC entered into a written agreement
for the sale of main frame computers, units and parts. The
manufacturer and AC negotiated the price to be paid for the
merchandise and that subsequent to this agreement, all purchase
orders for the above mentioned merchandise to be placed with the
manufacturer, would go through the importer. The Manufacture and
Purchase Agreement referred to above, provided for the
merchandise to be delivered by the manufacturer to San Francisco
International Airport on a CIP basis, delivery to AC's facility
(CIP is an Incoterm with the same substantive meaning as CIF and
applying to both air and surface methods of shipment). All of
the imported merchandise was manufactured in Japan.
The manufacturer also agreed to bear the entire risk of loss
and damages to the merchandise prior to delivery to AC's facility
in California. Counsel for the importer maintains, however, that
in actual business practice the manufacturer provides risk
insurance for the importer from delivery to the carrier in Japan
to AC's facilities, or to the importer's warehouse. The
importer's insurance covers products from the port of entry to
AC's facility. Counsel states in the event of a loss prior to
the delivery to AC, the importer bears the risk of loss. Claims
for any loss or damage are filed by the importer and the proceeds
are received by the importer. Payment for loss under these
insurance contracts was made to the importer.
After the agreements were concluded between the manufacturer
and AC, AC issued purchase orders to the importer for
merchandise, the price being the previously established amount in
the contract between the manufacturer and the importer. The
importer then issued its purchase order to the manufacturer. The
purchase price between the importer and manufacturer was between
X% and XX% less than the price as established between the
manufacturer and AC. Counsel for the importer stated that the
percent ranges were dependent upon the product line, with the
general markup being X%. Upon filling the order, the merchandise
was shipped by the manufacturer to the importer. The commercial
invoices and the bills of lading accompanying the merchandise
reflect that the merchandise was sold to the importer. The
amount stated on the entry documents was the transfer price
between the importer and the manufacturer as indicated on the
manufacturer's invoice to the importer.
Section 14.1 of the agreement between AC and the
manufacturer provided for the payment of the contracted for
merchandise. In accordance with the purchase order terms as
found in the agreement, the importer made payment to the
manufacturer by international letters of credit. As stated
above, after entry the merchandise was delivered to the
importer's common carrier, who then either delivered the goods
directly to AC's facility or to the importer's warehouse. After
the products were delivered to AC, the importer invoiced AC in
accordance with the terms of the AC purchase order. In
accordance with the purchase order, AC paid the importer for the
merchandise by domestic letters of credit.
The importer and the manufacturer entered into a Fundamental
Agreement, as provided for in the agreement between AC and the
manufacturer, which loosely described the importer's performance
of various functions. Two of these functions were that of a
distributor and that of an agent as to specified products.
During the relevant time periods involved, the importer and the
manufacturer never formally specified any merchandise as
applicable to either function.
ISSUE:
Whether the transaction between the manufacturer and the
importer or the transaction between the manufacturer and AC,
determines the "price actually paid or payable for the
merchandise when sold for exportation to the United States.
LAW AND ANALYSIS:
Transaction value, the method of appraisement for the
imported merchandise is defined in section 402(b) of the TAA.
Transaction value is defined as the "price actually paid or
payable for the imported merchandise when sold for exportation to
the United States" plus certain enumerated additions. The "price
actually paid or payable" is defined in section 402(b)(4)(A) of
the TAA as:
...the total payment (whether direct or indirect...)
made, or to be made, for imported merchandise by the
buyer to, or for the benefit of, the seller.
In determining transaction value, a sale for exportation to
the United States must take place at some unspecified time prior
to the exportation of the merchandise. In J.L. Wood v. United
States, 62 CCPA 25, C.A.D. 1139 (1974), it was stated that for
appraisement purposes the word "sales" should be given "its
ordinary meaning, namely: transfers of property from one party to
another for a consideration." Similarly, section 2-106(1) of the
Uniform Commercial Code ("U.C.C.") defines a "sale" as "the
passing of title from the seller to the buyer for a price."
While the J.L.Wood case was decided under prior law, Customs has
accepted this basic concept of what constitutes a sale as
applicable under the TAA.
In the instant case, the contract for the sale of the
merchandise was between the manufacturer and AC. The agreement
between these parties covered all aspects of the sale, including
the designation of a party (the importer) with whom the
arrangements for payment would be made. The contract between AC
and the manufacturer provided for a bona fide sale for
exportation to the United States. The parties agreed on a price,
delivery terms and the method of payment. Although the
manufacturer and AC agreed in the contract for payment and
arrangements for delivery of the merchandise to go through the
importer, these provisions do not negate the bona fides of the
sale between the manufacturer and AC.
In a similar contract, one for the purchase of Communication
Control Processor System, the manufacturer agreed to sell and AC
to buy products and firmware. In section 3.3 of this contract
the parties clearly stated that the parties to this sales
contract were AC and the manufacturer, but for the purposes of
administrative convenience the manufacturer might fulfill or
perform certain of its obligations hereafter through the
importer. Therefore, the language found in both contracts
supports finding the two agreements establish sales for
exportation to the United States as between the contracting
parties, AC and the manufacturer. Consequently, the price
actually paid or payable for the imported merchandise would be
the price as reflected in the sales agreement between the
manufacturer and AC.
Counsel for the importer states that the transaction value
of the imported merchandise should be based on the invoiced
prices between the manufacturer and the importer. Counsel
contends that a bona fide sale for exportation occurred between
the importer and the manufacturer, and that the only other sale
was a domestic sale between the importer and AC. We do not
concur that a "sale for exportation" for purposes of establishing
transaction value of the merchandise occurred between the
manufacturer and the importer.
We do not find as an evidentiary matter, that the importer
ever acted as anything other than the manufacturer's selling
agent. Selling agents generally collect orders, and in some
cases the agent may arrange for storage and delivery of the
goods. The language used in section 13.2 of the written
arrangement, which discusses the delivery of the merchandise,
supports this conclusion. The parties clearly state that the
merchandise shall be delivered by the manufacturer through the
importer to AC. Counsel states that although the manufacturer
paid for the insurance, the importer bore the risk of loss.
Consistent with the notion of an agency arrangement, the importer
was merely taking care of a continuing obligation of the seller,
that of proving insurance until the merchandise was delivered to
AC's facility.
Thus, in reality the sales of the main frame computers,
units and parts occurs between the manufacturer and AC. The
importer acted as an agent, as was described in the written
contract on behalf of the manufacturer for the merchandise that
was destined for the United States. The amount retained by the
importer from the invoiced prices to AC are dutiable selling
commissions under section 402(b)(1)(B) of the TAA. That section
states that any selling commission incurred by the buyer with
respect to the imported merchandise is added to the "price
actually paid or payable" to arrive at the transaction value of
the goods.
It should be noted, that all of the parties in this
transaction are related as that term is defined in section 402(g)
of the TAA. Therefore, for the transaction value method of
appraisement to be acceptable the "circumstances of the sale"
test or the test value method for determining the acceptability
of a price in a related party transaction would need to be
examined. This determination should be made by the concerned
import specialist.
HOLDING:
The sale for exportation for purposes of transaction value
is the sale between the manufacturer and AC, with the importer
acting as a selling agent. The amount retained by the importer
from the invoiced prices to AC are considered dutiable selling
commissions.
Sincerely,
John Durant, Director