OT:RR:CTF:VS H057716 ARU
Area Director, JFK International Airport Area
Attention: Chief, Trade Operations Branch A
Building 77 JFK International Airport
Jamaica, NY 11430
RE: Application for Further Review, Protest 4701-08-100860; Seller Discount
Dear Area Director:
The purpose of this correspondence is to address the Application for Further Review ("AFR") of Protest Number: 4701-08-100860, dated November 20, 2008. The Importer of Record and Protesting Party is CRS International, Inc. ("protestant"). The protestant is represented by counsel.
This protest decision is being issued subsequent to the following: (1) A review of the submission dated November 20, 2008; (2) A review of the documents that accompanied the submission of November 20, 2008; and (3) A review of correspondence dated March 6, 2009.
FACTS:
The protestant is the exclusive distributor of Vanessa Bruno apparel in the United States. Solune S.A.S. ("seller") is the designer and seller of Vanessa Bruno apparel. Each season, the seller offers its line of apparel to interested buyers throughout Europe and the rest of the world. The protestant claims that sometime in 2003, it negotiated with the seller an unconditional percentage discount from the seller's European wholesale price list. To support this argument, the protestant attaches a letter from the seller, dated January 30, 2008, stating, "We have granted CRS International Inc. an [xx] percent discount on our standard prices. This discount is not subject to a minimum purchase, but an [] overall discount on the orders booked in the USA." See Response to Request for Information, dated March 6, 2009. In addition, protestant attached a copy of the Vanessa Bruno price list for Fall 2007 stating, "CRS to receive [xx]% discount on the prices listed here" and the invoices covering the imported merchandise, all of which identify an [xx]% rebate.
The merchandise at issue was entered at the discounted value. At the time of liquidation, CBP disallowed the discount and liquidated the entry for a duty increase based on the undiscounted value. The protestant challenges the liquidation at an appraised value that disregards the [xx]% discount afforded to the protestant by the foreign seller.
ISSUE:
Whether the discounted prices, agreed to prior to importation, provided unconditionally by the seller to the protestant, and reflected on commercial invoices, constitute the price actually paid or payable for the imported merchandise.
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"; 19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is 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)(4)(A) of the TAA defines the term "price actually paid or payable" as:
The total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation 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).
The Customs and Border Protection ("CBP") Regulations further provide that the price actually paid or payable "will be considered without regard to its method of derivation. It may be the result of discounts, or negotiations, or may be arrived at by the application of a formula ...." 19 CFR § 152.103(a)(1). Thus, where a seller discounts its price for certain merchandise to a buyer, and the discount is agreed to and effected prior to importation of the merchandise, the discounted price constitutes the "price actually paid or payable" for the merchandise. See Headquarters Ruling Letters ("HRL") 547019, dated March 31, 2000, and HRL 545659, dated October 25, 1995.
CBP has consistently enumerated three criteria in determining whether a discount or price adjustment should be considered part of the transaction value of imported merchandise. See HRL W563462, dated October 11, 2006. First, the discount or price adjustment must be agreed on prior to the importation of the merchandise. See Allied International v. United States, 16 CIT 545, 795 F. Supp. 449 (1992) (importer required to affirmatively show that there was a pre-importation agreement for the claimed discount).
The second criterion is that the importer must be able to furnish CBP with sufficient documentary evidence to support the existence of the discount and establish that it was agreed to before the time of entry. See HRL 547144, dated November 20, 1998 (appraised value may reflect discount when supplier's invoices indicated total price, 5% reduction and the discounted price); HRL 545659, dated October 25, 1995 (unconditional discount factored into the value declared at the time of entry and reflected on the invoice presented to Customs may be taken into account in determining transaction value); and HRL 546037, dated January 31, 1996 (discount disallowed when importer failed to submit evidence that it took advantage of 2% discount for payment within 45 days of invoice date).
The third criterion requires that the discount or price adjustment be unconditional, or if conditional, all the conditions must be met prior to importation. This criterion was discussed in HRL 545659, supra, in which Customs determined that a discount was unconditional when there were no specified purchasing obligations placed on the customer. In that case, Customs held that unconditional discounts, which were reflected on the invoices presented to Customs, could be factored into the declared value of the merchandise. Customs also concluded that, if a conditional discount is agreed to before entry at the time of order placement, and the discount is reflected on the entry documentation presented to Customs, the conditional discount may be used to determine transaction value.
As applied, we must initially consider whether the discounts at issue are agreed upon prior to the importation of the merchandise. While there is no written agreement between protestant and seller regarding the unconditional [xx]% discount, protestant claims that the agreement was negotiated sometime in 2003. In a letter dated January 30, 2008, notably after the date of importation of the merchandise at issue, seller confirmed that it granted protestant an [xx]% discount not subject to a minimum purchase. Most importantly, the discounted amount is reflected on the invoice from seller to protestant and on the entry documentation.
We must next consider whether the documentary evidence provided to CBP is sufficient to support the existence of the discounts and to establish that they were agreed upon before the time of entry. The import specialist found the documents provided to be insufficient. The facts in this case are similar to that of HRL 545659, supra, where Customs found that in the absence of a written agreement establishing an unconditional discount, entry documentation and invoices reflecting the discount were sufficient documentary evidence. Consequently, it is our opinion that such documentary evidence will support the existence of the discount and establish that the discount was agreed to before entry. Accordingly, the second criterion is satisfied in this case.
The third criterion requires that the discount or price adjustment be unconditional, or if conditional, all the conditions must be met prior to importation. In support of the assertion that the discounts in this case are unconditional, seller's letter of January 30, 2008 states, "This discount is not subject to a minimum purchase, but an [] overall discount on the orders booked in the USA." See Response to Request for Information, dated March 6, 2009. Accordingly, we agree that the discounts under consideration will be unconditional and that the third criterion is satisfied.
The import specialist relied on HRL 544646, dated December 23, 1991, to determine that "the importer is not allowed to deduct any percentage from the invoice price claiming that it's for the deductions of freight charges nor duty fees." Protest Number: 4701-08-100860, supra. Counsel for protestant claimed that the discount was intended "to enable [protestant] to be able to competitively re-sell Vanessa Bruno apparel in the US market." See Response to Request for Information, dated March 6, 2009. As noted above, the price actually paid or payable "will be considered without regard to its method of derivation. It may be the result of discounts, or negotiations, or may be arrived at by the application of a formula ...." 19 CFR § 152.103(a)(1). There is no direct relationship between the amount of the discount and the cost of international freight, rather the discount is a percentage deducted from the list price. Therefore, we find the import specialist's reliance on HRL 544646, supra, misplaced.
Based on the information submitted, we find that the three criteria used to determine whether a discount or price adjustment should be considered part of the transaction value of imported merchandise, have been satisfied in this case. Therefore, we find that the [xx]% discount met CBP's established criteria for price adjustments and may be used to determine the price actually paid or payable for the imported merchandise.
HOLDING:
The available evidence supports the conclusion that the discounted prices, which were agreed to prior to importation and applied unconditionally, constitute the price actually paid or payable for the imported merchandise.
You are to GRANT this protest. In accordance with the Protest/Petition Processing Handbook (CIS HB, December 2007), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP 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 & Special Programs Branch
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