VAL CO:R:C:V 545865 EK
District Director
Ogdensburg, NY
RE: Internal Advice Request, ; Bona Fide Sale;
Selling Commissions.
Dear Sir:
This is in response to the above-referenced internal advice ruling request by Barnes, Richardson & Colburn, on behalf of *****************************, dated December 29, 1994. We regret the delay in responding.
FACTS:
**********************************., (hereinafter referred to as WW), is a U.S. company that imports metalized plastic film from Germany. The film is manufactured in Germany by ***************************************************************** (hereinafter referred to as BK). The two companies are not related within the meaning of section 402(g), Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA).
The parties' original agreement is dated November 4, 1991, and a subsequent clarification of the agreement is dated November 5, 1993. WW solicits orders in the U.S. and subsequently places these orders with BK. The agreement provides that goods shipped by air are to be invoiced to WW on a CIF Champlain, NY, or other U.S. border point, and merchandise shipped by sea is to be invoiced at CIF prices delivered to the WW's U.S. customer. WW is to pay BK twice a month incorporating payments that are received from its customers during that period. By agreement, BK assumes the credit risk of non-payment by a final U.S. customer of WW. If one of WW's customers does not pay for the metalized film, then WW is not required to pay BK. Counsel indicates that this is an item that the parties have bargained for and agreed to as a
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commercial matter and is taken into account in the pricing formula between the parties. Counsel further states that this assumption of credit risk does not affect the passage of title or risk of loss for the goods.
BK assumes responsibility for all quality related matters and assumes full credit risk. In case WW is not paid for merchandise by the final U.S. purchasers, then BK issues a credit to WW. It is also BK's responsibility to fully insure the merchandise against all risks. If any purchaser of the metalized film institutes legal action against WW for a claim relating to the quality of the merchandise, then BK assumes the responsibility of defending the claim and any judgment that may be entered against WW.
WW has submitted representative purchase orders for merchandise sold to a U.S. company and corresponding purchase orders between WW and BK.
ISSUE:
Whether the transaction between BK and WW constitutes a sale for purposes of determining transaction value, or whether the sale for exportation is that between BK and the ultimate U.S. purchasers.
LEGAL ANALYSIS:
Transaction value is defined in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), as the "price actually paid or payable for the merchandise when sold for exportation to the United States . . .". There must be a bona fide sale of the imported merchandise for it to be appraised pursuant to transaction value. In J.L. Wood vs. U.S., 62 CCPA 25, 33, C.A.D 1139 (1979), the court defined the term "sale" as a "transfer of property from one party to another for consideration".
In deciding whether a sale exists between two parties, Customs examines whether there is a transfer of property or ownership. The primary factors considered are whether the buyer assumes the risk of loss, and whether title passes from the seller to the buyer. Counsel maintains that the terms of sale between WW and BK on ocean shipments are delivered to customer's premises, duty unpaid. Counsel indicates that title and risk of loss pass to WW at that point and there is no corresponding transfer to the U.S. customer at this time. Because of the size of the ocean shipments, counsel states that WW has agreed with its customers to retain ownership of the film while
it is in the customer's possession and that title passes from WW to the U.S. purchaser
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as the merchandise is withdrawn from inventory and used by the customer and at this time, the customer is invoiced for the quantity withdrawn and used.
Even though WW has submitted several invoices which support an argument that a sale takes place between BK and WW, the reality of the transaction is that WW serves as a selling agent for BK in the United States in soliciting sales and submitting these orders to BK. Simply stated, the evidence presented does not establish that a sale exists between BK and WW upon which to base a transaction value. BK assumes the credit risk of non-payment by the U.S. purchaser. If the final U.S. purchaser does not pay WW for the merchandise, then WW is not obligated to pay BK. In addition, BK assumes legal responsibility for the goods with regard to quality related matters, including product liability, packing patent infringement, as well as any judgment entered against WW. BK is also obligated to insure the goods "door to door". See, pg. 1 of November 5, 1993, agreement. Copies of all sales invoices to the ultimate U.S. purchaser must be sent to BK. BK retains an "interest" in the merchandise and control over its distribution and pricing subsequent to its alleged transfer to WW which conflicts with a determination that a sale takes place between BK and WW. Rather, WW serves as selling agent in soliciting the sales on behalf of BK.
Although counsel maintains that the November 5, 1993, agreement amended the initial agreement so as to conclude that a "sale" occurs between the parties, we disagree. Essentially, the second agreement raises WW's gross earnings for its services and expenses, and in exchange, WW pays for the duty and brokerage fees. The amendment between the parties does not significantly differ from the initial agreement.
It is our conclusion that WW is the selling agent of BK in sales from BK to the final U.S. purchasers.
HOLDING:
The sale for exportation to the United States is that between BK and the ultimate U.S. purchaser, and WW is the selling agent. The price actually paid or payable is represented by the price paid by the ultimate U.S. purchaser.
Sincerely,
John Durant, Director
Commercial Rulings Division