VAL R:C:V 545967 LR
Mr. Frank Brennan
DeAngelus, Schaffer & Associates
The Willard Office Building, Suite 1150
1455 Pennsylvania Avenue, NW
Washington, D.C. 20004
RE: Sale for exportation; bona fide sale
Dear Mr. Brennan:
This is in response to your letter dated April 20, 1995, requesting a ruling on behalf of Gucci America Inc. ("Gucci America") on the valuation of shoes from Italy.
FACTS:
Background
In response to two requests for internal advice from the field, Headquarters Ruling Letters ("HRL") 544034, December 3, 1987, and 544211, January 12, 1989, provided appraisement guidance regarding merchandise imported by Gucci America and purchased from Guccio Gucci S.p.A. ("Gucci Italy"). Based on the limited information supplied in the internal advice inquiries, it was determined that the relationship between Gucci Italy and Gucci America influenced the price which Gucci America paid for the imported merchandise and that Gucci America's importations could not be appraised on the basis of transaction value. It was determined that the merchandise should be appraised on the basis of the transaction value of identical or similar merchandise imported by purchasers unrelated to Gucci Italy.
In a Protest and Application for Further Review subsequently filed by Gucci America contesting the method of appraisement, Gucci America alleged that its relationship to Gucci Italy did not influence the price it paid to Gucci Italy and that the protested entries should be appraised using transaction value, at the invoice price from Gucci Italy to Gucci America. In HRL 544809, June 1, 1994, Customs determined that based upon the information provided relating to the protested entries, upon an examination of the circumstances of the sale, the relationship between the Gucci Italy and Gucci America did not influence the price between them. Accordingly, Customs found that the subject merchandise should have been appraised using transaction value based on the price Gucci America paid Gucci Italy.
Request for Prospective Ruling
Based on the above ruling, Gucci America has been making entry based on the price Gucci America pays Gucci Italy. However, the ruling request indicates that purchases have been and continue to be made from unrelated suppliers in Italy through Gucci Italy. You claim that based on the decisions in Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), and Synergy Sport International, Ltd. v. United States, 17 C.I.T. , Slip Op. 93-5 (Ct. Int'l. Trade January 12, 1993) the proper basis of valuation is under transaction value, represented by the amount paid or payable by Gucci Italy to the manufacturers.
The ruling request sets forth the facts of a typical sale as follows:
1. Gucci America issues a purchase order for shoes to Gucci Italy;
2. Gucci Italy issues a purchase order to an unrelated manufacturer at a unit price 30 percent less than the Gucci America to Gucci Italy price;
3. The unrelated supplier invoices Gucci Italy ex-works at the price indicated on the Gucci Italy purchaser order;
4. Gucci Italy invoices Gucci America ex-works at the price indicated on the Gucci America purchase order;
5. Gucci America pays Gucci Italy by wire transfer;
6. Gucci Italy pays the supplier; and,
7. merchandise is shipped directly to Gucci America by a freight consolidator.
The documents relating to a specific sale, which you claim are representative of a typical transaction, were submitted. They consist of: 1) a purchase order from Gucci America to Gucci Italy; 2) a purchase order from Gucci Italy to the manufacturer; 3) an invoice from the manufacturer to Gucci Italy; 4) an invoice from Gucci Italy to Gucci America; 5) proof of payment from Gucci America to Gucci Italy and from Gucci Italy to the manufacturer; and 6) shipping documents from the manufacturer to Italy consolidator showing that the goods were shipped to Gucci America.
You advise that Gucci Italy provides designs, prepared in Italy, to the manufacturers. The design for the documented transaction was submitted. The design costs are included in Gucci Italy's 30 percent mark up and average 5 percent of the manufacturer's price. You acknowledge that the designs are assists as defined in 19 CFR 152.102(a)(iv) and are part of transaction value.
ISSUE:
Whether transaction value should be based on the sale between the manufacturer and Gucci Italy.
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 Agreement Act of 1979 (TAA; 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. Section 402(b)(1) of the TAA (emphasis added). 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 the imported merchandise by the buyer to, or for the benefit of, the seller."
For the purposes of this ruling we have assumed that transaction value is the appropriate basis of appraisement.
Sale for Exportation
As the emphasized language makes clear, the transaction between Gucci Italy and the manufacturer can be the basis of transaction value only if it constitutes a bona fide sale. See HRL 545714, November 9, 1994. Customs recognizes the term "sale," as articulated in the case of J.L. Wood v. United States, 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974), as the transfer of ownership in property from one party to another for consideration, 61 Cust. Ct. 604, A.R.D. 245 (1968). In determining whether a bona fide sale has taken place between a potential buyer and seller of imported merchandise, no single factor is determinative and the relationship is to be ascertained by an overall view of the entire situation. In a buyer-seller relationship the parties maintain an independence in their dealing, whereas in a principal-agency relationship, the principal controls the conduct of the agent with respect to matters entrusted to him/her. See Dorf International, Inc. V. United States. 61 Cust. Ct. 604, A.R.D. 245, 291 F. Supp. 690 (1968).
Several factors may indicate whether a bona fide sale exists between a potential buyer and seller. In determining whether property or ownership has been transferred, Customs considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. See 545105, November 9, 1993; HRL 544775, April 3, 1992. In addition, Customs may examine whether the potential buyer paid for the goods, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HRL 545571, April 28, 1995; HRL 545714, supra. In HRL 545571, Customs determined that the circumstances of the transaction indicated that the manufacturer and the middleman did not act, respectively, as buyer and seller because of the control exerted by the manufacturer over the middleman. In that case, the evidence showed, among other things, that the manufacturer exerted considerable influence over the prices at which the middleman may offer merchandise to its customers and that the manufacturer issued all invoices and other paperwork relating to the middleman's alleged wholesale sales.
In this case, based on the information submitted, we cannot ascertain the role of Gucci Italy and consequently whether a bona fide sale exists between the foreign manufacturer and Gucci Italy. We note that the shipment terms between the manufacturer and Gucci Italy and between Gucci Italy and Gucci America are both ex-works indicating that title and risk of loss passed from the manufacturer to Gucci Italy, then immediately thereafter from Gucci Italy to Gucci America. In addition, you indicate that Gucci Italy maintains no stock of merchandise and that the shoes are shipped directly from the manufacturer to Gucci America. These are some indications that there may not be a valid sale between the manufacturer and Gucci Italy. See HRL 545105, supra. However, the documents submitted otherwise indicate that the parties transact business as buyer/seller by the issuance of purchase orders, invoices, payment, etc. As indicated above in Dorf, the relationship is to be ascertained by an overall view of the entire situation, with the result in each case governed by the facts and circumstances of the case itself. Here, there is insufficient information to determine whether in general, the roles of the parties and circumstances of the transaction indicate that Gucci Italy and the manufacturers are functioning as buyer and seller.
Pursuant to 19 U.S.C. 1484(a)(1), the importer of record shall, using reasonable care, make and complete entry by filing with Customs, among other things, the declared value of the merchandise. Assuming the importer of record is able to establish by adequate evidence that a bona fide sale has occurred between the manufacturer and Gucci Italy, for the reasons stated below, we conclude that transaction value should be based upon such sale.
In Nissho Iwai American Corp. v. United States, 786 F. Supp. 1002 (CIT 1992) rev'd 982 F.2d 505 (Fed. Cir. 1992) the U.S. 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 a sale for exportation to the United States. The court reaffirmed the principle of E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that a manufacturer's price, rather than the middleman's price, is valid so long as the transaction between the manufacturer and the middleman constitutes a viable transaction value. In reaffirming the McAfee standard, the court stated that in a three-tiered distribution system:
The manufacturer's price constitutes a viable transaction value when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm's length, in the absence of any non-market influences that effect the legitimacy of the sales price. That determination can only be made on a case-by-case basis.
Id. at 509. See also, Synergy Sport International, Ltd. v. United States Slip Op. 93-5 (Ct. Int'l Trade, decided January 12, 1993). In both Nissho Iwai and Synergy, the middleman was the importer of record.
HRL 545144, January 19, 1994, involved a three-tiered distribution arrangement, in which the middleman was not the importer. We reiterated our position that consistent with the above decisions, there is a presumption that transaction value is based on the price paid by the importer:
[i]n keeping with the courts' respective holdings and our own precedent, we will continue to presume that an importer's declared transaction value is based on the price the importer paid. In further keeping with the courts' holdings, we note that in those situations where an importer requests appraisement based on the price paid by the middleman to the foreign manufacturer (and the importer is not the middleman), the importer may do so. However, it will be the importer's responsibility to show that such price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must present sufficient evidence that the sale was an "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(b).
Customs determined that the evidence presented did not establish that the imported goods were clearly destined for the United States when the middleman purchased, or contracted to purchase, them. The decision also notes that the file contains no evidence on the relationship between the seller and the middleman.
HRL 545271, March 4, 1994, also involved a three-tiered distribution arrangement in which the middleman was not the importer. The evidence that the merchandise was destined for the U.S. when sold to the middleman consisted of purchase contracts between the importer and the middleman indicating that the goods were designed and manufactured according to the importer's specifications. The merchandise was also tagged with the importer's label and sent directly from the manufacturer to the importer. The purchase contracts indicated that the manufacturer has access to the quota/visa required to ensure entry of the merchandise into the U.S. In addition, purchase orders between the middlemen and the manufacturers showed that the manufacturers are to provide the importer with specifications and pre-production samples of the garments and that the goods will be shipped by the manufacturers directly to the importer. Based on this evidence, we ruled that transaction value should be based on the sale between the manufacturer and the middleman.
In the present case, since Gucci America is the importer of record, the presumption is that transaction value is based on the price that Gucci America pays to Gucci Italy (assuming the sale was an arm's length sale). In order to appraise the goods based on the lower price Gucci Italy pays the manufacturer, the importer must present sufficient evidence that the sale was an arm's length sale and that it was a sale for exportation to the United States. In this case, you have advised that the foreign manufacturers are not related to Gucci Italy and that the sales from the foreign manufacturers to Gucci Italy constitute independent, arm's length transactions. Absent evidence to the contrary, we find that the transaction between the manufacturer and Gucci Italy was at arm's length.
Moreover, you have presented evidence demonstrating that the merchandise is clearly destined for the United States. The documents show that the imported shoes are the result of an order from Gucci America to Gucci Italy who in turn places an order for the shoes with the manufacturer. The shoes are manufactured specifically for Gucci America, according to Gucci Italy's designs. The shoes are made specially for the U.S. market using U.S. shoe sizes. The manufacturer prepares a form to assist in the U.S. tariff classification, further evidence that the goods are for exportation to the United States. Finally, the shoes ordered by Gucci America are shipped directly from a consolidator in Italy to Gucci America. Based on the evidence presented, we find that the shoes are clearly destined for the United States when Gucci Italy orders them from the manufacturer.
HOLDING:
In the circumstances described above, assuming there is a bona fide sale between the manufacturer and Gucci Italy, transaction value may be based on the price Gucci Italy pays the manufacturer plus the value of any assists furnished to the manufacturer and other relevant additions.
Sincerely,
John Durant, Director
Commercial Rulings Division