RR:IT:VA 546192 KCC
Port Director
U.S. Customs Service
2nd and Chestnut Streets
Room 102
Philadelphia, PA 19106-2999
RE: IA 55/95; bona fide sale; J.L. Wood; sale for exportation;
transfer of title; risk of loss; HRL 545105; roles of the
parties and circumstances of the transaction indicate that
the parties are functioning as buyer and seller; HRL 544513
Dear Port Director:
This is in regards to your memorandum requesting internal
advice (IA 55/95), concerning the price actually paid or payable
for merchandise in connection with an audit of a liquor importer
and distributor, Delaware Importers, Inc.
FACTS:
You state that there are three parties involved in the sale
of Absolute Vodka: Delaware Importer, Inc., the U.S.
purchaser/importer of record/ultimate consignee; The House of
Seagram, the U.S. supplier; and V & S Vin & Sprit AB of Sweden,
the foreign seller. The shipping terms are CIF and you state
that title and risk of loss pass from the foreign seller at the
port of lading, Ahus, Sweden, to the U.S. supplier and then to
the U.S. purchaser. According to the U.S. supplier, pursuant to
the CIF shipping terms, insurance is arranged in Sweden
obligating the U.S. purchaser to make any claims that arise from
the merchandise's shipment.
You submitted Customs Form (CF) 7501, Entry Summary, showing
that the U.S. purchaser is the importer of record. Additionally,
you submitted two invoices from the foreign seller and the U.S.
suppler. The invoice dated September 23, 1994, from the foreign
seller to the U.S. supplier shows that the merchandise was
shipped directly to the U.S. purchaser. The shipping terms were
listed as "CIF (INCOTERMS -90)" with delivery from Ahus, Sweden.
The total invoice price for the imported merchandise is
$XXXXXXXXX with payment due within 60 days. Additionally, the
invoice notes that the shipping mark is the House of Seagram.
The second invoice also dated September 23, 1994, is from the
U.S. supplier to the U.S. purchaser. This invoice states that
the merchandise will be direct shipped to the U.S. purchaser for
the total amount of $XXXXXXXXX. Additionally, the invoice notes
that payment due is in 30 days and will be debited from the U.S.
purchasers bank account by the U.S. supplier's "reach program."
The U.S. purchaser states that to the best of its knowledge,
the U.S. supplier remits payment to the foreign seller only for
the amount listed on the foreign seller's invoice, i.e.,
$XXXXXXXXX. The U.S. purchaser claims that the price actually
paid or payable for the imported merchandise is based on the sale
between the foreign seller and the U.S. supplier. The U.S.
purchaser advises that in this industry, it is common practice
for the foreign supplier to ship the merchandise directly to the
U.S. supplier's customer, i.e., the U.S. purchaser. The U.S.
purchaser states that this represents nothing more than a
transfer from the U.S. supplier to the U.S. purchaser of the
obligation to make entry and pay the applicable duty and fees.
Thus, the U.S. supplier avoids the necessity to make entry and
then transfer the imported merchandise to the U.S. purchaser.
It is your position that there is no bona fide sale between
the foreign seller and the U.S. supplier. Therefore, you would
appraise the imported merchandise at the price paid by the U.S.
purchaser to the U.S. suppler pursuant to Headquarters Ruling
Letter (HRL) 545105 dated November 9, 1993.
ISSUE:
Whether the transaction between the foreign seller and the
U.S. supplier is a bona fide sales for purposes of determining
the price actually paid or payable for transaction value.
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into
the United States is transaction value pursuant to 402(b) of the
Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (TAA), codified at 19 U.S.C. 1401a. 402 (b)(1) of the TAA
provides, in pertinent part, that the transaction value of
imported merchandise is the "price actually paid or payable for
the merchandise when sold for exportation to the United States"
plus amounts for certain enumerated additions, including selling
commissions incurred by the buyer. 19 U.S.C. 1401a(b)(1).
In determining whether a bona fide sale takes place between
a potential buyer and seller of imported merchandise, no single
factor is determinative. Rather, 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. Dorf International, Inc. v. United States, 61
Cust. Ct. 604, A.R.D. 245 (1968). Customs recognized 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), to be defined as: the transfer of property
from one party to another for consideration.
However, 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 risk of loss
and acquired title to the imported merchandise. See, HRL 545105
dated November 9, 1993. 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.
In determining whether the relationship of the parties to
the transaction in question is that of a buyer/seller, where the
parties maintain an independence in their dealings, as opposed to
that of a principal-agent, where the former controls the actions
of the latter, Customs will consider whether the potential buyer:
a. provides (or could provide) instructions to the seller;
b. was free to sell the items at any price he or she
desired;
c. selected (or could select) his or her own customers
without consulting the seller; and
d. could order the imported merchandise and have it
delivered for his or her own inventory.
In this case, we are examining the transaction between the
foreign seller and the U.S. supplier. As stated on the foreign
seller's invoice the shipping terms are "CIF (INCOTERMS -90)."
You state that title and risk of loss pass from the foreign
seller at the port of lading to the U.S. supplier and then to the
U.S. purchaser. Pursuant to the International Chamber of
Commerce, Incoterms, as cited on the invoice at issue, CIF is
defined as "cost, insurance and freight (...named port of
destination). See, International Chamber of Commerce, Incoterms,
at 50 (1990). CIF means that the seller must pay the costs,
insurance and freight necessary to bring the merchandise to the
named port of destination, but the risk of loss or damage to the
merchandise, as well as any additional costs due to events
occurring after the time the merchandise has been delivered on
board the vessel, is transferred from the seller to the buyer
when the merchandise passes the ship's rail in the port of
shipment. Based on the shipping terms and the invoice, it would
appear that the title and risk of loss pass from the foreign
seller to the U.S. supplier once the merchandise passes the ships
rail in Ahus, Sweden. However, the U.S. supplier states that,
pursuant to the CIF shipping terms, insurance is arranged in
Sweden obligating the U.S. purchaser to make any claims that
arise from the merchandise's shipment. Thus, the U.S. supplier
appears to be stating that the risk of loss immediately is
transferred from the foreign seller to the U.S. purchaser.
It appears from the circumstances at issue that title and
risk of loss pass from the foreign seller to the U.S. supplier,
then immediately thereafter from the U.S. supplier to the U.S.
purchaser. The U.S. supplier holds title only momentarily, if
ever. In HRL 544513 dated September 6, 1990, we stated that in a
situation where there is a simultaneous passage of title between
parties, while an intermediary might take title to merchandise
for a split second, this would not negate the fact that in
reality it was acting for the seller. As a result, we held that
the intermediary was operating as a selling agent for the seller,
and that amounts retained by the intermediary were selling
commissions. See also, HRL 544513 dated September 6, 1990 and
HRL 545105.
Therefore, based on an examination of the transfer of
property or ownership, i.e., who assumes risk of loss and
acquires title, it appears that the U.S. supplier acted as a
selling agent for the foreign seller. The U.S. supplier took
title to the merchandise at the port of shipment for an instant,
if at all, before title passed to the U.S. purchaser. Moreover,
as stated by the U.S. supplier, it appears that the U.S. supplier
never bore any risk of loss for the merchandise. In essence, the
U.S. supplier never held title nor did it bear the risk of loss.
The U.S. purchaser is the importer of record, had title to, and
bore the risk of loss for, the merchandise. Also, the goods were
shipped from Sweden directly to the U.S. purchaser and the U.S.
supplier never took possession of the imported merchandise.
Based on these considerations, it appears that the only sale was
between the U.S. purchaser and the foreign seller.
However, as noted earlier, there are several factors which
may indicate that a bona fide sale exists between a potential
buyer and seller. In addition to the transfer of property or
ownership analysis, Customs may examine whether the potential
buyer paid for the goods, and whether the roles of the parties
and circumstances of the transaction indicate that the parties
are functioning as buyer and seller. No information or
documentation, i.e., purchase orders, evidence of payment, etc.,
has been submitted concerning the roles of the parties and
circumstances of the transaction. As to whether the U.S.
supplier paid for the goods, the only information available is
the U.S. purchaser's statement that to the best of their
knowledge the U.S. supplier remits payment to the foreign seller
only in the amount of the foreign seller's invoice. Other
information, if available, should be considered together with the
transfer of property or ownership analysis.
Based on the information provided, the only sale which
occurred is the sale between the foreign seller and U.S.
purchaser and the imported merchandise would be appraised under
transaction value based on the price actually paid or payable by
the U.S. purchaser. The difference between the foreign seller's
price and that of the U.S. supplier represents a selling
commission retained by the U.S. supplier. However, since this
amount is already included in the price paid by the U.S.
purchaser, no addition to the price actually paid or payable is
warranted under 19 U.S.C. 1401a(b)(1)(B).
HOLDING:
Based on the documentation submitted, the imported
merchandise would be appraised under transaction value based on
the price actually paid or payable by the U.S. purchaser,
Delaware Importer, Inc.
The Office of Regulations and Rulings will take steps to
make this decision available to Customs personnel via the Customs
Rulings Module in ACS and the public via the Diskette
Subscription Service, Freedom of Information Act and other public
access channels 60 days from the date of this decision.
Sincerely,
Acting Director
International Trade Compliance
Division