OT:RR:CTF:VS H023094 RSD
Port Director
U.S. Customs and Border Protection
237 West Service Road Champlain, NY 12919
RE: Internal Advice 08/002 concerning the valuation of merchandise
imported into the United States in related party transactions, sale for exportation
Dear Port Director:
This is in response to a memorandum dated February 1, 2008, from the Chief Metals & Machinery Branch, National Commodity Specialist Division, which forwarded your memo requesting internal advice, dated December 12, 2007, concerning the valuation of merchandise in related party transactions involving Bond Street, Ltd. The request for internal advice was triggered by a request for internal advice to your office from Bond Street’s counsel. We have been informed that Bond Street is now being represented by Mr. James Caffentzis, Esq. and we have been in contact with him regarding this matter. In a letter dated June 25, 2010, Mr. Caffentizis responded to our inquiries for information by forwarding a previous correspondence sent to the import specialist dated April 10, 2007.
FACTS:
The information presented to our office indicates that the applicable transactions concern two related parties Bond Street U.S. and Bond Street Canada. The owner and sole officer of both companies is Mr. Michael Schwartz. According to your memorandum, both companies do business at the same address in Montreal, Quebec Canada. Bond Street U.S. was organized as a New York Limited Corporation. The information presented also indicates that Bond Street companies have no actual presence in the United States. The companies do not have employees or a warehouse in the United States. Apparently, Bond Street U.S. has used the facilities of an accountant in
Plattsburgh, New York to serve as its place of contact in the United States.
Bond Street U.S. maintains separate bank accounts, one at a bank in Chicago, and a second one with the Bank of Montreal. The two companies maintain two separate financial statements. All general administrative functions for Bond Street U.S. are performed by Bond Street Canada for a fee calculated on the basis of its percentage of total sales for both companies.
The merchandise involved in the transaction under review was purchased by Bond Street Canada from unrelated sellers in Taiwan and China, and imported into Canada. There were no U.S. orders prior to importation of the merchandise into Canada, and there was no evidence that the merchandise was destined to the U.S. when it was imported into Canada. After the goods were imported into Canada, they were stored in a duty relief warehouse in Canada pending subsequent orders. When orders for the merchandise were received, the items were removed from the warehouse and shipped directly to a U.S. customer. The value of the merchandise that is reported to Customs and Border Protection (CBP) was based on the alleged transactions that occurred between Bond Street Canada and Bond Street U.S. Counsel alleges that the merchandise was purchased “f.o.b. Canadian warehouse” and that Bond Street U.S. paid all transportation costs, customs duties, fees and other related charges for entry into the United States, but no documents were submitted to support this contention.
The U.S. buyers submitted their purchase orders for the goods to Bond Street in Canada. At the time the goods were released from the Canadian warehouse, they were destined for a U.S. buyer. The purchase orders between the U.S. purchasers and Bond Street show prices for goods that were above the values declared to CBP for the merchandise. In support of its position, Bond Street submitted copies of an order from Bond Street U.S. to Bond Street Canada; a copy of the confirmation of the order from Bond Street Canada to Bond Street U.S.; and an invoice from Bond Street Canada to Bond Street U.S. Bond Street also presented a copy of a cancelled check and a bank statement from the Bank of Montreal as evidence of payment from Bond Street U.S. to Bond Street Canada.
ISSUE:
Whether the imported merchandise may be appraised based on the transactions between the related parties.
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 (19 U.S.C. §1401a; TAA). The preferred method of appraisement of imported merchandise for customs purposes is transaction value. Transaction value is the price actually paid or payable for the merchandise when sold for export to the United States, plus certain enumerated additions. 19 U.S.C. §1401a(b)(1). The term “price actually paid or payable” means the total payment (whether direct or indirect, and exclusive of any costs, charges, 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).
In order for transaction value to be used as a method of appraisement, there must be a bona fide sale between the buyer and seller. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit found that the term "sold" for purposes of 19 U.S.C. § 1401a(b)(1) means a transfer of title from one party to another for consideration, (citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). However, several factors may indicate whether a bona fide sale occurs between a potential buyer and seller of imported merchandise. In determining whether property or ownership has been transferred, CBP considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, CBP 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.
Several factors may indicate that a bona fide sale exists between the purported buyer and seller. In determining whether property or ownership has been transferred, CBP considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, CBP may examine whether the purported 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 HQ 545474, dated August 25, 1995, and HQ 545709, dated May 12, 1995.
In considering the transactions before us, we are unable to ascertain if there was in fact a bona fide sale between the related parties. We recognize that there appears to be a movement of funds between Bond Street U.S. and Bond Street Canada. We note however, that Bond Street did not present sales agreements or contracts between the related parties which set forth the terms of sale or detail the passage of title and risk of loss for the imported merchandise. Similarly, the sample set of documents that Bond Street presented including a purchase order, confirmation and invoice do not indicate the terms of sale, or when title to the merchandise passed. Thus, we have no way of determining if Bond Street U.S. ever held title to the imported merchandise.
Even if we are to assume that there was a bona fide sale between Bond Street Canada and Bond Street U.S., no evidence was presented to show that the transactions between these parties may serve as the basis of transaction value to appraise the merchandise in question. Transaction value is an acceptable basis of appraisement only if, inter alia, the buyer and seller are not related, or if related, an examination of the circumstances of the sale indicates that the relationship did not influence the price actually paid or payable, or the transaction value of the merchandise closely approximates certain “test values.” 19 U.S.C. §1401a(b)(2)(B); 19 CFR §152.103(l).
In this instance, it is not disputed that Bond Street U.S. and Bond Street Canada are related parties. After analyzing the material before us, we conclude that Bond Street and its counsel have failed to substantiate that any of the tests regarding the acceptability of using transaction value in sales between related parties have been satisfied. Counsel contends that the relationship between the parties did not influence the prices that Bond Street Canada charged Bond Street U.S. for the merchandise, and that the prices it charged were adequate to ensure the recovery of all its costs plus generate a profit. However, Counsel’s assertions are not supported by any evidence. Moreover, no proof has been presented to show that Bond Street U.S. acted independently from Bond Street Canada. It is our understanding that both companies are totally controlled by their sole owner and officer, Mr. Michael Schwartz, and it appears that they did not act as independent buyer and seller when they did business with each other.
We also cannot agree with counsel that the participation in the Canadian duty relief warehouse program provides assurance that the dealings between Bond Street Canada and Bond U.S. will be a reliable basis in determining the transaction value of the imported merchandise. Although Bond Street Canada may realize some profits in its transactions with Bond Street U.S., we cannot ascertain whether the prices Bond Street Canada charged Bond Street U.S. were sufficient to support appraisement of the merchandise based on transactions between these related parties. Without a full evaluation of Bond Street’s business records, we cannot determine if the prices that Bond Street Canada charged Bond Street U.S. for the merchandise were adequate to recover all its costs plus a profit equivalent to the firm’s overall profit. Furthermore, there is no authority to support Counsel’s contention that the prices charged by the third party sellers located in China and Taiwan in sales to Canada could be used for validating the transaction value based on sales to the U.S. between the related parties.
In considering how the imported merchandise should be appraised, the information that has been presented indicates that Bond Street’s entire operation is situated in Canada, with virtually no presence in the United States. It is our further understanding that U.S. purchasers submitted their purchase orders to
Bond Street in Canada with no distinction being made between Bond Street Canada and Bond Street U.S. Therefore, we believe that the sales between Bond Street and the ultimate consignees in the United States constitute sales for
exportation to the United States. Consequently, we conclude that the merchandise should be appraised under transaction value using the sales from Bond Street in Canada to the ultimate consignees in the United States.
HOLDING:
The transactions between the related parties Bond Street Canada and Bond Street U.S. cannot be used to appraise the imported merchandise. The merchandise should be appraised based on sales from Bond Street in Canada to the U.S. purchasers.
This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, Regulations and Rulings will make the decision available to CPB personnel, and
to the public on the CPB Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch