DRA-4-RR:CR:DR H064876 JER
Mr. Fletcher Benton
Drawback Center, Port of Houston
U.S. Customs and Border Protection
2350 North Sam Houston Parkway East
Houston, TX 77032
RE: Request for internal advice; Certificate of Delivery; 19 U.S.C. §1313(j)(1);
19 C.F.R. §191.34(a)(1)
Dear Mr. Benton:
This is in response to a request for internal advice, dated May 27, 2009, made by your office pursuant to 19 C.F.R. § 177.11(b)(2). In particular, this request pertains to the eligibility for exemption from the requirements for a Certificate of Delivery pursuant to 19 C.F.R. §191.34(a)(1).
FACTS:
On August 22, 2007, the Houston Drawback Center received drawback claim ARV-00710082 for unused direct identification drawback from National Pen Tennessee, LLC. National Pen Tennessee, LLC (“Tennessee”) is the exporter of record and a wholly-owned subsidiary of parent company, National Pen Company, LLC (“San Diego”), the importer of record. According to the submission dated May 26, 2009, “Tennessee handles all purchasing and logistics…issue[s] purchase orders to its foreign suppliers and instructs the suppliers to ship merchandise to the port…arranges and is responsible for the shipping on all transactions.” The submission further states that “San Diego generates and mails checks for payment of the international freight…[and] is listed as the importer of record.”
Customs Bond (No. 72061206), dated December 12, 2006, was signed by National Pen Company, LLC and National Pen, LLC, as “co-principals.” According to the submission dated April 11, 2007, both National Pen Company, LLC and National Pen Tennessee, LLC are limited liability companies organized under Delaware law. No charter or organizational documentation issued by the state of Delaware was provided. The May 2006 submission contains a website printout listing the Divisions of “National Pen” as follows: National Pen Company (San Diego, California), National Pen Company Tennessee Division (Shelbyville, Tennessee), National Pen Ltd. (Dundalk, Ireland); Perfect Pen And Stationery Co., Ltd. (Mississauga, Ontario, Canada); Pluma Nacional (Tijuana, Mexico) and National Ink, Inc. (Santee, California). However, the legal significance of the listing has not been demonstrated and is inconsistent with the statements that National Pen Company (San Diego) and National Pen, LLC (Tennessee) are separate Delaware limited liability companies.
The merchandise at issue was entered by National Pen Company, LLC, and according to the submission, this entry was made by National Pen Company, LLC “in name only.” The entry summary identified the sale as one between related parties. The entry invoice indicates that Pluma Nacional of Mexico sold the merchandise to National Pen Company, LLC, and that National Pen Company, LLC exported the merchandise from Mexico into the United States to the San Diego location.
ISSUE:
(1) Whether National Pen Company, LLC, and National Pen Company, LLC, constitute one legal entity for purposes of 19 C.F.R. §191.34(a)(1). (2) Whether a parent company, is required to issue a Certificate of Delivery to its wholly-owned subsidiary pursuant to Section 191.34(a)(1), in order to qualify for drawback under 19 U.S.C §1313(j)(1).
LAW AND ANALYSIS:
Section 1313(j)(1), Title 19, United States Code, generally provides for a refund of duty if a duty-paid article is exported in the same condition as when imported, or is destroyed under Customs supervision, within three years from the date of importation, and was not used in the United States before such exportation or destruction.
CBP Regulations, 19 C.F.R. §191.34(a)(1), provides as follows:
If the exported or destroyed merchandise claimed for drawback under 19 U.S.C §1313(j)(1) was not imported by the exporter or destroyer, a properly executed certificate of delivery must be prepared by the importer and each intermediate party. Each such transfer of the merchandise must be documented by its own certificate of delivery.
19 U.S.C §1313(j)(2)(C)(ii)(II) provides as follows:
(j) Unused merchandise drawback
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(2) Subject to paragraph (4), if there is, with respect to imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation, any other merchandise (whether imported or domestic), that-
* * *
(C) before such exportation or destruction –
* * *
(ii) is in possession of, including ownership while in bailment, in leased facilities, in transit to, or any other manner under the operational control of, the party claiming drawback under this paragraph, if that party –
* * *
(II) received from the person who imported and paid any duty due on the imported merchandise a certificate of delivery transferring to the party the imported merchandise, commercially interchangeable merchandise, or any combination of imported and commercially interchangeable merchandise (any such transferred merchandise regardless of its origin, will be treated as the imported merchandise and any retained merchandise will be treated as domestic merchandise) [.]
Generally, a Certificate of Delivery is required in order to identify the imported, duty-paid merchandise which is the basis for drawback, to prevent an overpayment of drawback and to trace the merchandise from the custody of the importer to the custody of the exporter. See Headquarters Ruling Letter (“HQ”), 223502, dated April 22, 1992, (discussed below).
Counsel asserts that a parent company is not required to issue a Certificate of Delivery to its wholly-owned subsidiary because, as Counsel argues, the two entities “operate as a single enterprise for purposes of filing a complete drawback claim pursuant to 19 C.F.R. 191.51.” In support of this position, Counsel cites HQ 223779, dated March 30, 1992, wherein CBP held that a separate drawback contract was not necessary where two companies had merged into one legal entity. Counsel also cites Customs Service Decisions (“C.S.D.”), 82-71; 16 Cust. B. & Dec. 808 (1981), which held that members of an incorporated cooperative were partners within the context of the “use” requirement under the substitution drawback law 19 U.S.C. 1313(b) and as a partnership, the cooperative could be a drawback claimant.
The facts and the legal issue involved in the instant case are distinguishable to those cited by Counsel. Specifically, cooperatives and companies formed as a result of mergers are legally distinct from the relationship held between a parent company and its subsidiary company. Specifically, a parent company and its subsidiary are entirely separate legal entities for purposes of taxation, regulation, liability, debts, etc. It is well settled that a parent company is not liable for the acts of its subsidiary. And, so long as a subsidiary acts independently and under the direction of its own board, a subsidiary’s conduct, negligence or wrong-doing, may not be imputed to the parent company. Furthermore, the facts in CSD 82-71 stated that the cooperative controlled the manufacturing operations of its members: raw material supplies, inventory control, packing operations and quality control and that the members shared equally in the distribution of profits and losses. Further, no evidence has been provided to demonstrate that any operational or legal control is exerted by National Pen Company, LLC, over any of the related entities. To the contrary, the entry shows that the foreign entity (Pluma Nacional) sold the merchandise to National Pen Company, LLC (San Diego). If only one entity existed a sale could not have occurred. Likewise, in HQ 223779, one company (Conagra) became the surviving legal entity after another company (Peavey) was merged into it. In the instant case, no merger has occurred. Hence, we find that the instant companies are separate legal entities and are therefore distinct from the cases cited by Counsel.
CBP has previously addressed matters involving parent companies and wholly-owned subsidiaries as well as other business related entities. As CBP held in HQ 223502, Certificates of Delivery are required when the importer of record is not also the ultimate consignee of duty-paid merchandise which is the basis of the same drawback claim. Similarly, in HQ 223804, CBP held that “because a parent corporation and a subsidiary are in law separate and distinct entities, a parent corporation could not make entry for its subsidiary.” See also, HQ 114166, in which CBP held that an employee of a company could not make entry for a related subsidiary company. HQ 114166 cited Section 484 of the Tariff Act of 1930, as amended, 19 U.S.C. §1484, which provides that only parties qualified as the “importer of record” may make entry. Furthermore, in HQ 116220, dated June 21, 2004, CBP, citing 19 C.F.R. §111.1; 68 FR 47455 (2003), noted that Section 111.1 prohibited an entity from undertaking “customs business” such as documentation and filing on behalf of a related business entity and therefore held that certain activities made on behalf of a wholly-owned subsidiary were not permitted.
Likewise, in HQ 223648, dated February 9, 1993, CBP held that a “cooperative marketing association” did not qualify for substitution same condition drawback under 19 U.S.C. §1313(j)(2) as the members of the cooperative could not be considered a single entity for drawback purposes. Finally, in Drawback: Informed Compliance Publication, 48 (December 2004), CBP stated that:
Customs does not consider a wholly-owned subsidiary to be a part of the parent corporation if the subsidiary is a separate corporation…a transfer between a parent corporation and its separately incorporated subsidiary would require the execution of a certificate of delivery.
Based on the aforementioned decisions, the regulations and statues cited therein, National Pen Company, LLC (“San Diego”) and National Pen Tennessee, LLC (“Tennessee”) cannot be considered a single legal entity for purposes of 19 C.F.R. §191.34(a)(1) and therefore cannot be treated as such for drawback purposes. In the instant case, the Customs Bond was signed by National Pen Company, LLC and National Pen, LLC, as “co-principals” rather than under a trade name or unincorporated divisions. See 19 C.F.R. §113.34. Moreover, Counsel’s statement that the entry was
made “in name only” is insufficient evidence (particularly, in light of the fact that the importer purchased the subject merchandise from the foreign entity/seller) to establish that the parent company and its subsidiary constitute one legal entity for purposes of 19 U.S.C. §1484(a)(2)(B) or Section 191.34(a)(1). Bar Bea Truck Leasing Co. v. U.S., 5 CIT 124, 126 (1983), (with regard to the sufficiency as evidence of a Counsel's unsupported assertions).
Finally, the importer of record, National Pen Company, LLC (San Diego) is the parent company of National Pen, LLC (Tennessee) the exporter of record. Because the exporter of record, National Pen, LLC (Tennessee), is not also the importer of record, the Certificate of Delivery requirement under Section 191.34(a)(1) is applicable. For purposes of drawback claims pursuant to 19 U.S.C §1313(j)(1), Section 191.34(a)(1), requires a Certificate of Delivery where exported or destroyed merchandise is imported by the importer of record and exported by another party. Accordingly, as the importer of record, National Pen San Diego is required to issue a Certificate of Delivery to the exporter of record as required by Section 191.34(a)(1).
HOLDING:
(1) No evidence has been provided to demonstrate that any operational or legal control is exerted by National Pen Company, LLC, over any of the related entities. (2) Therefore, in keeping with the decisions discussed above, the relevant statute and CBP Regulation, we find that the parent company (importer of record) must issue a Certificate of Delivery to its wholly-owned subsidiary (exporter), pursuant to 19 C.F.R. 191.34(a)(1), as the two are not a single legal entity.
You are directed to mail this decision to the drawback applicant no later than 60 days from the date of this letter. On that date the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other public methods of distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division